2010 International Investment Position Report

Last week, DOS released 2010 estimates of Malaysia’s International Investment Position (IIP). For those unfamiliar with the term, if the balance of payments reports on the flow of funds, the IIP reports the stock. In corporate terms the BOP is your cash flow, while the IIP is your balance sheet…sort of.

What the IIP does is show the stock of capital, equity and other investments that Malaysians hold abroad, versus what foreigners own of Malaysian assets.

And unlike many developing countries, Malaysia’s position is that of a net creditor, though just barely at the moment (RM millions):

May 2011 CPI: Danger Signals

While the headline inflation number is only slightly above the level of the past two months at 3.3%, core inflation is signalling inflation pressure is building up (log annual and monthly changes; 2000=100):

GLC Open Day Website

You can access it here.

April 2011 Employment Report

April’s employment report shows continued net job creation in the Malaysian economy, even if the pace has slowed:

About 78,000 jobs were added during the month, though the unemployment rate remained unchanged as the labour force also grew, by about 0.6% over March:

While the level of employment is good news for citizens, I’d consider this as one more factor that could prompt BNM to continue raising interest rates. The unemployment level’s on the lower band of the historical average, suggesting the economy’s output gap is probably fully closed, if not negative. That raises the prospect of future demand-led inflation, which is what central banks are anxious  to avoid.

Technical Notes:

April 2011 Employment Report from the Department of Statistics (warning: pdf link)

Effective Exchange Rates: A New Measurement

One of the problems with measuring the “correct” value of exchange rates is that we’re talking about a relative price against a whole bunch of other relative prices. For example, though the most often quoted exchange rate (and the one with the highest turnover) the world over is against the USD, this is really a remnant from the Bretton Woods era and is more customary rather than economic – Malaysia’s direct trade with the US is somewhat less than 12%.

One way around this is to calculate “effective” exchange rates, which is a weighted average exchange rate typically using the value of trade as a weighting scheme. For the MYR, the current weights would be about 14% for the SGD and CNY, 13% for the JPY, 12% for the USD and about 11% for the EUR. Those five currencies alone denominate two-thirds of Malaysia’s trade, even if invoicing and settlement are primarily in USD.

However, this approach has a problem when you’re comparing exchange rates. There’s an underlying assumption that goods traded between each country are “independent” or unique, i.e. that they are produced fully in each of the trading countries. In practice of course, this is not true – many goods are inputs into other goods. For example, PCBs from Singapore, memory chips from Korea, processors from Malaysia and the Philippines, designs from the US, all go into laptops assembled in China. Something like two-thirds of Malaysia’s imports are intermediate goods, goods that are used as inputs into final products or into other intermediate goods.

Developing Bond Markets In ASEAN

Here’s my weekend reading - researchers at the IMF have released a duo of papers on the bond markets in ASEAN (abstract):

Developing ASEAN5 Bond Markets: What Still Needs to be Done?
Gray, Simon; Joshua Felman, Ana Carvajal, & Andreas Jobst

Summary: This paper examines a range of issues relating to bond markets in the ASEAN5 (Indonesia, Malaysia, Philippines, Singapore and Thailand) - physical infrastructure including trading, clearing and settlement; regulation, supervision and legal underpinnings; and derivatives markets - and finds that the frameworks compare well with other Emerging Markets, following a decade of reform. A number of areas where further enhancements could be made are highlighted. The paper also examines the interrelationship between central bank management of short-term interest rates and domestic currency liquidity, and development of the wider money and bond markets; and suggests some lessons from the recent crisis in developed country financial markets which may be important for the future development of the ASEAN5 markets.

ASEAN5 Bond Market Development: Where Does it Stand? Where is it Going?
Felman, Joshua; & Simon Gray, Mangal Goswami, Andreas Jobst, Mahmood Pradhan, Shanaka J. Peiris, & Dulani Seneviratne

Summary: Since the Asian crisis, ASEAN5 countries have expended considerable effort in trying to develop their domestic bond markets. Yet today these markets are not much larger, relative to GDP, than they were a decade before. How can we explain this? And does this mean that domestic markets have not, in fact, developed? The paper argues that bond market growth has been held back by a sharp fall in investment rates, which has left firms with little need for bond borrowing. Even so, markets have developed in other ways, to such an extent that substantial amounts of foreign portfolio investment have begun to flow into ASEAN5 bonds. These developments have important ramifications. With the investor base growing and infrastructure investment likely to rise, ASEAN5 bond markets could expand rapidly over the next decade, holding out the prospect that the region could finally achieve "twin engine" financial systems.

These are absolutely technical papers, though not in a mathematical or econometric sense. Rather they concentrate on the nitty-gritty of regulation and market microstructure, things that sometimes get lost in the parsimonious world of economic modelling. These two papers (which benefited from input at a Deputy Governors central bank regional seminar last year) form a fantastic resource for anybody researching capital market development in Asia.

Technical Notes:

Gray, Simon; Joshua Felman, Ana Carvajal, & Andreas Jobst, "Developing ASEAN5 Bond Markets: What Still Needs to be Done?", IMF Working Paper No. 11/135, June 2011

Felman, Joshua; & Simon Gray, Mangal Goswami, Andreas Jobst, Mahmood Pradhan, Shanaka J. Peiris, & Dulani Seneviratne, "ASEAN5 Bond Market Development: Where Does it Stand? Where is it Going?", IMF Working Paper No. 11/137, June 2011

Islamic Economics

I stumbled on this last month, but haven’t read it til now (excerpt from the introduction):

ISLAMIC ECONOMICS, What Went Wrong?

Is Islamic economics independent from economics? Does it make a paradigm of its own? Does it depend of a set of assumptions and analytical tools that is different from economics? Does it make a discipline of its own?

Many Islamic economists have an undoubted affirmative answer. They argue that it is independent and they take upon themselves the task of attempting to invent an “appropriate set” of tools to understand the behavior of Muslim consumer, firm, macro numbers. The fervor of this attitude was very apparent when the world of economics had two-part Apartheid: communism and capitalism…

A High Minimum Wage Is Not Necessarily A Good Thing

I think there’s an argument for having a minimum wage, but let’s not get ahead of ourselves:

NGOs, MTUC want minimum wage policy immediately

KUALA LUMPUR: Several non-governmental organisations (NGOs), including the Malaysian Trades Union Congress (MTUC), are demanding that a minimum wage policy of between RM1,200 and RM1,500 be enforced immediately.

Describing the Government's proposal to table a National Minimum Wage Consultative Act in the current session of the Dewan Rakyat as "a step backwards", Parti Sosialis Malaysia treasurer A. Selvarajan said a minimum wage policy should be immediately implemented instead.

Robert Reich: The Truth About The Economy

My wife pointed this out to me today:

Scribbling Sharpie Illustrates The Truth

You’re not going to be able to explain something as complex as an economy in 6 bullet points, but Prof Reich (he served as Labour Secretary under the Clinton Administration) does a fair job of showing the “Big Picture”.

I agree with almost every point, except the last one – there’s a lot more to the weakness of the US economy than a “divided middle class”. Strengthening the balance of power between the rich and the poor might solve some problems, but not all. There’s little here about the impact of globalisation for instance. The very obvious political slant of the video undermines some of the force of its arguments, but then Reich is a political economist after all.

I think there’s lessons here for Malaysia as the trends noted above aren’t confined to the US. Note that we don’t have any capital gains tax at all, except for the time limited RPGT, which makes the wealth generation discrepancy between labour and capital all the more acute.

GLC Open Day

I haven’t yet seen any press releases or advertising on this yet, but since the date is fast approaching, I thought I’d break the news.

There will be a GLC Open Day event from the 24th-26th of June 2011 (next Friday-Sunday) at the Kuala Lumpur Convention Centre. The event’s being organised by Khazanah Nasional, and most of the major suspects will be there as well – PNB, EPF, LTAT, LUTH, Maybank, Sime Darby, CIMB, TNB, just to name a few. There will be a lot of other happenings surrounding the Open Day, which is intended to inform the public about the role of GLCs in the economy of Malaysia.

For those interested, there will be a section devoted to scholarships and employment opportunities with GLICs and GLCs, so recent SPM leavers and graduates – here’s your chance to buttonhole the HR people face to face.

And yes, I’ll be there at least on day one. Where? That’s for me to know, and you to find out .

Fisheries And The Diesel Subsidy: Both Sides Are Missing The Point

Malaysia’s deep sea fishermen are on strike because the diesel subsidy has been reduced (excerpt, emphasis added):

Fishermen can’t afford to go to sea with steep hike in diesel price

More than 100 trawlers were docked at the Malaysia Fisheries Development Authority complex as fishermen said they could not afford to go to sea.

Kuantan Fishery Association chairman Chia Hee Juak said this was due to the sudden increase in diesel price to RM1.80 early this month.

“Even at the previous price of RM1.25, we were only earning a profit of RM2,000 per trip.

“With this steep increase, we can't even afford to fuel up,” he said.

April 2011 Industrial Production: Bad

Whichever way you look at it, April’s IPI numbers don’t give a whole lot of grounds for optimism. All the main components turned in negative growth (log annual and monthly changes; seasonally adjusted; 2000=100):

1Q 2011 Government Debt Update

Even as the government is moving towards balancing the budget, we’re still borrowing as much as ever. In fact, 1Q 2011 net Federal government borrowing hit a near record RM24.6 billion, just a hair under the RM24.7 billion net borrowing made in 2Q 2009 in the depths of the recession (RM billions):

 

1Q 2011 Fiscal Policy Update

If ever there was two remarkably different pictures portrayed by a single set of data, before and after seasonal adjustment, government revenue and expenditure in 1Q 2011 is as good an example as any.

Here’s the unadjusted, raw data, as officially released (RM millions):

April 2011 External Trade: Marking Down

Seems like someone made a mistake somewhere, as both February and March export data were revised downwards by about RM2 billion or so, although import data remained the same. Quite a lot as revisions go, but there was that one year when they missed an entire port’s worth of trade…

The upshot of it all is trade growth doesn’t look quite so hot as it did last month (log annual and monthly changes; seasonally adjusted):

April 2011 Monetary Conditions

I had a rather urgent assignment to finish last week, hence the relative paucity of posting – to be honest, last week was a bit mad and not to mention highly stressful. Shame I can’t really talk about much of it.

Anyways, April’s monetary conditions was always going to be overshadowed by the BNM’s OPR move in early May, so you can’t really read too much into the numbers, unless its to validate Monetary Policy Committee’s rationale for raising interest rates.

You might find some evidence from M2 growth (log annual and monthly changes; seasonally adjusted):