Wednesday, February 29, 2012

Illicit Money Flows: Where Are They?

You might remember Global Financial Integrity’s report on illicit money flows early last year, where they reported Malaysia as being the fifth highest victim of uncategorised capital outflows in the last decade.

At the time, I partially validated their findings at least in terms of the trade mispricing channel – wildly different reported values for exports and imports between different trade partners.

So since I had a bit of time, and lots of curiosity, I decided to take a bit of a deeper look into the question of Malaysian trade mispricing, using the United Nations Commodities Trade database (Comtrade), which carries data on both imports and exports as reported by nearly every trading nation (Taiwan not included).

Did I find capital outflows? Yes, I did, and on a scale that conforms to the GFI report.

Monday, February 27, 2012

Straight From The Horse’s Mouth

Mind that I’m not calling our central bank governor a horse, but Tan Sri Zeti was on BFM radio this morning, talking about household debt, this year’s economic outlook, and internationalisation of the Ringgit, among various topics:

As with any central bank communication, there was a lot of talk, but very little was actually said. Still there are clues as to what central bank policy is likely to be this year.

A lot will depend on the incoming data over the next few months, but the way I’m reading it is that there’s little chance of a rate cut at the next meeting unless the data is really bad. The focus will be domestic rather than external, so a couple of bad months of bad trade data won’t weigh on MPC deliberations too much unless there’s evidence that it’s being passed through into domestic demand. And I don’t see domestic demand really having been affected much by falling export growth these last few months.

Saturday, February 25, 2012

Putting A Price Tag On Moral Hazard

I’m conscious of the fact that there are many more readers of this blog than there used to be, and not many have a background in economics.

So to introduce this subject, here’s Wikipedia’s definition of moral hazard:

Moral hazard arises because an individual or institution does not take the full consequences and responsibilities of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to hold some responsibility for the consequences of those actions.

Thursday, February 23, 2012

January 2012 CPI: Oh, The Pain

Prices in January rose 0.3% compared to December 2011, even as the annual growth turned down (log annual and monthly changes; 2000=100):


Wednesday, February 22, 2012

December 2011 Employment Report

I’m fed up with the swings in employment – they’re just too big. So to show something that actually makes a bit more sense to me, I’ve seasonally adjusted the numbers as there’s finally enough monthly data for the X12 program to estimate the seasonal adjustment factors (‘000):


Friday, February 17, 2012

Government Spending, Deficits and Inflations: Confusion Reigns Part II

It’s not just Malaysians confused over government spending – big time fund managers are pretty foggy about the notion too (excerpt):

Gold Bulls Expand as Billionaire Paulson Says Buy: Commodities

Feb. 17 (Bloomberg) -- Gold traders are getting more bullish after billionaire hedge-fund manager John Paulson told investors it’s time to buy the metal as protection against inflation caused by government spending…

Government Spending, Deficits and Inflation: Confusion Reigns Part I

Today’s headline made me do a double take (excerpt):

Lower deficit brings boost to the economy

PUTRAJAYA: There is more good news for the economy. Revenues have increased while the fiscal deficit in 2011 eased to 5% of GDP, compared with 5.6% in 2010…

…Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah said the reduced deficit exceeded the Government's expectations of bringing it down to 5.4% as stated in Budget 2011.

Thursday, February 16, 2012

Change At The Top Of The World Bank

After 5 years in charge, Robert Zoellick is stepping down:

World Bank President Zoellick to Step Down June 30th

Zoellick Says World Bank Strong, Healthy and Well Positioned for New Challenges

WASHINGTON, February 15, 2012 – World Bank Group President Robert B. Zoellick announced today he would step down at the end of a five-year term in which a transformed Bank played an historic role during the global economic crisis, using record replenishments to provide more than $247 billion to help developing countries boost growth and overcome poverty.

After the disaster that was the Wolfowitz presidency, the worst that can be said about Zoellick’s time at the World Bank is that he was uncontroversial – at best, that he did a great job in reforming the institution and leading it through the Great Recession. As much as I’ve criticised the World Bank in the past – they’re still too enamoured of the big bang approach to development – things are changing and for the better. How much of that is due to Zoellick, and how much to changes in social and political attitudes, I don’t know. But an engaged World Bank, preferably one that will listen as much as it lectures, is a powerful instrument for development.

Here’s hoping they pick someone just as good to take over.

Why Is Greece Still In The Eurozone?

Why, oh why, is Greece still in the Eurozone? Two stories from the Beeb yesterday:

Eurozone crisis: Greece 'can't take any more cuts'

The Greek people have been pushed to the limit by austerity measures demanded by the EU and IMF, public order minister Christos Papoutsis says.

He said Greeks had made "superhuman" efforts, and "can't take any more"…

…Greece has been told to make deep cuts in return for a huge bailout package.

Athens is negotiating the terms of a 130bn euro ($170bn, £109bn) deal with the EU and IMF.

The Greek parliament approved an austerity package on the weekend, despite violent protests sweeping the country.

But eurozone ministers demanded a further 325m euros of cuts and insisted that all major Greek parties promise to enact the cuts regardless of who wins a general election scheduled for April.

4Q2011 National Accounts: Meeting Targets

As I thought it might, 4Q GDP pushed the full year 2011 GDP growth above 5%, hitting 5.2% in percentage terms and raising full year growth to 5.1%. Even as external conditions weakened, domestic demand held steady while investment zoomed (log annual and quarterly changes; quarterly changes are seasonally adjusted and annualised):


Tuesday, February 14, 2012

IMF’s Article IV Consultation With Malaysia: Points To Ponder

This is for policy wonks only! OK, it’s mainly for policy wonks, as there’s some interesting stuff for the layman to look at, if you have the patience to get through some of the jargon.

Starting with the summary page:

Malaysia: Staff Report for the 2011 Article IV Consultation


Near-term outlook. Economic activity is expected to moderate as the weaker external environment tempers exports, private investment and consumption growth. This is expected to lower inflation, but will make the 2012 budget deficit target difficult to achieve. General elections, expected by analysts in early 2012, may add to market volatility.

Monday, February 13, 2012

Affirmative Action in Education

This paper came out a month ago, and I’ve been sitting on it ever since, mainly from sheer lack of time to do it any justice. The subject’s a sensitive one in Malaysia, and even though the research was conducted in India, the situations are similar enough  to have quite a bit of bearing on our own management of education for the disadvantaged.

Just keep in mind that this is still a working paper and conclusions sometimes change rather drastically between the working paper stage and final publishing, as well as the fact that the paper is only looking at one institution in another country.

Friday, February 10, 2012

December 2011 Manufacturing: Something Really Strange…

Along with yesterday’s IPI report, DOS also released the December stats for the Manufacturing sector. And there’s something really strange about the numbers, specifically total wages (RM millions):


Thursday, February 9, 2012

December 2011 External Trade

Like industrial production (see my previous post), Malaysia’s trade numbers came in higher than expected (log annual and monthly changes; seasonally adjusted):


Both on a seasonally adjusted and non-seasonally adjusted basis, exports came in at around RM2 billion more than my forecast models predicted, though that’s still only about 0.4 standard deviations from the point forecast.

December 2011 Industrial Production And 2011 GDP Forecast Update

Today’s industrial production numbers were a pleasant surprise (log annual and monthly changes; seasonally adjusted; 2000=100):



Tuesday, February 7, 2012

December 2011 Monetary Conditions

Now that we know interest rates aren’t going to be cut, at least until March, what did the latest data tell BNM?

The money supply situation doesn’t look too gloomy (log annual and monthly changes; seasonally adjusted):


In fact, it looks positively healthy to me – maybe even too healthy. Both M1 and M2 are growing at near 14% on an annual log basis, and monthly growth is pretty positive as well. Breaking it down, there were decent increases in pretty much all major categories except in forex deposits, which isn’t too surprising given the turmoil in global markets during the holiday period.

Saturday, February 4, 2012

I’m Not Alone…The Toxicity Of Sugar [UPDATED]

**AHEM** (excerpt, emphasis added):

Experts suggest tax on sugar to combat health crisis

PARIS: Sugar should be identified alongside alcohol and tobacco as a health danger, and governments should tax sweetened drinks and food as part of their efforts to combat it.

So says a commentary, published on Thursday in the journal Nature as part of a widening debate among doctors and policy-makers about food fiscality and health.

Around 35 million people die each year of non-communicable diseases such as heart disease, cancer and diabetes and a wave of obesity is unfurling from rich countries to developing economies, say three US academics who authored the piece…

Friday, February 3, 2012

What The IMF Thinks About Malaysia In 2012

From the transcript of Monday’s press briefing on the World Economic Outlook Update for Asia, with Anoop Singh, Director of the IMF’s Asia and Pacific Department (excerpt):

Transcript of a Press Briefing on the Economic Outlook For Asian Countries

MS. UTSUNOMIYA: Okay. If I may, the last questions from online. What are some of the external risks you foresee for Malaysia for 2012 when the bulk of the government's transportation program projects will be rolled out, which should boost domestic demand?

And also, briefly, shouldn't Japan's rebuilding process, as well as transfer of some of the production basis out of Thailand, provide growth momentum, too?

MR. SINGH: So on Malaysia, I think we should also recall what Governor Zeti said just, I think, a few days ago -- they're clearly watching it closely. The governor was very clear in her assessment that monetary policy is still accommodative and it is widely accepted that growth will likely moderate a bit this year, and also that the current level of interest rates, in her view, are supportive of growth.

DeLong On Britain’s Fiscal Austerity Program

J Bradford DeLong thinks Britain is headed for depression (excerpt):

Neville Chamberlain was Right
J. Bradford DeLong

BERKELEY – Neville Chamberlain is remembered today as the British prime minister who, as an avatar of appeasement of Nazi Germany in the late 1930’s, helped to usher Europe into World War II. But, earlier in that fateful decade, relatively soon after the start of the Great Depression, the British economy was rapidly returning to its previous level of output, thanks to Chancellor of the Exchequer Neville Chamberlain’s reliance on fiscal stimulus to restore the price level to its pre-depression trajectory.

Compare that approach to the expansion-through-austerity policy being pursued nowadays by British Prime Minister David Cameron’s government (with Chancellor of the Exchequer George Osborne leading the cheering squad). The country’s real GDP has flat-lined, and the odds are high that British real GDP is headed down again.

Indeed, in less than a year, if current forecasts are correct, Britain’s Cameron-Osborne Depression will not merely be the worst depression in Britain since the Great Depression, but probably the worst depression in Britain…ever…

Wednesday, February 1, 2012

Fiscal Austerity: Sometimes, It Doesn’t Make Sense

Among multilateral economic institutions, the United Nations Conference on Trade and Development or UNCTAD, has always been a bit of a maverick. They’ve been at best lukewarm supporters of the Washington Consensus, and more frequently critics of the policies of the IMF and the World Bank. Possibly it’s because they’re actually based in New York and Geneva instead of the hothouse atmosphere of Washington DC. More probably, it’s because UNCTAD has always been less snobbish about taking into its ranks economists from developing countries, and thus more sympathetic to the challenges facing developing nations.

In any case, even in these times, they’ve taken a markedly different view of what to do about the European debt crisis (from the summary):

On the Brink: Fiscal Austerity Threatens a Global Recession [warning: pdf link]

Due to sluggish private demand, several advanced economies are hovering on the brink of a second bout of recession. Yet, in many of these countries political attention has turned to ways to cut fiscal deficits and reduce the domestic public debt. This has created a dangerous accumulation of risks for the world economy. The private sector can only successfully deleverage (i.e., reduce its debt) if someone else is willing to take on higher debt and support demand. If the private and the public sectors try to deleverage simultaneously, they must either find debtors elsewhere, or the economy will tailspin into a depression. As the developing world is both unable and unwilling to accept the role of debtor of last resort, dangerous pressures are building up. Unless there is a rapid policy turnaround, the world is in danger of repeating the mistakes of the 1930s. In today’s highly integrated global economy, the contractionary contagion will affect all countries. Emerging and developing economies need to prepare contingency plans.

Assessing BNM’s Crisis Response

Quite in keeping with yesterday’s announcement, there’s a new working paper from the IMF which looks at the monetary measures implemented by BNM during the 2008-2009 recession and assesses their effectiveness (abstract):

An Assessment of Malaysian Monetary Policy during the Global Financial Crisis of 2008-09
Alp, Harun and Selim Elekdag & Subir Lall

Summary: Malaysia was hit hard by the global financial crisis of 2008-09. Anticipating the downturn that would follow the episode of extreme financial turbulence, Bank Negara Malaysia (BNM) let the exchange rate depreciate as capital flowed out, and preemptively cut the policy rate by 150 basis points. Against this backdrop, this paper tries to quantify how much deeper the recession would have been without the BNM’s monetary policy response. Taking the most intense year of the crisis as our baseline (2008:Q4-2009:Q3), counterfactual simulations indicate that rather the actual outcome of a -2.9 percent contraction, growth would have been -3.4 percent if the BNM had not implemented countercyclical and discretionary interest rate cuts. Furthermore, had a fixed exchange rate regime been in place, simulations indicate that output would have contracted by -5.5 percent over the same four-quarter period. In other words, exchange rate flexibility and the interest rate cuts implemented by the BNM helped substantially soften the impact of the global financial crisis on the Malaysian economy. These counterfactual experiments are based on a structural model estimated using Malaysian data.