New Zealand: Running out of Momentum?

New Zealand's Treasury Department voiced its concern that the nation's economic recovery may struggle to retain momemtum as indicators point to weak domestic demand.

Reuters in its report today (7 December 2009) intimated that while a string of recent data, including higher house sales, retail sales, migration gains and building consents, had shown a lift in activity, the labour market and domestic demand remained weak.

"There are risks around the sustainability of the economic recovery, as shown by the sharp decline in imports that indicates further subdued consumption and investment," the department said in its monthly commentary on economic indicators.

Weak domestic demand led to further narrowing in the merchandise trade deficit in October, as a sharp fall in imports outweighed a decline in exports, bringing the annual trade deficit to the smallest since 2002.

In a separate statement, Finance Minister Bill English said the report confirmed there were risks surrounding the recovery.

"There are some positive signs as we emerge from the recession, but the road to recovery will be bumpy," English said.

He added that a fall in capital goods imports in the past year pointed to weak business investment activity in the coming year, in addition to weak employment and salary and wage growth.

Last week, English said the government's fiscal position would reflect the impact of the recession on the tax take for some time to come after a worse than expected deficit in October.

The Treasury report said it could be up to two years before company tax revenue started to reflect the improved economy. Updated government economic and fiscal forecasts will be released on Dec 15.

New Zealand posted growth of 0.1 per cent in the three months to June 30 after five consecutive quarters of contraction. The economy shrank 1.8 per cent in the year to June 30.

A Reuters poll has a preliminary median forecast for GDP to increase by 0.4 per cent during the September quarter, the second straight quarter of expansion.

The Reserve Bank of New Zealand is expected to keep interest rates at record lows this week and reaffirm its stance of keeping them there at least until July to help tame expectations of an early end to its easing cycle, the Reuters poll indicated.

Malaysia: Then and Now

The Business Times Singapore today has a very incisive news item. It tells of the moment of truth. Of the day of reckoning.

And so is came to past that Second Finance Minister Ahmad Husni Hanadzlah confirmed belatedly today(7 Dec 2009)that Malaysia had lost its competitive edge. Thus ends the denial. More need not be said.

Reason given: Because Malaysia had stagnated in the past decade and is now in urgent need of wide-ranging reforms to get out of the rut.

Unable to sustain continuous pump priming because of its ballooning budget deficit, the government would like the private sector to take on a more high profile role. I think this will take plenty of motivation. What will they get in return?Forget about blind patriotism!

Ahmad Husni surely paints a forlorn picture of the plight of the economy. He tells bluntly about the the underdeveloped services sector and that the private investment is half the level before the 1997-98 Asian crisis. He added sadly that the mainstay manufacturing sector is suffering from a lack of investment.

Not only has foreign direct investment (FDI) been on the downtrend, local businesses are eschewing the country for better prospects overseas. “We can't blame investors for not increasing their investments locally when the cost of operation in Malaysia is escalating disproportionately due to corruption, red tape, flip-flop policies, a small consumer market, mismatched labour force, etc. It is even harder to grow big when the private sector has to compete with GLCs (government-linked companies) that monopolise many essential services,” an observer posted online.

The Minister's sad revelation now calls for the return of 'genuine meritocracy' and an equal opportunity to participate in the economy — an obvious if indirect reference to the affirmative-action New Economic Policy (NEP), which critics say has been long abused, leading to economic inefficiencies and leakages which bleed the nation.

“The long-term success of the nation's economy must take precedence over the short-term interests of a few protected groups,” stated Ahmad Husni, who as former trade deputy minister, would be only too cognisant of globalisation and the fierce competition globally for investment and talent. Other emerging economies have pulled ahead while insular policies have held Malaysia back.[Basic reason: We are pandering to the narrow interests of a few UMNO warlords!]

At ground level, the response to Ahmad Husni's disclosure ran along the lines of “tell us something new”.[Is there any?]

Truth be told, the myriad problems plaguing the local economy is anything but new. Whether it be an over-reliance on low-skilled foreign labour, corruption, crime, graduate employability, brain drain, untenable subsidies, erosion of confidence in key institutions, religious extremism, a bloated civil service, etc, the numerous structural issues were apparent more than a decade ago.[But they denied it then.]

But owing to complacency and a lack of political will to address the issues, the problems were allowed to fester and grow so much so that today, as National Economic Advisory Council (NEAC) board member Zainal Aznam Yusof observed in an unusually frank assessment: “There are lots of things to be fixed. The roof is not leaking; we do not need a plumber. It is the foundation of the house. Probably the whole house needs to be rebuilt.” [How perceptive!]

The new economic model which is to guide Malaysia towards competitiveness and its aim of being a high- income economy by 2020 is to be unveiled this month. NEAC chairman and head of the economic planning unit Amirsham Aziz has indicated it's not easy to quickly establish a model because the problems are complex and the council wants to ensure the proposals submitted “can withstand the expected public scrutiny”.

“In my opinion, what the prime minister wants is an honest appraisal of where we are today, where do we go from here, and, most importantly, how do we get there.” [Some more wool to be pulled over our eyes or some more sloganeering?]

Because the issues are long-standing, it would be surprising if feedback on the problems and recommendations are all that different from what has been gleaned in the past.[Nothing new just the will to act is absent as it was in the past.]

That the political spirit and flesh are weak is evident in many a capitulation when push comes to shove — the latest being the extension of the much maligned AP (approved permits) system. [Cakap tak serupa bikin!]

Although the vehicle import permit scheme was to be scrapped next year, the government recently saw fit to extend it until 2015. How Malaysia's leaders reconcile this market-unfriendly policy with its stated intent of “the nation's economy taking precedence over the short-term interests of a few protected groups” boggles the mind. [My toes are laughing!]

In the era of ICT and the Internet, investors can easily access and share information. Unfortunately for Malaysia, its tendency to oversell and underdeliver, resulting in a sizeable disconnect between policy execution and rhetoric, has resulted in investors preferring to wait-and-see.[Waiting for Godot?]

That Malaysia stands at a crucial crossroads — or economic emergency, as some see it —is evident. For all the setbacks over the years, the country still has tremendous talents and the ability to help it achieve its stated goals. Acknowledging the challenges is one thing; but if measures to overcome them are not followed through, it is “a sheer waste of time and effort”, as opposition members have observed.

Let Malaysians not have to mourn the loss of yet another lost decade.

GST: Paying Less?

I am posting this letter as it is a response to Mr Lau Beng of Subang Jaya who touched on it last week. Let us look at the arguments and see whether the premises for discussions are correct.

It is printed in full from the online STAR.

"I REFER to “The poor will be badly hit by the GST” (The Star, Dec 3). What surprised me was that the writer was not sure whether the existing sales tax and service tax would be abolished when GST is introduced.

He mentioned that the Government was unlikely to forgo a 15% sales and service tax for a 5% GST. It has been mentioned many times – and published too in the media – that GST will replace sales tax and service tax.

In his Budget speech recently, the Prime Minister clearly mentioned that if the Government were to introduce GST, the rate would be lower than the current sales tax and service tax.

About a week ago the Second Finance Minister announced that the proposed rate for GST would be 4% and this was widely reported in major newspapers.

Currently, a wide range of goods is subject to 5% or 10% sales tax and 5% service tax on selected services. By simple calculation and logic, I would say that the poor should not be badly hit if they were to pay the 4% GST.

Many of us may not realise that we are indirectly paying 5%-10% sales tax on many goods that we buy; sales tax is already charged by the manufacturer.

The writer also mentioned that eating out at air-conditioned restaurants will see an increase of 5% in the food bill. At the moment there already is a 5% service tax charged by many restaurants, pubs and hotels.

There is also 5% service tax charged on several other services such as on telephone bills, lawyer’s fees, and by workshops and car parks. This 5%-10% sales tax and 5% service tax will be replaced by a lower GST rate of 4% which should benefit the rakyat at large.

The Government has been emphasising on “People First” and with that has given the assurance that the poor will not be unduly affected as essential goods and services will not be taxed under the GST regime.

To me the proposed GST rate at 4% will not burden the lower and middle income groups as the present sales tax and service tax will be abolished.

As a consumer we should have an open mind and trust the Government’s promise that GST will not burden the rakyat.

OPEN MINDED RAKYAT,
Shah Alam, Selangor. "

So, it is up to you to take this person's argument.

Whatever it is, let us not be made suckers!

Malaysia: Selling Down the GLCs

Sources of funds must be getting real limited for the current government of the day. First it was the credit card tax;then they went after the 5% Real Property Gains Text-both very unpopular moves.

Now this. I think this is a good thing.

Call it what you will.In political correctness, this is yet another step in its economic liberalisation efforts to sell down stakes in GLCs (government-linked companies) in a bid to raise revenue and encourage the private sector to drive the economy. It came on the heels of PM Najib's fresh meeting with American fund managers last month where they expressed a need for government investment corporations to divest some shares onto the open market.

The first sell-downs will likely involve property and construction companies held by government investment arm Khazanah Nasional. Funds raised from a sell down would also come in useful for the government which is grappling with a budget deficit even while it is committed to an expansionary fiscal policy to buffer against the global economic slowdown.

It is also seen as part of a series of economic reforms being undertaken by the Najib administration which included the lifting of ethnic quotas in selected sectors of the economy and capital markets earlier this year.

According to Finance Minister II Ahmad Husni Hanadzlah, private investment in Malaysia is now at less than half the pre-Asian financial crisis levels and the country is also suffering from a continuous outflow of capital. A full or partial divestment of government holdings in GLCs, which rank as among the largest public-listed companies, will likely be viewed positively by foreign investors who tend to be attracted to companies with large market capitalisations.

"A sell down in the GLCs will be good for liquidity," says Chris Eng, head of research at OSK.

Among the property companies that Khazanah has substantial stakes in include UEM Land, Putrajaya Holdings and STLR. Its collection of infrastructure and construction companies include Plus Expressways, UEM Group, UEM Builders and Opus International Group.

Critics of GLCs have also long argued that the government should not get involved in business and compete with the private sector but should instead concentrate on improving the economic climate and regulatory framework.[No one listened to this in the past.]

While it might make sense for the government to have a stake in companies in strategic sectors such as utilities, critics also point out that the government can still retain control without owning too high a percentage of the company.

In a recent speech, Husni said that other reform measures that can be expected include a strengthening of governing institutions, greater meritocracy and the end of direct negotiations for public projects except for security-related matters.

This I have to see since they have cried " Wolf" all the time!