2012 International Investment Position

I won’t touch too much on the 2Q2013 balance of payments which came out with GDP to weeks ago, but I thought it might be better to concentrate on something more pertinent, and quite a bit easier to understand. For all the potential for the current account to turn negative (with all the attendant consequences), it’s still only one part of a bigger picture that is the international investment position of the country.

The 2012 IIP report came out at the same time as the BOP, and shows a negative position for Malaysia, for the first time since 2007 (RM millions):

Illicit Outflows: Here We Go Again

Another report to add on to the GFI report on global illicit fund flows a year or so back:

Malaysia lost RM893b in illicit outflows, research shows

KUALA LUMPUR, July 22 ― A colossal RM893 billion was siphoned out of Malaysia’s economy into tax havens abroad between 1970 and 2010, a London-based research has revealed, placing the country among the top 20 nation in the developing world labelled as “losers” of capital flight.

The sum is more than triple that of Malaysia’s national debt total, which amounted to RM257.2 billion in 2011, according to previous media reports.

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.

Illicit, Illegal, Not Quite Right

Ok, second speech, this time from Lim Guan Eng:

Pakatan blames BN for turning Malaysia into ‘king of black money’

KUALA LUMPUR, Dec 16 — Pakatan Rakyat (PR) leaders faulted the Barisan Nasional (BN) government today for bleeding the country’s coffers through corruption, saying its mismanagement of the economy had turned Malaysia into the “king of black money”.

Pointing to the Global Financial Integrity’s (GFI) findings that Malaysia had lost RM150 billion in 2009 through the siphoning of illicit money, the leaders warned of a bleak future for the country should the ruling pact be allowed to continue its reign.

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):

“Illicit” Capital Outflows: We’re No 5 In The World

Not something to be proud of – Global Financial Integrity released a report yesterday on capital outflows from developing countries, and Malaysia ranks in the top ten:

Illicit Financial Flows from Developing Countries: 2000-2009

Illicit outflows increased from $1.06 trillion in 2006 to approximately $1.26 trillion in 2008, with average annual illicit outflows from developing countries averaging $725 billion to $810 billion, per year, over the 2000-2008 time period measured…

….Top 10 countries with the highest measured cumulative illicit financial outflows between 2000 and 2008 were:

1. China: $2.18 trillion
2. Russia: $427 billion
3. Mexico: $416 billon
4. Saudi Arabia: $302 billion
5. Malaysia: $291 billion
6. United Arab Emirates: $276 billion
7. Kuwait: $242 billion
8. Venezuela: $157 billion
9. Qatar: $138 billion
10. Nigeria: $130 billion

2009 International Investment Position

The Department of Statistics last week issued Malaysia’s IIP report for 2009, which shows the level of Malaysian ownership of foreign assets matched against foreign ownership of Malaysian-domiciled assets. If you want a simpler business-type analogy, the balance of payments is our external cash flow report while the IIP is our external balance sheet report.

I’ve noted before that Malaysia has become a net creditor nation in 2008 – we own more foreign assets than foreigners own our assets – and for the first time since independence. The 2009 data more than confirms this trend (RM millions):

We’re now RM120 billion to the good, compared with around negative RM140 billion in the early part of this decade, and worlds away from the more than RM700 billion in the red in 1986 (source: see note 2).

Now whether this is good or bad depends on your point of view. The rapid increase in foreign asset accumulation in the last 5-6 years has largely been driven by direct investment (and reinvestment of earnings) abroad by Malaysian companies (RM millions):

…compared with relative stability in foreign accumulation of Malaysian assets (RM millions):

…apart from portfolio capital which remains highly volatile (RM millions):

 

The problem here is that Malaysian companies are investing abroad corporate savings that might have been invested domestically – one reason why private investment growth has been so poor since the 1997-98 crisis, and why we have not been able to match the growth rates in GDP that we saw pre-1997. The outflow of funds (we’re talking about half a trillion Ringgit over the last ten years) has also played a role in dampening appreciation of the Ringgit.

The flip side of this is of course, that our income account in the balance of payments is going to improve over time as investments (hopefully) bear fruit – a source of foreign exchange which will be non-trade related, and thus reduce our external vulnerability.

One further side effect of this is that it reduces the incentive for massive accumulation of foreign exchange as an insurance policy against capital outflows, which can be expensive. Luckily, BNM has more or less ceased forex intervention (with some notable exceptions) since the float of the Ringgit in 2005, but there are still structural factors which will inhibit reducing our reserves over the short run – liquidity of foreign portfolio assets for starters, as well as the relatively higher proportion of foreign ownership of Malaysian equities and debt.

But this development does mean that one of the underpinnings of the Ringgit’s valuation is long term positive.

Technical Notes:

1. 2009 International Investment Position from the Department of Statistics
2. Lane, Philip R. & Milesi-Ferretti, Gian Maria, “The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004”, International Monetary Fund Working Paper 06/69, March 2006

Direct Investment, the Balance of Payments, and the International Investment Position

It’s no secret that capital has been leaving the country, even as the trade balance generates a continuous surplus. Breaking down the financial account of the balance of payments (BOP), here’s what Malaysia has experienced over the past ten years or so (1999-2008, RM Millions):



While FDI has been increasing, it doesn’t even begin to cover outward investment or the (negative) “other” investment. Portfolio investment has ebbed and flowed depending on the vagaries of the stock market, except for last year with a flight to safety from all emerging markets prompting a sell down of equities and other assets in favour of (paradoxically) USD assets. That spike has partially reversed in 2009.

The cumulative numbers are staggering: negative RM156.6 billion in outward direct investment, RM257.0 billion in other investment, and RM52.8 billion in portfolio investment, for a total outflow as at end of 2008 of RM 466.5 billion.

That’s right, nearly half a trillion Ringgit, or half of current M3.

The question is: is this outward flow occurring because foreigners are abandoning Malaysia as an investment destination, or is this Malaysian companies investing abroad? The former is downright bad for obvious reasons, while the latter is only somewhat good as it can be counterbalanced by subsequent inward income flows. Anecdotal evidence favours the latter, as there’s plenty of news of domestic corporations making big bets on other emerging markets – such as Maybank in Indonesia, and Maxis in India.

However, there is an inherent flaw in using BOP data to figure out where investment is actually going, because it is a flow measurement, not a stock measurement. With BOP data, we’re completely ignoring the possibility of reinvestment of profits and earnings. This doesn’t turn up in financial flows, and it’s difficult to judge private sector investment attitudes towards Malaysia based on BOP data alone.

It is more than possible that the outward flow of investment is due not only to Malaysian firms investing overseas, but also to foreign-owned firms redirecting investment overseas from retained profits generated locally. That in itself is not great news, but it’s certainly more palatable than foreign firms pulling up stakes and leaving. What we need is to get a view of foreign and domestic holdings of investment stock, not just flows as in the BOP, to get a better idea of what’s going on.

Luckily, we do actually have such a report – the International Investment Position. This is a relatively new set of statistical information (as such things go), and data availability is still very patchy for many countries. Malaysia’s for instance, only goes back to 2001 and was first published in 2005. Prior to the IIP, figuring out a country’s investment stock position (more commonly known as the net foreign asset position) was a matter of guesstimation and to be honest it still is, even with the IIP – you’re depending on accurate reporting to compile the statistics and there are many offshore money centers, some with dubious legal enforcement.

Be that as it may, the IIP makes for interesting reading. I’ve posted on Malaysia’s net foreign asset position, and the IIP (with some discrepancies) confirms the notion that Malaysia is now a net creditor nation (RM Millions):



Since we’re at the moment interested in the direct investment position, here’s both the asset and liabilities side (RM millions):

External Direct Investment Assets


External Direct Investment Liabilities


So we are primarily looking at Malaysians investing abroad, with a very small pullback in foreign inward investment in 2008, which is understandable given economic conditions over the past two years. The numbers don’t quite reconcile with the BOP data, mainly due to slightly different categorization as well as the element of reinvested earnings involved.

And of course, the net portfolio position is still sharply negative (RM millions):



But on the whole, we’re in a better than decent position here (assuming the positive IIP holds). Even though investment and capital are leaving the country, this is counterbalanced by an increase in future potential earnings from abroad, as well as less pressure to keep reserves high. This also puts upward pressure on the exchange rate.

Technical Notes
1. BOP data from BNM's Monthly Statistical Bulletin
2. The International Investment Position Reports available from DOS

Economic Data on Malaysia: Where You Can Go

[Update 09 August 2010: This post has been deprecated. I’m maintaining a permanent page for everybody’s reference with updated links here]

I’ve noticed that I’ve gotten quite a few hits through Google looking for data on the Malaysian economy. As a reference point, I’m going to compile in this post the major online-only references that I know of for the basic time series data on Malaysia. If there’s anything readers are looking for that they can’t find, let me know in the comments, and I’ll do my best to oblige. I'd also appreciate it if any broken or wrong hyperlinks are reported.

The one exception to this summary will be historical stock market data, as Bursa Malaysia thinks it can make money off this. In any case, you can get daily KL Composite Index data (from about 1993) from Yahoo! Finance.

I’m listing this by category, rather than by location, as that would probably be more useful. The main sources are:

1. Bank Negara Malaysia (BNM)
2. The Department of Statistics (DOS)
3. The Economic Planning Unit (EPU)

...although I'm also including some international sources. Most reports are either bilingual (English and Bahasa Malaysia) or English only.

One comment before going forward with the list of references: you can get fairly extended time series through Bank Negara’s online version of the Monthly Statistical Bulletin beyond what’s ostensibly published. From about 2004, BNM published the MSB in both Acrobat Reader and MS Excel formats. In the Excel version, older data points are in hidden columns and rows. Just highlight a whole sheet, right click on a column or row header, and click unhide. In most cases, monthly and quarterly data go back to at least 1998-2000, unless there’s been a change in the price series. For 1996-1997 data, it helps to download the older pdf versions of the MSB circa 1997-1998. Enjoy!

Money and Banking
Bank Negara’s Monthly Statistical Bulletin (MSB) is available online from the April 1998 issue, with Sections 1 and 2 covering balance sheet items, while Section 4 covers interest rates. Series covered include banking system asset and liabilities, loan direction, loan sectors and purpose, loan disbursements, repayments and approvals, non-performing loans, with breakdowns for commercial (deposit taking) banks, merchant/investment banks, and the now defunct finance company sectors. On the monetary side, series on M1, M2 and M3 plus their components are available. Interest rate series are available for interbank, government securities as well as deposit and lending rates.

BNM also offers more up-to-date interbank rates for both conventional and Islamic markets.

Gross Domestic Product (real and nominal)
The Economic Planning Unit (EPU) of the Prime Minister’s Department has a summary of GDP tables for annual series (1987 for constant prices, 1947 for nominal prices) and quarterly series (from 2000). Reports are released two months after each quarter end, and are available through DOS (numbers) and BNM (statements). MSB (Section 5) also carries the annual and quarterly series, but not as extensively as EPU.

You can also get both through IMF International Financial Statistics (annual from 1970, quarterly from 1980), plus the volume index which I tend to use as it means you don’t have to deal with the different price bases. IFS is subscription only, but you can get a 5-day free trial which allows full access to the database (discounts available for middle-income countries; free for developing countries). I’d suggest if you’re doing a one-off project like a dissertation or thesis, to register for the trial and download everything.

Annual and quarterly data is also available through the World Bank WDI and IMF World Economic Outlook database, which also have the advantage of carrying PPP-adjusted measures.

Apart from the above, for international comparison purposes, you can also try the Penn World Tables.

Industrial Production
As with CPI, initial reports are carried on the DOS website, while time series can be found in the MSB (Section 5). EPU carries longer time series.

Prices (PPI and CPI)
First reports for CPI are available from DOS, while BNM’s MSB (Section 5) carries the time series. EPU also carries longer annual series. If you need longer monthly series, I suggest the International Labour Organisation, which provides a linked series across different base years (which saves you the trouble of doing it yourself).

PPI is far more troublesome. First DOS does not issue online reports, while the MSB only carries annual and monthly changes (not the index numbers themselves). In short, you have to reconstruct the index yourself if you use MSB as a source. EPU however does carry the annual index series (and monthly series from 2003), although you’ll have trouble with the fairly frequent change of base year.

Employment/Unemployment
You’re out of luck.

Employment/unemployment stats have the worst online coverage of any of the major economic statistical categories for Malaysia. DOS carries a monthly manufacturing survey that only covers wages and employment in that sector. MSB is more comprehensive, covering retrenchments, active job seekers and employment offerings by sector, but not an overall unemployment number. The EPU offers annual unemployment statistics, which aren’t terribly useful for current analysis.

Population
Population estimates are available from EPU. DOS also has a population clock on its homepage (MSIE only), with an explanation of the assumptions here.

Poverty
Poverty estimates are also available from EPU. Poverty Line Income data however is unfortunately not readily available, nor are income inequality measures. I have a compilation of Gini coefficient numbers lifted from this book, but since I can’t reconcile the numbers with those published in the various Economic Reports, I’d hesitate to place too much reliance in them.

Government Finance
BNM’s MSB, section 6, covers breakdowns of quarterly and annual of federal government revenue sources, expenditure, and composition and holders of government debt. EPU provides annual series going back to 1970, and more interestingly, annual consolidated accounts for the public sector from 1991.

Forex (Ringgit) spot rates
Believe it or not, the best source I’ve found is the Federal Reserve – they carry daily currency fixes against the USD for a whole bunch of currencies (report H.10*). In the case of MYR, this extends back to 1971. For shorter periods, I use the Pacific Exchange Rate Service, which carries four years of daily data and monthly averages for more extended periods. I find it especially useful since you can download cross-rates directly instead of having to calculate them yourself. BNM also carries daily currency fixes (from 1997), and 3-month and 6-month forward rates (from 1999).

*2000 to present, 1990-1999, pre-1990

Balance of Payments
Balance of Payments are reported quarterly. The latest data is available through DOS, and more extensive quarterly and annual series are available from MSB (Section 7). A longer annual series is available from EPU.

International Investment Position
The IIP is a relatively new metric designed by the IMF to track holdings of foreign assets: don’t expect extensive time series on this. The numbers from 2005 are available from DOS or IMF IFS database.

External trade
The actual report is issued by MATRADE, which DOS mirrors. Time series and detailed breakdowns are available with a lag through MSB (Section 7) or through EPU. If you need deeper breakdowns, I suggest (unless you want to wade through DOS’ veeerrryy thick annual trade reports) the United Nations Commodity Trade Database. It’s not comprehensive*, but reasonably complete enough for most purposes.

*Like almost all multilateral institutions, the UN doesn’t carry data on Taiwan – an example of politics getting in the way of common sense.

International Reserves
Reserves are reported biweekly and detailed reports are available from BNM. MSB Section 7 carries the time series.

Leading, Coincident and Lagging Indicators
DOS provides the latest data, with an archive available here. EPU also has much longer monthly series available. The Malaysian Institute of Economic Research’s quarterly Business Conditions Index and Consumer Sentiment Index and MIDA’s investment approval statistics are also available through the latter link.

Miscellanea
1. The annually published Economic Reports, prepared in conjunction with the tabling of the government budget, are available through the Ministry of Finance. Extensive statistical tables are available at the back of each edition.

2. BNM’s annual reports provide useful overviews of monetary and financial sector developments. Quarterly reports are also available.

3. Links to Malaysia’s 5 year plans (current and archived from 1995) are available through EPU's homepage. You'll find here, among others, income, poverty and inequality data.

4. The Financial Sector Masterplan outlines the program of financial sector reform 2000-2010.

5. The Capital Markets Masterplan does the same for debt and equity markets, and is available through the Securities Commission.

6. Information on Malaysia's countercyclical stimulus pacakages are available here.

7. Malaysia's National Summary Data Page is available through BNM.