Friday, September 28, 2012

Live-blogging Budget 2013 [UPDATED]

As I’ve tried to do in the past, I’ll be hoping to live-blog the budget announcement this afternoon. However, I’m on standby for something else, which may mean this plan might go out the window – but in that case, I’ll be going “live” in a very real sense.

So watch this space.

[I’m adding corrections to some of the items below, based on the released text of the speech. You can get the English version here, Bahasa version here. If you want an online version, try The Mole]

Pakatan Rakyat’s Alternative Budget

Good luck finding coverage of PR’s Alternative Budget (hereinafter referred to as AB; link here) in the mainstream media. And the commentary from the other side has been, shall we say, less than complimentary. I for one, however, am not going to call it “stupid”. There is some gold in the dross.

[For foreign readers, what’s being discussed here is not the official government budget, which will be tabled this afternoon. Rather, this is the “shadow” budget presented by the opposition and distributed on Sept 26th]

I’ve made some preliminary comments in my previous post if you care to read those (too lazy to repeat myself).

Comments will be stream of consciousness stuff, because I haven’t the time today to organise things, what with the “official” budget this afternoon.

Thursday, September 27, 2012

KJ On Buku Jingga

With the 2012 Federal Government budget set to be tabled in Parliament tomorrow, the papers are full of commentary on what people want, and what the government should be doing (though at this stage, it’s probably a little late to make further suggestions).

The Pakatan Rakyat’s 2010 Buku Jingga on the other hand is the coalition’s statement of principles on what it would do if it ever gained power. There are some good proposals and some not so good ones, but the main problem with it is that it was very light on details.

There’s also further policy proposals that have been mooted since, like free tertiary education and the relatively new proposal to phase out the very high excise duties on cars in Malaysia.

But there’s hardly any numbers placed on these policy initiatives until very, very recently (I’ll get to that later). Here’s KJ’s take on the matter in The Edge on Monday (excerpt):

Wednesday, September 26, 2012

Capital Flows Inside MNCs

A new research paper from the NBER working paper series looks at debt-shifting within MNCs, and finds that – surprise! – tax rates matter a great deal more than previously thought (abstract):

Corporate Taxes and Internal Borrowing within Multinational Firms
Peter Egger, Christian Keuschnigg, Valeria Merlo, Georg Wamser

This paper develops a theoretical model of multinational firms with an internal capital market. Main reasons for the emergence of such a market are tax avoidance through debt shifting and the existence of institutional weaknesses and financial frictions across host countries. The model serves to derive hypotheses regarding the role of local versus foreign characteristics such as profit tax rates, lack of institutional quality, financial underdevelopment, and productivity for internal debt at the level of a given foreign affiliate. The paper assesses hypotheses in a panel data-set covering the universe of German multinational firms and their internal borrowing. Numerous novel insights are gained. For instance, the tax-sensitivity found in this paper is many times higher than previous research suggests. This accrues mainly to three things: the consideration of the boundedness of the internal debt ratio as a dependent variable in comparison to its treatment as an unbounded variable in most of the previous work; the coverage of all (small and large) multinationals here rather than a focus on large units in previous work; and the inclusion of endogenous characteristics in other countries multinationals are invested in (due to endogenous weights) while previous work did not consider such effects at all or assumed them to be exogenous. Moreover, local and foreign (at other locations of a given affiliate) market conditions matter more or less symmetrically and in the opposite direction. There is a nonlinear trade-off between institutional quality or financial development on the one hand and higher profit tax rates on the other hand, and the strength of this trade-off depends on the characteristics of one location relative to the other ones a multinational firm has affiliates (or the headquarters) in.

Economics For Entrepreneurs

A Professor of Entrepreneurial Studies thinks microeconomics should be inflicted on would-be business leaders (excerpt):

More Dismal Science for Would-Be Entrepreneurs
By Scott Shane

Teaching entrepreneurship is a growth business for U.S. business schools. The number of the nation’s undergraduate entrepreneurship programs grew 15.3 percent from 2007 to 2011, while the number of master’s programs increased 19.1 percent, according to the Association to Advance Collegiate Schools of Business.

Much of the curriculum in these programs focuses on evaluating one’s entrepreneurial potential, understanding the process of starting a business, writing business plans and financial statements, and raising money. While providing this information helps many students, my experience as an educator and investor has convinced me that entrepreneurship programs would do well to expose their students to more microeconomics.

Tuesday, September 25, 2012

When Is A Return Not A Return?

When investing in an international commodity, it really, really matters what currency you’re investing in. Exhibit one (excerpt):

Gold outshines equity, other asset class

NEW DELHI: Gold has witnessed a golden era in terms of returns to investors amid its skyrocketing prices as compared with the share market, which has given negative returns on investments in the last three years, a study revealed.

Monday, September 24, 2012

July 2012 Employment Update

Last week’s employment figures shows employment growth hitting 200k jobs for July – but so did labour force growth:



Tax Avoidance: Intellectual Property Edition

The tech industry is innovative in more ways than one, and has found quite a tax dodge (excerpt):

Microsoft and HP rapped by US Senate over tax havens

The US Senate has criticised Microsoft and Hewlett-Packard for their use of tax avoidance schemes, which it says is rampant in the tech sector.

The Senate's Permanent Subcommittee on Investigations said the companies used places such as the Cayman Islands so they did not have to pay US taxes…

…Microsoft and HP denied any wrongdoing…

Thursday, September 20, 2012

August 2012 Consumer Prices: Bottoming Out

For the first time in over a year, consumer inflation in Malaysia has stopped decelerating (log annual and monthly changes):


Wednesday, September 19, 2012

Global Growth: One Moment In Time

Bob Gordon argues that the past two centuries or so represent a unique period in human history (excerpt):

Is US economic growth over? Faltering innovation confronts the six
Robert J. Gordon, 11 September 2012

It is time to raise basic questions about the process of economic growth, especially the assumption – nearly universal since Solow’s seminal contributions of the 1950s (Solow 1956) – that economic growth is a continuous process that will persist forever.

  • There was virtually no growth before 1750;
  • There is no guarantee that growth will continue indefinitely.

Low Interest Rates ≠ Loose Monetary Policy

An interesting, but misleading, viewpoint from the Beeb (excerpt):

Lesson from Japan: Do low interest rates boost growth? By Mariko Oi BBC News, Tokyo

…In part to help small companies such as Hosobuchi, central bankers in Japan have been keeping interest rates low, in order to reduce their borrowing costs.

The truth is we don't have enough businesses or the need for investments to borrow the money”

Japanese interest rates have been close to zero since the mid-90s, but it has not offered a miracle cure.

Tuesday, September 18, 2012

The IMF On Asia’s Near Term Prospects

Naoyuki Shinohara, the Deputy Managing Director of the IMF on Asia (excerpt; emphasis added)

Will Asia Remain Resilient to Global Economic Headwinds? Near-term Economic Prospects and Risks

As you know, external factors have played a major role in Asia, while domestic demand so far has remained fairly resilient. Spillovers from Europe have caused a marked export slowdown, as well as in a decline in net capital inflows despite their most recent rebound.

However, financial markets stress today is lower compared to about a year ago. In particular, a number of steps have been taken by Euro area officials, and a number of important announcements have been made, that have helped stabilize the situation...

Friday, September 14, 2012

OMG! QE3 To Boost Inflation…Not

The Federal Reserve Open Market Committee yesterday announced a third round of quantitative easing (excerpt; emphasis added):

FOMC Statement

…The Committee is concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely would run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative

Basically, the Fed is committing to increase its balance sheet size by USD85 billion every month – sounds like a lot, but its actually only about a 11.3% expansion of the Federal Reserve system’s USD2.8 trillion consolidated balance sheet from now until the end of the year.

(Details in the Fed’s plans are available here).

Thursday, September 13, 2012

Evaluating Teachers

Considering the timing with the National Education Blueprint coming out two days ago, the following article’s pretty much on the money. No comments from me, just wanted to share – hit the link for the full monty:

We Evaluate Doctors. Why Not Chicago Teachers?

Can teacher evaluations be done horribly wrong? Of course. Evaluating teachers solely on the basis of their students’ scores on standardized tests can accidentally penalize good teachers while rewarding bad ones. It also gives teachers a strong incentive to teach to the test, which encourages what New York educator Kate McKeown calls RAMIT: “regurgitate, acculturate, memorize, isolate, and threaten.”

But to say that evaluation can be done wrong is not to say it should never be attempted. We evaluate doctors. Why not Chicago teachers?…

July 2012 Industrial Production: Not Good

I’ve had a busy time the last two days, hence haven’t been able to cover this when the data came out.

Monday’s industrial production report from DOS paints a picture of tepid growth (log annual and monthly changes; seasonally adjusted):



Monday, September 10, 2012

I Agree With Soros: At Least, With Regard To The Euro

Soros thinks Germany is leading the Euro into dissolution (excerpt):

Soros calls for Germany to 'lead or leave euro'

International financier George Soros has called for Germany to "lead or leave the euro" days before a crucial ruling on the eurozone's bailout fund by Germany's constitutional court.

Mr Soros argued that the eurozone should target 5% economic growth.

That would require the bloc to abandon German-backed austerity measures and accept higher inflation, he says.

He also backed a new European Fiscal Authority financed by VAT receipts to oversee eurozone government finances.

In an article published in Monday's New York Review of Books, Mr Soros said that Germany should become a more "benevolent" leading country or exit the single currency: "Either alternative would be better than to persist on the current course." …

July 2012 External Trade

Last week’s trade report from Matrade showed continued weakness in external demand for Malaysian products. As I thought they might, my July forecasts came in above realisation (log annual and monthly changes; seasonally adjusted):


Seasonally adjusted exports in July came in –1.2% on the year and –6.7% on the month, while imports were up 9.3% and 2.0% in log terms.

Friday, September 7, 2012

World Debt Clock

I stumbled on this last night going through my RSS feeds:

The global debt clock
Our interactive overview of government debt across the planet

The clock is ticking. Every second, it seems, someone in the world takes on more debt. The idea of a debt clock for an individual nation is familiar to anyone who has been to Times Square in New York, where the American public shortfall is revealed. Our clock (updated September 2012) shows the global figure for almost all government debts in dollar terms.

Follow the link to view – it’s not just a clock, there’s also an interactive heat map, where you track public debt by totals, as ratios or in terms of growth; from 2001 to EIU forecast data for this year and next. Hovering your mouse over the map on a country prompts a tooltip that shows public debt data for that country in that particular year. There’s even a country comparison tool.

It’s nice toy to play with, if you’ve an interest in public debt, and cross-country comparisons generally

Yes, Minister; No, Minister

I was alerted to this yesterday by a reporter. Sometimes I wonder…do our politicians do any fact checking at all, or do they just pluck figures out of the air?

Our esteemed Deputy Minister of Finance needs some help (excerpt):

Govt to spend on devt, keep debt manageable, says Deputy Finance Minister

KUALA LUMPUR: The government will have to continue spending on development while at the same time keeping national debt at a manageable level, says Deputy Finance Minister Datuk Donald Lim Siang Chai…

…As at December 2011, the ratio of national debt to the gross domestic product (GDP) reached 51.8%.

Talk Boldly And Carry A Small Stick

The ECB has taken out its big guns, but conveniently forgot to take the safeties off (excerpt, emphasis added):

Introductory statement to the press conference
Mario Draghi, President of the ECB,
Vítor Constâncio, Vice-President of the ECB,

It is against this background that the Governing Council today decided on the modalities for undertaking Outright Monetary Transactions (OMTs) in secondary markets for sovereign bonds in the euro area. As we said a month ago, we need to be in the position to safeguard the monetary policy transmission mechanism in all countries of the euro area.

BNM Watch: OPR Still On Hold

The statement at the conclusion of yesterday’s Monetary Policy Committee meeting was a model of brevity in stating the obvious:

Monetary Policy Statement

At the Monetary Policy Committee (MPC) meeting today, Bank Negara Malaysia decided to maintain the Overnight Policy Rate (OPR) at 3.00 percent.

The global growth momentum has moderated. Economic activity in most major advanced economies is slower amid greater policy uncertainty while conditions in the international financial markets continue to be volatile. These developments are affecting growth in the rest of the world. In emerging economies including in Asia, domestic demand is showing signs of moderation amid sustained weakness in external activity.