Tuesday, 20 September 2016

Economy: Enough of Selling Snake Oil

Economy: Enough of Selling Snake Oil

A Kadir Jasin

THERE is no need for me to mention any name, either to honour, dishonour or humour, the person involved in this particular issue. I am sure the person I have in mind is assisted by scores of officers to respond to people like me.

[REMINDER: No anonymous comments will be published.  Please use Google Account, OpenID or Name/URL. Pseudonym is accepted. Be respectful. No swearing. Thank you.]

Being alone, I cannot hope to win on word count. Also, unlike him I do not have big media to carry my message far and wide. But I shall persevere.

For the benefit of students of government, politics, economic and finance let me restate that it’s incorrect to compare our national debt with that of rich countries and say that ours is low.

This is a false comparison, unless of course the intention is to mislead the uninformed and feed more the dedak to the people.

Yes, Japanese government debt is very high – 229 per cent of its Gross Domestic Product (GDP). It’s the highest in the world. But Japan is a rich country and its economy is huge.

It is the third largest after the USA and China. Its nominal GDP is US$4.2 trillion. Ours is just over US$300 billion. The Japanese government debt amounts to US$10.6 trillion compared to ours at US$157.5 billion.

According to one pro-government blogger who uses a pseudonym, the govt debt was RM407.1 billion or 53.15% of the GDP in 2010. On March 17 last, in a parliamentary reply, the Ministry of Finance (MOF) disclosed that sovereign debt amounted to RM630.5 billion, which was at 54.5 per cent GDP. The government’s self-imposed limit is 55 per cent.Let’s remind ourselves that Mohd Najib is Finance Minister since 2008. (Watch here)

But Japan has more people to share the debt. It has nearly 200 million compered to 24 million that we have. Their GDP per capita, according to World Bank national data, was US$32,477 while ours is US$9,766 - three times more - in 2014.

And there isn’t an RM50-billion (US$12.5 billion) scandal in Japan. The worse scandal they ever had was the Lockheed Corporation kickback of US$1.8 million to Prime Minister Kakuei Tanaka back in the 1970’s.

Even for that he was stripped of his post, arrested, tried and found guilty by two lower courts. He died of a heart attack before the trial could be finalised. Compared to the 1MDB scandal, the Tanaka-Lockheed scandal was chicken feed – dedak.

Other developed countries are also highly indebted partly because lenders are willing to lend them money to them at lower interest rates than when they lend to the developing countries. In the case of Japan, most of its borrowings were domestic.

We are Malaysians and we are talking about our country. For good or evil, this is where most of us are born, live and die. We have to desire to migrate to Japan, Greece, Indonesia, the Philippines or Vietnam.

What High Income?

During 1986 recession, the government cut ministers’ salaries and froze the salaries of civil servants. All were required to sacrifice. You can’t ask the ordinary rakyat to sacrifice when politicians and civil servants are treated favourably.

Under the rule of Prime Ministyer (Datuk Seri I Mappadulung Daeng Mattimung Karaeng Sandrobone Sultan Abdul Jalil) Mohd Najib Abdul Razak, civil servants are given salary increases and bonuses when rest of the rakyat suffer due to rising cost of living.

Not only that government debt is high – equivalent to almost 55 per cent of the GDP - the people too are badly indebted. Our household debt is among highest in the world.

According to the 2014 statistics of the Bank for International Settlements, at 68.9 per cent of the GDP, Malaysians were the 16th most indebted people in the world and the 2nd among developing countries. Thailand at 15th led the household indebtedness among developing countries. Japan at 66 per cent was immediately below us.

To show growth, the government kept borrowing and encouraged the people to do the same. Mohd Najib and his advisers believe that a high growth rate would help burnish his image.

In reality, most rakyat are not concerned with high GDP and good rating. They don’t understand and they don’t care. They are concerned about the bread and butter issues of daily existence – the rising cost living, unemployment, their children not getting Mara study loans and Khazanah scholarships being awarded to children of politicians and rich people.

They are angry that everything has gone up in prices and in the midst of all that Mohd Najib went ahead with the implementation of the good and services tax (GST). Now everybody has to pay tax and has less money to spend. And when they don’t spend, Mohd Najib has less GST to collect. It’s a vicious cycle.

The challenge is to break this cycle. Taking the money from everybody and redistributing it to some through 1Malaysia Peoples Assistance (BR1M) does not appear to improve the sustainability of the economy.

The better way is to let the hardworking people to keep their income and spend it the way the want. The government must go back to supervising and, where necessary, controlling the supply of goods and services and their prices. There appears to be no control whatsoever in the last few years apart from occasional “raids” on hawkers which are mostly photo opportunity for the media.

If growth were the measure of a country’s success, then Angola and Equatorial Guinea, where growth used to be 30 to 40 per cent, would be the most successful countries in the world. But their people are among the poorest.

Growth does not reflect the true state of a country’s economy these days. There are other factors that have to be taken into account. Distribution of wealth is more important. But our wealth distribution has been on the decline for the past decade and inequality is widening.

If people are suffering and are unhappy, their quality of life is falling and they can’t afford to pay for their daily needs, what good is the government’s growth statistics?

The government claims we have escaped the middle-income trap and on the way to becoming a high-income country by 2020.

What nonsense this is.

Would the people who are selling the high-income snake oil dare deny that our per capita GDP has in fact declined – from US$9,766 in 2014 to US$9,291 last year and US$8,821 so far this year?


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