Mythbusting: Government Debt Edition Part II

Well, I’m back from my break and had a lovely time with family and friends – back to regularly blogging again.

Nevertheless, this wouldn’t have been my chosen topic, but with the budget little more than a month away, I suppose its understandable.

In a column yesterday at the Malaysian Insider, Azrul Mohd Khalib repeats all the same old myths about Malaysia’s government debt (excerpt; emphasis added):

Maxing out the national credit card

…Every national Budget over the past few years has had a deficit. When total national expenditure exceeds the revenue collected, a budget deficit then exists. The only way for the government to pay for this deficit is to borrow.

July 2012 CPI: Still Retreating

Tucked between the news on GDP, the latest consumer price index numbers show inflation continuing to decelerate (log annual and monthly changes):

The overall index is down, core inflation increased slightly on the month, but was offset by a decrease in the pain index. In fact the annual rate of increase in food and transport prices is now at its slowest pace in more than two years (since March 2010).

2Q 2012 National Accounts: Surprise, Surprise

What a nice lead up to the holidays. While I thought 2Q GDP might turn out to be pretty good, 5.4% annual growth is outside all my expectations (log annual and seasonally adjusted annualised quarterly changes; 2005=100)

Seasonally adjusted quarterly growth has been pretty solid too at 5.9%, holding up above 5.7% for three straight quarters.

June 2012 Industrial Production

Yesterday’s report on June’s industrial production numbers were mildly disappointing (log annual and monthly changes; seasonally adjusted)

June 2012 External Trade

There’s quite frankly not going to be a whole lot of posts until the week after Hari Raya, just a few quick ones on data releases as they come. With luck something like normal posting volume should resume after the Raya break.

Today’s releases of last month’s trade numbers weren’t terribly inspiring (log annual and monthly changes; seasonally adjusted):

Although exports registered an increase of 5.3% y-o-y in log terms, that’s well below the double-digit growth projections from both my models.

Mythbusting: Government Debt Edition

Teh Chi-Chang of Refsa was on BFM radio the other day promoting his new book:

The Dark Side of Budgets

I sometimes feel like I’m banging my head against a wall.

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.

Dissension In The Ranks

Reuters gets the scoop (excerpt, H/T BBC):

IMF economist accuses Fund of suppressing information

WASHINGTON, July 20 (Reuters) - A veteran economist at the International Monetary Fund has accused the global lender of suppressing information on difficulties in dealing with the global financial meltdown and euro zone crisis.

In a resignation letter to the IMF's board and senior staff, dated June 18, Peter Doyle said the IMF's failures in issuing timely warnings for both the 2007-2009 global financial crisis and the euro zone crisis were a "failing in the first order" and "are, if anything, becoming more deeply entrenched."

His letter, a copy of which was seen by Reuters, has brought to light simmering tensions within the IMF over the Fund's credibility, which many worry is threatened by its role in the euro zone crisis.

A Singaporean Mystery

I was alerted to something quite interesting a few days ago by warrior 231 – there appears to be hole in the Singapore government accounts, a fairly substantial one.

The one man crusader pursuing this issue is Christopher Balding, Associate Professor at Peking University’s HSBC Business School. Here’s a sampling from his blog:

The Importance of Economic Capture and Government Surpluses

…However, if we add in GIC numbers, everything begins to fall apart. As I have already covered in previous posts, we actually know pretty closely how much GIC manages. In March 2011, with Temasek declaring its holding at $193 billion SGD and the government holding cash of $125 billion SGD, the balance sheet reveals a GIC upper bound estimate of $387 billion SGD, pretty close to outside estimates…

Fixed Exchange Rates: Better Close That Capital Account

In the latest round of research from the NBER, this paper describes some “surprising” results (abstract):

Pegs, Downward Wage Rigidity, and Unemployment: The Role of Financial Structure
Stephanie Schmitt-Grohé, Martín Uribe

This paper studies the relationship between financial structure and the welfare consequences of fixed exchange rate regimes in small open emerging economies with downward nominal wage rigidity. The paper presents two surprising results. First, a pegging economy might be better off with a closed than with an open capital account. Second, the welfare gain from switching from a peg to the optimal (full-employment) monetary policy might be larger in financially open economies than in financially closed ones.

June 2012 CPI: Prices Ticking Up Again

After a four month hiatus, consumer prices are on the upswing again (log annual and monthly changes; 2000=100):

The Optimal Rate Of Inflation

We’re on a optimisation binge today. After the last post on international reserves, here’s a piece on the optimal level of inflation (abstract; emphasis added):

How Inflation Affects Macroeconomic Performance: An Agent-Based Computational Investigation
Quamrul Ashraf, Boris Gershman, Peter Howitt

We use an agent-based computational approach to show how inflation can worsen macroeconomic performance by disrupting the mechanism of exchange in a decentralized market economy. We find that increasing the trend rate of inflation above 3 percent has a substantial deleterious effect, but lowering it below 3 percent has no significant macroeconomic consequences. Our finding remains qualitatively robust to changes in parameter values and to modifications to our model that partly address the Lucas critique. Finally, we contribute a novel explanation for why cross-country regressions may fail to detect a significant negative effect of trend inflation on output even when such an effect exists in reality.