In the papers today (excerpt):
Why Malaysia won’t go bankrupt
The Government is not in dire financial straits right now. By all measures its finances are good, but as in any situation involving finances, this is not to say it cannot be better.
I AM frequently asked why I said Malaysia could go bankrupt by 2019. I have had many queries asking for clarification and this has become one of my transformation blues…
…During our open day, we engaged the public on the lab recommendation on the subsidy rationalisation. I wanted to be as frank as possible and to make it clear what the consequences of inaction would be.
Perhaps I was too frank but what I said has been misrepresented on a number of occasions, and I have since been saddled and hobbled with an unnecessary problem…
…Against a backdrop of several caveats and conditions, I said that we would be bankrupt by 2019 IF we continued to increase our subsidies and borrowings the same way we did before and IF our economy grows at less than 3% annually.
I've worked in Shell for more than 20 years, a company that is famous for its scenario planning techniques.
In layman terms, scenario planning means describing a future that could either be “good, bad or ugly” and doing our best to achieve the “good scenario” and avoid the “bad and ugly”.
My statement was heavily qualified but little or no mention was made of the clear caveats that I had put forward.
I still stand by what I said and it is important that my statement is taken together with the conditions.
This statement has been taken out of context so many times that it really gave me the blues - I have been talking till I turned blue in my face explaining what I meant!
Let me say in the clearest terms that my intention then was to illustrate the consequences of inaction when faced with tough decisions. We cannot continue to subsidise the way we have.
Let me also state that the Government is not in dire financial straits right now. By all measures its finances are good, but as in any situation involving finances, this is not to say it cannot be better. Here's why.
Our debt as at end 2011 is 53.8% of gross domestic product (GDP the sum of goods and services produced in the country) and the budget deficit is better than the 5.4% target of GDP.
Compare this with Greece's debt which stands at 110% of GDP and a budget deficit of 13% and it is obvious that we are not anywhere close to a crisis.
Looking back (it was in May 2010 for those who want to know), I didn’t even bother to put any reference to the bankruptcy presentation slide in my notes – I dismissed it as hyperbole designed to shock, and not a serious attempt at outlining a realistic scenario we should consider. I certainly didn’t think it worth commenting on. But the press went to town with it.
Apart from justifying the bankruptcy remarks, the article quoted above now goes a little too far the other way. Perhaps the approach was made simplistic to make comparative fiscal sustainability understandable to non-economists – Econoenglish if you like. Considering the raging debate that has gone on in my FAQ on public debt, perhaps that’s the best approach.
But rules of thumb like debt to GDP and the fiscal deficit are only part of the picture, and ignores causality and the critical role of growth, the external balance, exchange rates, inflation, and monetary sovereignty.
Greece isn’t in trouble just because of having both high deficits and high debt relative to income – if you look at the historical numbers, both those indicators were heading into the risk zone previous to Greece joining the Eurozone nearly ten years ago.
And if you take the PIIGS as a whole, they’re in trouble without numbers as far out of whack as Greece’s are, and apart from Italy, none of them are in the so-called “crisis zone”. Even Greece didn’t look all that bad until the Great Recession hit.
It still boils down to this – Europe’s debt crisis is a function of having fiscal sovereignty without monetary sovereignty, and having a fixed exchange rate to boot. In essence, all public debt in Europe is external debt, because it’s denominated in Euros and not in domestic currency.
We’re not Greece in more ways than depicted here.
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His IF tak masuk akal cause we can't finance subsidies via borrowing anyway.
ReplyDeleteRefer my comment at JMD's, there's a link to 800 years of Sov Default Data for those who are interested on the subject
Its not about nation going bankrupt...its about subsidy rationalisation.Govt must hv consistency n must carry thru with stated policies.And subsidy must be reduced regardless of other factors...n esp if the policy hv already been adopted n announced.
ReplyDeleteThats the grouse...pls continue with the policy of subsidy rationalisation OR declare it null n void.Don't just flipflop cos of politics.
Idris Jala is a snake oil salesman. His claim of being familiar with Shell scenario analysis methodology. Should he applied all the driving and influencing parameters framing his Malaysia model; he will be most likely to conclude that his original ideation of a technically insolvent nation is pretty much spot on.
ReplyDeleteThe problem with Idris is that his intellectual capacity is shallow and easily affected by political and social considerations.
Read : he is a danger to the country ; being such a strong believer in his own publicity.
Idris Jala is a snake oil salesman. His claim of being familiar with Shell scenario analysis methodology. Should he applied all the driving and influencing parameters framing his Malaysia model; he will be most likely to conclude that his original ideation of a technically insolvent nation is pretty much spot on.
ReplyDeleteThe problem with Idris is that his intellectual capacity is shallow and easily affected by political and social considerations.
Read : he is a danger to the country ; being such a strong believer in his own publicity.
It is all so easy to call another names, and hide your hand. The fact is Idris Jala has been able to get both the public and private sectors focused on economic areas that can contribute disproportionately more to the economy, worked on making Malaysia more competitiveness structurally and execute initiatives to make thing them happen when all we used to do is talk, talk, talk. In doing this, you need to engage and communicate to try and make as many people to move in the same direction. And at times, you cannot run roughshod over people's wishes. Otherwise, you will be accused of not being People First. Constructive feedback is welcomed, rhetoric and name-calling are not.
ReplyDelete