How to Prepare for The Next Crisis

The end of the first half of 2008 has come and yet the profound changes that Malaysia has experienced in the political and economic spheres are likely to continue in the second half of the year. We have already successfully weathered the first political tsunami on 8th March 2008.

Yet, based on the fresh developments that emerge each day, we may be facing a second tsunami or the after-shocks of the first tsunami in the near future before the year ends.

In fact, a foreign visitor, known as a phophet, said last year that Malaysia will experience major changes and birth pangs in 2008, which coincides with the jubilee year for the nation starting from August 2007.

The latest news on the web is that a police report was filed against the defacto Opposition leader. At present, we do not know the truth and the details of the report. Who can we trust for truthful information when there are doubts about the objectivity of the mainstream papers? Even several blogs can't be trusted because of their political leanings to one party or another.

However, we can learn from the history of the world: In every political crisis, the first thing and most powerful thing to do is to pray to God that He will interevene for the truth to prevail, the lies to be exposed, the injustice to be reversed and the innoncent to be protected from the evil that has taken the hearts of men.

We can unravel the enemy’s plans and bind their feet before they take further action by praying for God’s divine intervention.

So if we read or hear about a dramatic turn of events (such as the arrest of a prominent political leader), I think we should be prepared for a major crisis in the country. As an individual citizen, now is probably the time to gather our families and friends together in our homes and places of worship to pray as a nation that the next tsunami will be as peaceful and mature as the first one on 8 March 2008.

Be Careful What You Wish For

How should Malaysians, including the blogging community, respond to the current times of political change, shocking statutory declarations and social discontent with the current establishment?

The Bible has an answer in the book of Micah verse 6,chapter 8: 'He has showed you, O man what is good. And what does the Lord require of you? To act justly and to love mercy and to walk humbly with your God.'

This wise advice applies not only to Christians but to everyone who is tired of all the upheaval in the political arena. The post-8 March 2008 "reawakening" of political consciousness can turn chaotic if we are not careful about what we wish for.

The Good, The Ugly and The Bad Kinds of Inflation

We all know that the inflation rate that we experience with our wallets is far higher than the official inflation rate, which rose from 2% in 2007 to 3% in the first five months of 2008 and 3.8% in May alone.

Economists know that the national inflation rate is an average inflation rate based on the average spending pattern of an average citizen, who is actually just a statistical entity.

To come up with a more realistic and transparent CPI index, I propose that the government adopt the following measures:

1. An urban inflation rate be measured and disclosed versus a rural/small town inflation rate. We all know that a bowl of noodle costs much less in a small town like Sibu than in PJ/KL.

2. That the government updates the consumer survey on which the CPI is based and which may no longer be relevant because the last survey was done years ago.

3. That the government reveals how much of the average cost of food for the consumer is imported so that we know whether a stronger Ringgit will help to keep a cap on imported inflation.

4. That the government and Bank Negara educate the public about the linkage between cost-push inflation and demand-push inflation. BN always say the two types of inflation are different but the truth is that cost-push can lead to demand-pull when expectations are anchored that food and oil prices will continue to rise. The worst type of inflation is galloping inflation caused by the people's diminishing faith in the Ringgit.

5. That the real reason for rising inflation (not the national average CPI) is partly because there is excess money in the system created by a managed currency policy. 101 Economics tells you that too much money chasing after too few goods leads to higher prices. Hence, letting the Ringgit appreciate will curb money creation and dampen inflation.

In conclusion, good inflation (e.g. 3%-4%) occurs when prices rise due mainly to higher costs and there is little people can do anything about it except to buy less of the item and switch to a cheaper subsitute. Bad inflation (e.g. 4%-7%) occurs when prices rise due to higher consumer demand (e.g. people will buy more when their incomes are higher or they feel richer because of their stock/property investments). Ugly inflation (e.g. 7%->10%) occurs when prices rise due to a complex combination of higher costs, higher demand, wage pressures and worst of all, spiralling expectations that the domestic currency's purchasing power is declining by the day.

Across Asia, Indonesia, Thailand, Singapore, China and India have just entered the start of the ugly inflation phase and that is why their stock markets have been badly hit. Vietnam is already in the deep end of ugly inflation with prices rising by 25% in May.

To avoid bad inflation, governments have to take concrete and pre-emptive steps when the good inflation phase enters the bad inflation phase. Measures such as higher real interest rates, removal of subsidies and currency appreciation will send a strong signal to everyone that long-term price stability is more important than short-term economic growth.

Thus, the government's current strategy of price controls are inadequate short-term measures that encourages people to consume more of fixed priced goods, eventually resulting in more dire shortages in the future. What is the point of keeping prices low for a few years only to find that in five years' time, there is a looming shortage of that controlled item? Isn't the lesson of our petrol subsidies enough to teach consumers and policy makers about the folly of making short-term gains in exchange for long-term problems?

This is why the fuel price debate as highlighted by Malaysiakini is not over yet and needs further analysis by all members of the House.

(Postscript: Good news! A televised fuel debate between PR/BN on 15 July and the government is looking into producing an urban-rural inflation index. Perhaps, someone up there is listening to my suggestions.)

Don't Let PAS Frame The Religious Debate

Ideally, in any healthy democratic country, state and religion should be kept separate and this is enshrined in our constitution where we allow for the freedom of religious worship and belief. By implication, even atheists who believe in a materialistic world have a right to their beliefs as long as they do not harm others and themselves.

For the PAS youth leader to proclaim and presume that all Muslims subscribe to hudud laws is similar to the situation where, for instance, the Catholics in Malaysia were to make it a law that all Christians, including Prostestants like myself, wear the cross. While I am sure any power-wielding Catholic party is not so foolish as to do such a thing, I am using this as an example to show the tremendous problems of making religious values into laws for everyone. (Another example would be for an elected Christian sect leader to make it a law that all Christians can only worship on Saturdays).

Based on the latest controversy of PAS revealing its true colours, I think the best strategy is to counter a religious premise (hudud laws) with another religious premise (the freedom of every God-created person to love and worship God is a freedom that God grants out of a true, genuine love reminiscent of a father's unconditional love for his children).

Here is the deep deception which religious fanatics are trying to deceive all faithful Malaysian citizens: that the acceptance of secular law is an acceptance of godless laws, i.e a system of justice without god in the centre of judgement. This is false and against the spirit if not the letter of the constitution. We have to obey traffic laws and laws of commerce but if, you as a member of your religious fraternity, wish to conduct business according to your Syariah principles, well and good. Nobody is stopping you until and unless you impose your principles and laws on other people (who may be even more spiritual than you.)

In conclusion, leaders in the DAP and Keadilan have to intelligently engage PAS in this crucial debate. And all Malaysians have to deal with the root of this issue, which is not so much about secular laws versus religious laws.

Don’t let PAS frame the debate. The actual debate is essentially this: Should religious practices be imposed on people who do not share the same religious interpretations? If the answer is a resounding No!, then the next question is: Can the practice of religion (and the love of God) be the free will of its practitioners or is it best to enforce it through punishment and penalties? The answer to this question will resolve the issue of whether Malaysia or any of the five states in which PR rules is an Islamic state, a Christian state or a secular state.

Postcript: The only practical solution, as I see it for this country, is for a secular state and its basic laws to overide the draconian laws of any religious group. Even if 9 out 10 Muslims want to have hudud laws legislated in any state, the basic human rights of that minority single Muslim citizen should be protected by the law.

Malaysia's Biggest Long Term Economic Problem Comes Home To Roost

In macroeconomics under the reknown Solow growth model, the standard of living in a country is dependent on the productivity of her people. And productivity is dependent on how much wealth we can generate from three things: (1) people, (2) capital and (3) land.

Until today, no economist has ever come up with the true reason for people to become economically productive. However, many economists agree about what are the right conditions or environment in which people tend to perform their best. That environment is indisputably a market-driven economy where people who work hard and smart will be duly rewarded by the market place and not by the government.

In fact, the best thing the government can do (apart from helping the underpriveleged and leveling the playing field for true competition), is to enhance the effectiveness of the market economy and ensure there is trust among employers, employees and institutions. The free market system of meritocacy is a system that is set up by Adam Smith's invisible hand, not by the hand of any bureacrat or well-intentioned politician.

So Pakatan Rakyat's call to revamp the NEP, eradicate corruption at its roots and enhance transparency are all economic measures that Malaysia should have done ten years ago when China and India were not as globally powerful as today (and oil prices were still low).

The free-floating of the Ringgit to a stronger value will also help the manufacturing-dependent economy to stand on its own feet. But in the world of 2008 when oil prices are US$130-140 per barrel and rising, Malaysia's grace period of living in a sheltered castle are over.

Not only are manufacturers and transport companies going to face tougher times with higher market prices for fuel, but the services component of the economy will have to deal with higher prices and more prudent consumers.

At the end of the day, the government's micro-managing efforts to keep interest rates low and administer fixed prices and minimum wages for the lower income groups will delay the economy's ability to be more flexible and adjust to the tougher economic times ahead.

This is why I believe the long-run problems of economic productivity which Malaysia should have fixed when the Asian tigers of Chindia were just infants have now come to roost. The best remedy now is to have a complete change in the mindset of the people through a total reform of the NEP so that trust among the races is established and a race-based system of patronage is totally replaced by respect for hard work and true innovation.

Once this human capital issue is addressed, then other micro issues can be settled efficiently following on the same logic. However, if the government continues to debate whether English should be maintained in the teaching of Science and Maths, then it is obvious Malaysia does not even have the ability and the DNA to speak the same "language" as global players.

Thus, politicans from both sides of the House should cease their politicking and start discussing policies intelligently with a view of how to prosper this nation in the next ten to twenty years. Panic efforts to prevent a sharp economic slump through populist policies in the short-term may just bring the country back into the besieged fortress of protectionism.

In other words, short-term pain for long-term pain.

Welcome to the New Era of Global Inflation!

After the government made the sudden decision to raise petrol and diesel prices with effect from 5 June 2008, Malaysians will be quickly entering a new era of globalised inflation ranging from between 5-7% per annum in the next one year. Is this good or bad after years of enjoying the shelter of government subsidies (basically our own money)?

Well it depends. Most sensible bloggers and economists are correct in concuring that a fuel price hike is necessary and will enhance the efficiency of the economy. We have lived under the shelter of excessive subsidies for too long and need to adjust our consumption habits. However, the whole debate about the fuel price hike of 41% to RM2.70/litre plus the efforts to provide a rebate needs to be simplified into 4 issues:

(1) The quantum of the increase is a shock to consumers and companies' pockets and this 41% hike in the fuel bill has never ever happened before in Malaysia's history. Who knows whether we will enter into a steep economic slowdown while most of our trading partners in the US , Europe and Japan are now going through economic stagnation? Is the government and the central bank so confident that they can fine-tune the economy after this shock treatment?

(2) About RM7.5billion or 55% of the savings from the government's reduced subsidy is given back to the people who are apparently car and motorbike owning lower income groups. So in a way, this is a form of income distributive policy by taking the subsidy previously enjoyed by both rich and lower income groups to give to the lower income car owners. But distinguishing the income groups by the capacity of their car engines is a questionable policy. Can't a car owner with > 2000 cc buy cars of 2000 cc and below and be entitled to the rebate. Anyway, the RM625 is not sufficient to cushion the higher cost of fuel.

(3) Is the government really short of cash when out of the estimated RM53 billion of subsidy (without fuel hikes), its actual direct subsidy is less than RM20 billion.

(4) Instead of using the other 45% of RM13.7 billion to subsidise food, why not improve the public transport system and lower the import duties on cars so that our standard and quality of living will be on par with Thailand and Indonesia where the prices of cars are much lower? Alternatively, build a wider and more efficient rapid train system similar to Singapore's.

Aside from the issue of leakages through inefficient spending, these issues will probably be played up by the Opposition, which incidentally, has suddenly made a U turn on their position on petrol prices. (anyone remember them harping about using Petronas profits to reduce petrol prices before the elections?)

Let's see whether the political backlash will lead to some solid debates in parliament and eventually more efficient use of resources.

For those who hope that oil prices will come down below US$130 per barrel, I think that hope is skating on thin ice. World demand for oil is running at 87 million barrels a day while supply is only 85 million barrels a day. It's basically a supply and demand mismatch and the reserves are been drawn down to meet the excess demand from the emerging middleclass in China, India, etc. Welcome to a new era of economic realities and all eyes are now on what Bank Negara's governor will do with interest rates.

Who Needs A Powerful PM When The Rakyat Has The Bargaining Chip?

After 22 years of a government led by a powerful and domineering prime minister, Malaysia, under the present PM's fractious tenure, has at last entered the age of maturity with the citizens (Rakyat) having a greater say in the government of this country. (Notwithstanding the fact that Ahmad Abdullah Badawi needed a wake-up call to walk the talk of reform).

This change in the country’s political consciousness was not achieved overnight on 8 March 2008 but after two decades of disillusionment and outrage over the many injustices that have happened before our eyes and ears. It was only after giving up hope in humanity and turning to God with our heart-felt prayers that we have seen a real change in the political climate. *

But now that the Rakyat, through the ballot box, has elected more elected representatives in Parliament who will protect their rights and their interests, do we really need another powerful prime minister (whether from the incumbent Barisan Nasional or from Pakatan Rakyat) in office?

Once the political system and the judiciary are cleaned up and reformed to become more transparent and accountable institutions, what we need are fairly intelligent, wise and responsible leaders who are able to steer the country out of the past and into a new future based on mutual respect and shared goals.

The new status quo after the 12th landmark elections is not political instability (contrary to FT's John Burton's article "Malaysia's Era of Political Stability Ends"). Neither is it whether Najib, Tengku Razaleigh or Anwar will be the next PM. The new status quo which every Malaysian citizen has to realise is that Malaysia today no longer needs a strongman to lead her when there is a God that cares for her people. In fact, the emergence of another powerful leader who steamrolls his way through the wishes of the citizens will be an unmitigated disaster, leading to more resistence from the Rakyat and ultimately real political turmoil.

Without putting hope in powerful and supreme leaders, we only have our goodwill, faith and intelligence to guide us. May William Shakespeare's prayer be fulfilled each day: "God shall be my hope, my stay, my guide, and lantern to my feet."

* Read Karim Raslan's article "Ceritalah: Christians in Malaysia"