Tuesday, March 16, 2010

Malaysia's Disastrous Capital Flight

Money leaves the country on an unprecedented scale

Churches are not the only thing to have been going up in flames in Malaysia. Take a look at the nation's foreign exchange reserves. They fell by close to 25 percent during 2009 according to investment bank UBS even though the country continued to run a huge surplus on the current account of its balance of payments.

Says UBS: "Question: which Asian country had the biggest FX losses in 2009?" The answer is Malaysia and by a very large margin; we estimate that official reserves fell by well more than one quarter on a valuation-adjusted basis". It describes the situation as "bizarre" and contrasts Malaysia with other countries with large current account surpluses – Thailand, China, Taiwan, Singapore, and Hong Kong – which have seen their reserves increase – as should be expected.

In short there has been an exodus of money from Malaysia on a scale which surpasses that which occurred during the Asian crisis. Nor is this just a mirage. The decline is also reflected in a sudden decline in base money supply – even while, thanks to Bank Negara, broader M2 has continued to grow modestly.

Who is responsible for this massive outflow? And where has it gone? The questions cannot be answered from the data and probably will not be by a government that knows its own state-controlled enterprises, headed by Petronas, may probably be responsible for part of it. The more certain reason however is the outflow of local private capital has been taking place on an unprecedented scale in response to political instability, massive official corruption and discrimination against non-Malays.

This capital bloodletting has as yet attracted little attention because Malaysia's foreign debt levels had declined dramatically since the Asian crisis and its reserves reached very healthy levels. So the outflow has not disturbed the financial markets, and Bank Negara has easily been able to keep interest rates low and the currency strong.

But unlike 1998, when the exodus of hot foreign money was a major contributor to the crisis, foreigners cannot be blamed. There is little speculative interest in the ringgit and the Malaysian bourse has rather fallen off the map as far as foreign institutional money is concerned. The BRICs, India, China, Russia, Brazil have taken the merging market lead once dominated by Southeast Asia.

Nor is there much evidence that the Middle East money which was supposed to be flowing into Muslim Malaysia, into holiday apartments or Johor's massive Iskandar development zone, has been much in evidence. Malaysia's one recent success, the development of its sukuk (Islamic bond) market may have caused more capital outflow than inflow. At any rate any overall net inflow of foreign capital whether into bonds, equities, factories or real estate has been dwarfed by the exodus of Malaysian money.

The latter is reflected in the weakness of private sector investment, which now trails public investment. Indeed it explains why the economy remains weak despite very healthy prices for most of Malaysia's commodity exports. The nation has been running a current account surplus of more than 10 percent of gross domestic product for the past decade and hit about 17 percent of GDP in the year just ended. Initially this surplus was needed to pay down debt accumulated during the mid-1990s Mahathir boom years and to rebuild foreign exchange reserves to healthy levels.

But subsequently it became simply a consequence of the weakness of private investment. Domestic investors were discouraged by the corrupt and warped system and foreigners moved to China and elsewhere. GDP growth has become ever reliant on government stimulus – again racially biased in its allocation -- financed by a persistently large budget deficit.

Meanwhile, publicly controlled capital has been rushing overseas. Petronas has been spending its billions in profits around the world as it attempts to become a major global player – at the expense of Malaysian citizenry in general and the oil and gas producing states in particular. Other government-controlled entities such as Malayan Banking Bhd have been bidding top dollar for foreign assets – such as Bank Internasional Indonesia.

Often with the exodus of money goes an exodus of talent as highly skilled persons disadvantaged by race or, as in the case of some Malays, disgusted by local corruption or primitive religious authorities, take themselves and their capital to Australia, Canada, India, China, etc.

The 2009 reserves loss may have had some specific cause which will not be repeated. But it has merely served to underline a dismal trend which has been in evidence for the best part of a decade. Malaysia has so far been saved from itself by the commodity price gains of the past five years – with even the late 2008 collapse now largely reversed. Oil and palm oil may be off their peaks but both are now double their prices of five years ago.

It is better not to imagine what will happen to Malaysia if prices collapse to 2004 levels and stay there. Better now to address the real reasons behind capital outflow and lack of private investment.




AsiaSentinel.com

Malaysia's Pussycats in the Year of the Tiger

The country's women need some empowering.

While around the world women's achievements in fields such as medicine, the arts, politics and film are celebrated, in Malaysia women are apparently a problem for men. The secretary-general of the Congress of Unions of Employees in the Public and Civil Service (Cuepacs), Ahmad Shah Mohd Zin, complained recently that too many women were in decision-making roles in the administrative and diplomatic service. Is Ahmad Shah afraid his own job might be taken over by the fairer sex?

Incredibly, the National Population and Family Development Board's message, reported in mainstream papers on March 11, was to make more babies and not put off marriage. Apparently, fertility rates had dropped from 3.4 in 1995 to 2.2 in 2007. Why is Malaysia obsessed with quantity and not quality? Or rather, why are men fascinated with size? Has it to do with what's in their pants? Are women only good for procreating? If those in senior civil-service positions perform well, then does it matter if they wear a skirt or wear trousers? If smaller families enjoy a good standard of living, are happier, can communicate better, have children with access to education, then are these of little or no consequence? If a woman delays marriage to grab opportunities that will eventually benefit her family, is that wrong? Maybe men have greater difficulty in appreciating women's capabilities and determination? Stories of the abuse of women -- sexual assaults, low pay and abandoned wives, feature in the news daily.

Women may have made their presence felt in the public sector, but contrary to what the Cuepacs secretary-general says, they do not dominate it. Statistics on Women, Family and Social Welfare 2009 show that there are only two female secretaries-general out of 24 ministries (8.3 percent), 12 female director-generals out of 70 departments (17.1 percent) and 11 female chief-executives out of 71 federal statutory bodies (15.5 percent).

In politics, males have been acting with increasing incompetence and immaturity. Men like Zulkifli Nordin and Ibrahim Ali, the leaders of Malay nationalist organizations, feel the need to inflame, incite and instigate with their racist rhetoric. One hopes a capable woman in a similar situation would have appealed to a person's innate good qualities, to inform, improve and inspire.

Where women are concerned, a dichotomy exists. They are told of the need to breed more, and yet more babies are abandoned. In reported cases of illicit sex, the women are whipped and humiliated in the national press, but the men's role is diminished and hardly mentioned. In high profile divorce cases, the women are portrayed as gold-diggers but the thousands of men who fail to pay maintenance to their ex-wives and children escape justice.

A Women's Aid Organization survey revealed in 1989 that 1.8 million or 39 percent of women over 15 were beaten by their husbands or boyfriends. Yet, only 909 women made a police report.

Modern Malaysia has more educated women who are also major or sole breadwinners. Although it ranks 77th in terms of gender gap in educational attainment, there exists a wide chasm in economic participation and political empowerment. Cultural upbringing digs deep into women's psyche and they have difficulty extricating themselves from outdated beliefs. They cling to the notion that husbands or boyfriends automatically qualify as the head of the household, to bully, dominate and control them.

Gender-equality is rarely practiced in Malaysia. When Manohara Odelia Pinot, the royal Indonesian teenage bride, sought refuge in Singapore, alleging abuse at the hands of her husband, her pleas for help were ignored. The Deputy Prime Minister, Muhyiddin Yassin, said that the Malaysian government "did not want to get involved." or "be dragged into this", and "to leave it as it is".

Any allegation of violence has to be investigated. No one is above the law. Nor should there be two sets of rules to cover royalty and the masses. The DPM's conflicting messages only encourage discrimination against women. His statements contradict the Government of Malaysia's stand on women's equality. (National Policy on Women 1989, UN Fourth World Conference on Women 1995, Action Plan for Women in Development 1997, formation of Women's Affairs Ministry 2001).

Both palace and politicians have devalued the role of women in the home and in politics. Violence against women is a crime and laws do exist to protect the rights of vulnerable women. But the laws that promote gender equality are few and the ones that guarantee protection against discrimination are weak.

Women's representation in parliament falls short of the 30 percent target in the 1995 Global Platform for Action, although women comprise half the total population and 40 percent of the workforce. When it comes to formulating laws pertaining to women (eg divorce, property, and tax), men neither want to accommodate women's views nor relinquish power. They possibly fear working with women. Instead of striving for the common good of women and society as a whole, men demand that decision-making be left to them.

Malaysian female politicians are allowed to debate a proposed bill in parliament, but are banned from voting for what they feel is the right decision, or what their conscience dictates. They are forced to toe the party line and act subservient. Incredibly, politicians like Bung Radin who insult them in parliament, are not censured.

Malaysia's current female politicians are disappointingly of the wrong calibre and range from timid to tainted. The Perak BN senior exco member, Hamidah Osman said that females could not become chief ministers because the minister, in the course of her duties, would have to meet religious officers and the Sultan. Hamidah's other claim to fame is her derogatory comparison of Indians and snakes that earned her the pseudonym ‘snake woman'. But women can just as easily betray their party. When Hee Yit Foong defected from the Pakatan Rakyat party, her action helped precipitate the downfall of the Perak government. She remains one of the most reviled women in Malaysia today and is also known as ‘frog' or ‘traitor'.

The list is not limited to peninsular Malaysia either. In Sarawak, Fatimah Abdullah, Assistant Minister in the Chief Minister's Department, failed to speak up for Penan girls who were raped and sexually exploited by the timber loggers. Nor is the list exclusive to politicians. Wives of senior politicians have also been known further their husbands' careers using creative methods.

While it is the responsibility of all politicians to advance the rights of women, the female representatives themselves need to be prickly to promote equality and justice for their sex. They need to demonstrate commitment and passion. And women in Malaysia, regardless of their race or religion, must show their determination to save this nation by making a stand. Sometimes it is not the other sex that we have to worry about but one's own. Women's contribution can have tremendous impact on progress and growth. But then, where are the women of note in Malaysia?

Might Malaysia's problems be solved by a woman's long-term vision? If a mother is the glue that holds a family together, why can't a woman be the person that cements communities together? A mother usually considers all her children, with their different foibles, equally deserving of her love. So why can't a woman lead Malaysia out of its depressing state?

It won't be an overnight transition as the resistance to the leadership of women would be fierce. But few people realize that the windscreen wiper was invented by a woman named Mary Anderson in 1905. It was probably her predilection for clear vision through glass, or her fastidiousness with clean windows, that made her invent them.







AsiaSentinel.com