Credit Rating Agencies In The Spotlight

The IMF says that markets should reduce their reliance on credit ratings (excerpts, emphasis added):

Reducing Role of Credit Ratings Would Aid Markets
By John Kiff

New IMF analysis says that ratings have inadvertently contributed to financial instability—in financial markets during the recent global crisis and, more recently, with regard to sovereign debt.

The analysis, in the IMF’s Global Financial Stability Report, recommends that regulators reduce their reliance on credit ratings as much as possible and increase their oversight of the agencies that assign the ratings used in regulations...

...In the case of sovereign debt, the IMF said in the report released September 29, the problem does not lie entirely with the ratings themselves, but with overreliance on ratings by market participants, coupled with deleterious selloffs of securities when they are abruptly downgraded — called “cliff effects.”…

Part-Time Work Regulations Implemented

If you recall my post on Dr Fong Chan Onn’s thoughts on the minimum wage, one of the things that he recommends and foresees is greater part time work and a more flexible labour force.

Well, the changes to the Employment Act 1955 enacted in August will come into force tomorrow:

New rules on part-time work

PUTRAJAYA: Only those working between 30% and 70% of the eight-hour stretch daily will be considered part-timers under new rules from next month, said Human Resource Minister Datuk Dr S. Subramaniam…

…He said staff working below 30% of the eight-hour stretch would be categorised as casual workers while those putting in more than 70% were full-timers.

Beyond GDP Part II

Back in July, I highlighted an article that argued for a more holistic approach to measuring changes in human welfare that goes beyond simple income/output based measures such as GDP. Now along comes this new paper by Charles Jones and Peter Klenow of Stanford University that takes the idea a step further (abstract):

Beyond GDP? Welfare across Countries and Time

We propose a simple summary statistic for a nation's flow of welfare, measured as a consumption equivalent, and compute its level and growth rate for a broad set of countries. This welfare metric combines data on consumption, leisure, inequality, and mortality. Although it is highly correlated with per capita GDP, deviations are often economically significant: Western Europe looks considerably closer to U.S. living standards, emerging Asia has not caught up as much, and many African and Latin American countries are farther behind due to lower levels of life expectancy and higher levels of inequality. In recent decades, rising life expectancy boosts annual growth in welfare by more than a full percentage point throughout much of the world. The notable exception is sub-Saharan Africa, where life expectancy actually declines.

The Minimum Wage And Bargaining

Over the weekend, Dr Fong Chan Onn wrote a very long focus article in The Star with an interesting perspective on the minimum wage proposal, summing up most of the arguments for and against (emphasis added):

Should we set a minimum wage?
By Dr FONG CHAN ONN

The issue of minimum wage for labour has been hotly debated since the advent of the industrial revolution in England in the 1760s.

Employers, using economic theories, argued that wages for labour should be determined by market forces – that is, the wage level at the interaction point of the supply and demand curves for labour. Any attempt at setting a minimum wage higher than that determined by the (assumed) efficient market, they argued, would lead to a distortion in the economy, and in fact would reduce employment opportunities for workers.

This argument held sway in industrial Europe for over a century.

But by 1824, Australia (Victoria) and New Zealand recognised that the labour market was imperfect and that employers would always have greater power in terms of setting wages. They enacted legislations to establish arbitration boards to set basic wages for industries that were deemed too lowly paid...

...In Asia, countries such as China, Indonesia, Thailand and Singapore have established national minimum wages or national wage councils, and as recently as in June this year, Hong Kong passed a law to set the minimum wage for its workers (at HK$ 28 or RM11.17 per hour)...

...Employers’ groups, led by the Malaysian Employers Federation (MEF), vehemently oppose any such move. Recently, they successfully lobbied for a delay in the implementation of the long overdue Wage Regulation Order for private security guards...

...The employers’ assertions, of course, assume that the Malay­sian labour market is efficient, with employers and employees in all sectors having equal bargaining power. This is obviously not true...

Why Build An MRT For Kuala Lumpur?

After just enduring a two-and-a-half hour ordeal in what’s usually a 45 minute drive trying to get home tonight, through snarling traffic, heavy rain, and a closed SMART tunnel, I’m a convert.

How much is it? RM50 billion all in? Cheap for the price. When do they start?

Wither The Ringgit

The Ringgit has going form strength to strength, as this article asserts:

Malaysian ringgit expected to remain strong
Robust demand and credit growth may entice fresh foreign funds

KUALA LUMPUR: The ringgit, which temporarily broke to 3.08 level last week, is expected to remain strong.

“The market may hold up at this current level,” a dealer said, adding that robust domestic demand and credit growth were expected to entice fresh funds from foreign investors.

A forex dealer told Bernama that the ringgit might breach the 3.06 mark against the greenback in about two weeks, after hitting its strongest level since October 1997 at 3.0873.

The local unit rallied to new 13-year highs in four straight weeks amid speculation that rules would be further loosened to enable the local currency to be traded offshore…

…Yesterday, the local unit ended higher at 3.0900/0930 against the US dollar compared to Thursday’s closing of 3.0950/0980 after the local bourse managed to pare some of its earlier losses on bargain hunting activities.

Bloomberg reported that Barclays Capital Plc had raised its forecast for the local currency, predicting a 6.1% appreciation over the next 12 months as foreigners plow more funds into the nation’s assets.

FTSE Group, a global index provider, had also upgraded Malaysia to “advanced emerging market” status, a move that will attract as much as US$3bil of new inflows to the local stock market, Bloomberg quoted Barclays as saying.

July 2010 Economic Indicators

I wrote about the economic indicators that are published by the Department of Statistics last year, and haven’t touched the subject since. Part of the reason has been that the indicators are published with a bit of a lag, probably because the IPI is a major component.

Now seems a good time to cover them again, since from last week’s report, the indicators are flashing warning signals:

July 2010 Employment Report

After a busy weekend – open houses (if you’re not Malaysian, check this link for what this is all about), shopping and home improvement – I only had the chance to go over the weekend’s news feeds last night. There’s lots in the new about the ETP and some commentary over the minimum wage, which puts me behind in catching up…again. So there will be a slew of quick posts over today and tomorrow.

First up, last week’s employment and unemployment report from DOS. The unemployment rate has dropped to the low end of its year-long range, dipping to about 3.3%:

August 2010 CPI: Trending Up

June’s subsidy cuts continued to affect the price level in August, and I suspect Ramadhan did as well. In any case, inflation for the month of August has accelerated:

Ringgit In The News Again

The second piece of news over the last couple of weeks I want to over is the internationalisation of the Ringgit, which was brought up by the PM in an interview just after Eid. This prompted quite a bit of feedback, notably this broadside:

He’s right…and wrong of course (hit this link for the original article in The Star). Much as I respect our former PM, characterising what happened in 1997-98 purely as a result of speculative attacks on the Ringgit is shallow analysis and displays a victim mentality (one fine day, I’ll get around to posting about 1997). Or, in the words of the immortal Han Solo, “It’s not my fault!”. But he does have a point over the scale of forex flows relative to the Malaysian market (see this post for the real source of that info).

Human Resource Minister: Minimum Wage Model Going Ahead

One of the downsides of having a long break is that you have to work double-time to catch up on everything when you get back – I’ve only just finished going through my news feeds for the past two weeks. There was quite a few items that I found worth commenting on, but they’re necessarily a little stale, but them’s the breaks.

Top of the list is that the minimum wage (due to be presented to cabinet in October) is again in the news with the Human Resource Minister outlining the bare outlines of the scheme (emphasis added):

Economic Transformation Programme Open Day

I’ve just come back from the ETP open day. I’m sorry to say I didn’t spend much time there, so there won’t be much analysis of the content until the ETP is actually published next month – apparently it’s going to be issued after the federal government budget is tabled in parliament.

The response was pretty good as I saw plenty of interested people browsing through the exhibits – most no doubt from companies who are going to be affected by the ETP proposals (including mine). The free-flow of food probably helped as well :)

Just some quick hit thoughts on some of the things that struck me, reading some of the proposals (thoughts on the actual targets are here):