Saturday, March 31, 2012

The Nexus Of Corruption And Higher Income Part I

[I’ve been working on this for over a week now, hope you enjoy it. Since this is a very long post, I’ve split it into three parts. This is Part I]

This post isn’t a defense of corruption. It’s not an April Fool’s joke either.

There’s no doubt that corruption weighs on an economy and on society through many different channels – through higher costs of doing business, to redistribution of income, through reducing the rewards of entrepreneurship, through social and economic inequality, through reducing the level of trust in society (indirectly contributing to all the problems listed above, and more).


There’s this meme I’ve been hearing and reading that if we can just handle corruption, Malaysia would easily become a high income nation.

Friday, March 30, 2012

Comparing Wages

There’s this great article on the Beeb yesterday:

Where are you on the global pay scale?

If there were no rich and poor, and everyone had an equal share of the world's total pay packet, how much would they earn?

The total value of world income is closing in on $70 trillion (£43.9tn) per year, and there are seven billion people in the world, so the average income is heading towards $10,000 (£6,273) per person per year. Easy.

But not everyone has a job and some of those seven billion are children. So another question you could ask is: "What is the world's average wage?"

That is more tricky to answer, but a group of economists at the United Nations' International Labour Organization (ILO) has had a go, though they have never gone public with this information. Until now.

What follows is a discussion that highlights the problems inherent to international comparisons of data, and how sparse some of the data actually is.

But the best and most fun part of this article is an online wage comparison tool which also includes data on Malaysian wages – hit this link to try it out!

No Datuk Seri, Restricting Competition Doesn’t Encourage Higher Productivity

I think I’m going to barf (excerpt):

Local veggies only by 2015

KOTA BARU: All farmers’ markets and National Agribusiness Terminal (Teman) outlets will no longer be allowed to sell imported vegetables by 2015.

This move is to give support to the local farmers, said Agriculture and Agro-based Industry Minister Datuk Seri Noh Omar.

“From 2015, all farmers’ markets and Teman outlets should source their vegetables locally.

“The move will indirectly encourage productivity in the country’s agricultural sector.

Thursday, March 29, 2012

The Fuzziness Of Economic Forecasts

Economists do forecasts – or at least, people think economists have some kind of competitive advantage in forecasting economic variables. But the fact of the matter is, most economists have only a passing familiarity with forecasting and all that goes into it.

The reason why economists, and especially financial market economists, do forecasts is pretty disappointingly prosaic, and the essence of which can be captured by this joke:

“Economists don't answer to questions others make because they know what the answer is. They answer because they are asked."

We’re asked to give forecasts, because it’s presumed we know what’s likely to happen – but that’s based on the presumption that an expert on economics is also an expert in forecasting. But those are two very different fields.

Nomura On Malaysia’s Minimum Wage

In the Star today (excerpt):

Implications of minimum wage

Dramatic rise in wages poses upside risk to inflation…

…The minimum wage is likely to be set anywhere between RM800 to RM1,000 per month. If we assume RM1,000, this would imply a significant 17% rise in the wages of unskilled workers, which according to Malaysia's Employers Federation 2010 Salary Survey, are earning an average RM852 a month.

To put this in perspective, it compares with the average increase of wages in the manufacturing sector of only 6% per year.

This poses an upside risk to inflation, in our view. First, overall labour productivity growth, which has been slowing in the last few years to an average of 2.7% (versus 5.3% pre-1998), is likely to substantially lag the potential increase in minimum wages, resulting in a rise in unit labour costs.

Monday, March 26, 2012

February 2012 Consumer Prices: Under Currents

Last week’s inflation report showed price increases slowing down (log annual and monthly changes; 2000=100):


Headline inflation fell to 2.1% in log terms, while the pain index was down sharply to 2.3% (it was 3.6% in January).

Friday, March 23, 2012

Social And Economic Equality: It’s Not Enough To Be Equal, You Have To Work At It

In the US, it’s always been the practice to measure the “equality” of society more along the lines of economic and social mobility rather than purely through income or wealth measures.

The idea is to have people begin at more or less the same starting point, then proceed in accordance to their own ability and willingness to work – pure meritocracy. Economic mobility means in this sense that whatever your personal circumstances, you can reach the top of the social and economic ladder.

Thursday, March 22, 2012

January 2012 Employment Report

The seasonal adjustment revolution marches on. This time, the employment numbers get the treatment, though sadly, they don’t go back through the whole available series, nor has DOS provided anything more than the unemployment rate itself. I suppose beggars can’t be choosers though.

In any case, employment increased marginally in January (remember, it’s CNY):


My own seasonal adjustment suggests that employment growth probably should have been a lot higher (about 177k more), but data for this January is so skewed this year, I have trouble believing in any of it.

The unemployment rate has dropped again, though the new seasonally adjusted DOS figures show a sharp drop:


Comparing the series, it seems as if DOS’ series is a lot more volatile. Be that as it may, all three series are turning down. Coupled with my reading of the remarks at yesterday’s analysts’ briefing with BNM yesterday, I think what we have here is an economy that’s heating up ever so slightly. I thought core inflation was on the high side last year, and it seemed as if it came from more than just the pass through of prices from the supply side. This year looks like more of the same, though we’ve got far more investment projects coming on stream, and growth is already back on its long term trend.

I’m not about to call BNM hawkish, but if there is any bias towards monetary policy this year, I suspect it will increasingly be towards raising interest rates.

Technical Notes:

January 2012 Employment Report from the Department of Statistics (warning: pdf link)

BNM Annual Report 2011

Yesterday saw the release of Bank Negara’s annual report for 2011. The big news of course is the lower official forecast for the year, with GDP growth for 2012 downgraded from 5.0%-6.0% to 4.0%-5.0%. Given all that’s happened the past few months, and the initial data that we’ve seen in January, it’s come as no surprise to anybody. External demand is expected to be weak (again, no surprise), while investment is expected to pick up some of the slack, particularly public investment.

All in all though, I do think we might see growth this year on the upper side of that forecast bracket.

Monday, March 19, 2012

Idris Jala Sings The Bankruptcy Blues

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…

DIY Fiscal Sustainability Analysis

I apologise for the lack of posts, but I’ve been very busy this last week and will be busier still this week. BNM will be releasing their 2011 annual report this Wednesday and very likely we’ll see a reassessment of the government’s 2012 growth forecast of 5%-6% – watch this space.

In the meantime, here’s something that’s been on my “must blog about” list for the past week – I’ve taken the liberty of reproducing the entry in full:

IMF Unveils Template for Computing Structural Fiscal Balances

The IMF has created a new online template to help countries form a clearer picture of their true budget position and, as a result, get a better idea of how much they can spend or save.

The innovation is now more relevant than ever as many advanced economies strive to bring debt down to sustainable levels. In the following interview, Abdelhak Senhadji (Assistant Director), Iva Petrova (Economist), and Marcos Poplawski-Ribeiro (Economist) of the IMF’s Fiscal Affairs Department talked about what the tool does and how it can help policymakers.

Monday, March 12, 2012

January 2012 Industrial Production: Some Congrats Are In Order

Not for the numbers, they aren’t that encouraging…in fact they look downright bad. But rather DOS is slowly but surely rolling out seasonally adjusted  numbers that account for the peculiarities of the Malaysian calendar. It started last year with the trade numbers, and this month we’ve got a seasonally adjusted IPI. Thumbs up guys.

If I have a complaint, the English notes on DOS’ seasonal adjustment procedure read like they came out of Google Translator. It’s not laugh out loud funny as some of the Ministry of Defense’s, but still…

Friday, March 9, 2012

Global Income Inequality: Great Graph On Income Shares

Bloomberg/Businessweek had a nice article on income inequality yesterday (excerpt):

Lessons for the U.S. on Inequality

…Yet despite the huge progress against poverty worldwide, inequality—the gap between rich and poor within countries—has been expanding. Recent analysis by economists Isabel Ortiz and Matthew Cummins at Unicef suggests about two-thirds of all countries have become more unequal over the past two decades.

Reserves, Deposits and Loans

Some days I feel like tearing my hair out. It seems like so many people are living in a past that just doesn’t exist anymore. It’s one thing for a layman not to grasp the intricacies of macro-economics – but its quite another for analysts and economists to make basic mistakes. And even worse if its a policy maker.

I fully understand how Hafiz Noor Shams feels.

BNM Watch: Don’t Expect Anything Today

The Governor’s remarks from yesterday (excerpt, emphasis added):

OPR at 3% very ‘accommodative,’ says Zeti

KUALA LUMPUR: The overnight policy rate (OPR) at 3% currently is accommodative but will keep tab of inflationary risks, Bank Negara said.

Speaking on the sidelines at the EU-Malaysia Chambers of Commerce and Industry's Quarterly Financial Panel Discussion, Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said: “The benchmark interest rate at 3% is very accommodative.

Thursday, March 8, 2012

January 2012 External Trade: In The Dumps

Yesterday’s external trade report showed Malaysia’s exports following the regional trend (log annual and monthly changes; seasonally adjusted):


Tuesday, March 6, 2012

China’s Demographic Shift

From Businessweek yesterday (excerpt):

Why China Is Suddenly Content with 7.5 Percent Growth

For years, there’s been one constant for people talking about the Chinese economy: GDP growth would exceed 8 percent. It didn’t much matter what happened in the rest of the world—the U.S. and other export markets might be thriving or might be struggling, but China would grow at least 8 percent, year in and year out. The country needed to create enough jobs for the millions of young people entering the workforce every year, and the Chinese leadership decided that anything below 8 percent would put job creation in jeopardy...

Idris Jala Addresses The ETP Income Targets

There’s a lot of criticisms aimed at the ETP’s (actually the NEM’s) income targets – I’ve been one of them, at least insofar as how it’s been discussed publicly is concerned. One of the bigger issues is the fact that the target’s really nominal income in USD, but everybody talks about the real (inflation-adjusted) growth in Ringgit.

So, setting the record straight (excerpt):

Minister Idris Jala invites you to write to help to build M'sia

…The first thing I would like to explain is the concept of income, which is key to the entire concept of transforming into a high-income country. At what level of income do we become developed and achieve high income? How do we do it? How do we measure this? And can we achieve it?

Monday, March 5, 2012

Minimum Wage: A Little Late, But Better Late Than Never

No details yet, but the National Wages Consultative Council has submitted their recommendation (excerpt):

Minimum wage soon

KUALA LUMPUR: The Government has decided on the national minimum wage and the details will be announced by the Prime Minister.

Deputy Prime Minister Tan Sri Muhyiddin Yassin, who disclosed this, said an agreement had been reached between various parties and the Human Resources Ministry…

Friday, March 2, 2012

January 2012 Monetary Conditions

With the next Monetary Policy Committee meeting due exactly one week from today, it’s nice timing to have January 2012 data on hand to give us an idea of what likely moves are in store for monetary policy.

The bottom-line: nowhere fast. I don’t see anything that would prompt BNM to either cut rates or raise them. If anything, I’m starting to think the bias will be towards a rate hike going into the end of the year.

But that’s getting ahead of myself.

Giving Credit Where Its Due

I had to snigger when I read this (excerpt):

IRB's 26% increase in collection "extraordinary," says PM

CYBERJAYA: The success of the Inland Revenue Board (IRB) in raising collection by 26.79% last year was an extraordinary achievement, Datuk Seri Najib Tun Razak said.

The Prime Minister said IRB's success in collecting RM109.674bil last year not only enabled the government to provide numerous services to the people, but also a stimulus to the private sector to increase their investments.

He said it would also give confidence to investors in the domestic market after evaluating the methods of managing the national economy, because in the current global era, the global market place factor was most crucial.