A Rotten Future Or What?

Today, I came across THIS LINK on the third issue of The Malaysia Economic Monitor (themed Inclusive Growth),November 2010 issued by the World Bank. The Preface of this 118-page report explained that the Government of Malaysia and the World Bank set up a knowledge partnership centered on the policy objective of transforming Malaysia into a high-income economy last year.

It said that "The Malaysia Economic Monitor series is a key pillar in this partnership and serves as a platform for public discussion, analysis, and the sharing of knowledge on the challenges facing Malaysia in achieving this objective."

The Executive Summary made the following points which I have extracted from THIS LINK and rearranged in bulleted format for easier reading:

• Following a spectacular year-on-year recovery, the growth momentum of the Malaysian economy is ebbing.
• After a period of crisis-related volatility, the economy transitioned into more normal patterns of growth: the pronounced inventory cycle began to subside, private consumption became more buoyant, and fixed investment picked up as capacity utilization gaps were closed.
• Interrupting this process was the return of external weakness, with exports slowing in the second quarter and then contracting. Since import demand for export processing did not react immediately, inventory volatility picked up again.
• As growth patterns normalized, inflation has recovered. But, the small rise in inflation, reaching 2.1 percent in August, was largely due to food prices, with little impact from non-food subsidy reforms. Bank Negara pre-emptively responded to the recovery in activity and inflation by raising the policy rate by 75 basis points between February and July to 2.75 percent.
• Rates have subsequently remained flat, while a marked, yet relatively smooth, Ringgit appreciation helped contain price pressures. Asset price strength reflected resurgent investment inflows, as in the region, but outwards direct investment rose too. Steps were taken to liberalize the exchange rate regime, mainly to lower trade transaction costs.
• Fiscal policy has also started to normalize. The 2011 Budget targets a deficit of 5.4 percent of GDP, down from 5.6 percent in 2010 and 7 percent in 2009.
• The Government embarked on a first step to systematically reform subsidies in mid-July, raising energy prices, including gasoline and household gas, and sugar prices moderately. It also announced plans to adjust regulated fuel prices monthly, as a step towards indexation, but to date there have been no further adjustments.
• Economic activity is expected to further decelerate in the second half of 2010.
• Given the low base in 2009, growth of 7.4 percent is expected for 2010, before slowing to 4.8 percent in 2011. Domestic demand is set to continue to drive near-term growth.
• The strength of global demand, both from the G3 and China, remains a key source of uncertainty. In addition, domestic sentiment is sensitive to reform progress relative to expectations while uncertainty over the impact of the ongoing reforms and associated investments further complicates near-term forecasting.
• Achieving Malaysia’s Vision 2020 goal of high-income status requires average growth of 6 percent during the 10th Malaysia Plan period — a marked improvement on the 4.4 percent achieved over 2006-2010. The challenge is not only to boost the level of growth but to ensure that growth is inclusive and sustainable.
• The policies and projects of the Economic Transformation Program are key to meeting this challenge through greater, and higher-quality, investment and productivity improvements.
• Risks to medium-term growth remain - the extent of reform implementation and progress on fiscal consolidation.
• The Government is taking steps to address both areas, but risks remain, both upside and downside. Until solid implementation of reforms is seen there is unlikely to be a groundswell of positive sentiment of foreign investors towards Malaysia.
• In addition to the sustainability of public finances, the quality of public service delivery will be a crucial determinant of the success of the Government’s plans.

*end of excerpt

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Suffice to say the above points DO NOT paint a pretty picture for our future. It is imperative that as many as possible write and blog about this so that the status quo do not launch the next GE until and unless they put things in order.

Since the preface of this report confirms it is the collaborated effort of the Malaysian government and the World Bank, it has to be quite accurate in its analysis.

Now if so, judging from current trends and the way policies are being implemented or not being implemented, it is highly likely that some quarters will bulldoze their way through to launching the next GE as soon as possible BEFORE the rakyat realize how bad is the situation. If this scenario happens, it is sure suicide to launch the next GE without dealing with the problems as identified in the report. But then again, how many rakyat will read this 118-page report???

You have to!!! Please...at least speed read and see what they have to say in this official document.

In the section on Raising Economy-Wide Income-Earning Opportunities (page 12) says:

Inclusive growth rests on a vibrant economy that generates plenty of opportunities for all. To revitalize its weakening engine of growth and generate more economic opportunities, the Malaysian economy is in dire need of further investment climate improvements.

Important in this respect are labor market reforms that raise the level of employment, strengthen the labor market matching process, and reduce the degree of informality.

On December 18th, it was reported HERE that our Deputy Prime Minister said:

"The country has met the target of eradicating abject poverty this year following proactive action taken by the government to assist the affected group.

He said that based on the latest report received through the Government Transformation Programme on poverty, the achievement had been very encouraging.

“Although in this matter, the abject poor group can be said to be dynamic, not static, if the figure is zero today, maybe tomorrow there will be one or two entering the group due to sickness and so on. But in terms of actual measurement, we have met the target, and this is most encouraging,” he said after attending a poverty eradication programme “End the Poverty Era” organised by the Ministry of Women, Family and Community Development at the Muar district level here.

However, Page 12 of the report says this:

While Malaysia has made great strides in reducing poverty and inequality over the last four decades, significant challenges remain.

Deep pockets of poverty continue to exist and, despite notable reductions in the 1970s and 1980s, inequality has leveled out at comparatively high levels. A large share of households lives on low income levels at less than half of median income.

New challenges are also emerging as Malaysia prepares itself to become a high-income economy.

Raising the knowledge intensity of economic activity may accentuate income disparities across skill levels.

Fostering geographical concentration may amplify urban-rural differences.

Restructuring the sources of growth and introducing greater competition may raise the demand for social protection.

Given these challenges —existing and emerging—how can Malaysia fully meet the aspiration of an inclusive society?

*end of excerpt

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Do pay careful attention to the diagrams in Page 13 that give a graphic account of the situations.

As for the section on Promoting Investment in Human Capital,it is VERY DEPRESSING to read the following section from the report at the end of Page 12:

Many Malaysians cannot take advantage of income-earning opportunities because they lack the skills to do so. Some never got them in the first place, despite massive investments in education.

*My comment: So what did the writer mean by 'some never got them in the first place???? And how massive were those investments in education???

2. For others, skill needs have changed more quickly than the availability of educational and training opportunities. This points to the need to: strengthen—the provision and quality of—basic education in under served areas, vocational training, as well as employer and industry-led skills development.

*My comment: What will our leaders do about those recommendations and can they account for the fruit of their labor in those sectors?

Page 17-23 is rather technical. I just want to highlight the following section which I extracted from page 29:

INFLATION HAS RISEN GRADUALLY, BUT REMAINS BENIGN

Malaysia’s consumer price inflation rose modestly through the first half of 2010. By August the

headline inflation had risen to 2.1 percent year-on-year (yoy) from around 1.3 percent in Q1, and monthly inflation rates show a similar rising pattern (Figure 1.24).

Most other countries experienced a similar pattern, with varying reasons (Figure 1.25). The adjustment of some regulated prices towards the economic cost of those goods explains most of the rise in Malaysia’s headline inflation, especially since June.

Food prices led the rise in consumers’ cost of living. Food and non-alcoholic beverage inflation

increased from 1.4 to 3.1 percent from Q1 to August (yoy) (Figure 1.26). Fresh meat prices drove much of this increase, rising by 4.4 percent in the year to August, and the government responded in August by issuing licenses to import chicken to supplement domestic supply. Sugar is one of the most significantly subsidized food items, particularly in light of the rise in global prices this year.

This subsidy adjustment lifted its price by 14.3 percent in August, and this affected other confectionery prices too. Meanwhile weather-related increases in global grains prices had little impact on Malaysian food prices by Q3. While bakery goods prices rose by 3.0 percent in August, only 2.5 percent of the average Malaysian household’s spending is on grains other than rice, and government involvement in the wholesale market is likely to limit the impact from the disruptions to global supply.

*end of excerpt

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It is a long report which I urge each of you to read at your leisure to better understand the state of economic affairs in our country. Page 43 of the report states:

THE UNEVEN PATH TO ECONOMIC RECOVERY

The recovery in global growth in 2010 has been steady, albeit unspectacular and uneven. As policy stimuli are withdrawn, this trend is expected to continue. Growth in high income economies is expected to be lower over the medium term than before the crisis.

Recent data releases and leading indicators point to the fragility of the US recovery. The weakness in labor markets (and residential property sector) is unlikely to turn around in the near-term. Consumer confidence has dipped in recent months (Figure 2.1). However, the impact of its debt crisis on Eurozone growth as a whole has been relatively muted.

*end of excerpt

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Page 91 of the report also states:

Having achieved almost universal access to basic education, Malaysia is now focusing on improving the quality of that education, which could be improved further both in terms of raising average levels and reducing the considerable dispersion in equality. Arguably, knowledge and skills acquired at the basic education phase has great implication on the individual’s capability for continuous learning, adaptability to a changing labor market environment, creativity, and capacity to produce. Performance of Malaysia’s basic education has shown some worrying signs and significant disparity across different segments of the population.

Despite scoring higher than other middle-income countries in critical subjects like mathematics, the test scores of Malaysia’s students have declined over time. Also, compared with higher-income economies in East Asia and other countries around the world, Malaysia continues to lag behind in mathematics scores (Figure 3.24).

These results indicate not only that students—and eventually workers—are not ready to compete with students from higher income countries but also that their competitiveness in mathematics has been worsening over time.

*end of excerpt

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What a depressing finding!!! The Education Ministry must tell us what they intend to do with that finding and their plans to improve our children's international competitiveness. Perish the thought of making historical changes with the History debate and do something that will put us on the world map for the RIGHT REASONS!!! We do not need waffling here and there with regards to policies made or changed at the whims and fancies of anyone but we need serious, basic and practical policies that are designed for the development of our children to be ready to compete in the international market!!!

Page 93 of the report shows that there is a mismatch between skills supplied and needed. For sure, the education sector plays a vital role here and must rise to the occasion.

I make no apologies for this very lengthy post. I would have written more but the report says it all most elegantly. Our leaders owe it to us to tell us what are their plans for the people in relation to the findings in this report. They have to - if they want to remain in power for the right reasons!

Perhaps they could pay special attention to the concluding paragraph of the report which I have extracted from page 108:

Making Programs Results-Focused and Fostering a Learning Culture

The monitoring and evaluation of social protection programs needs to be strengthened significantly to ensure that they are judged on the basis of how well they perform.

The factors that should be monitored include the timeliness and quality of information on the program’s inputs, its implementation status, and the outputs it has delivered. Detailed analysis of household data will yield information on the program’s coverage and incidence, as well as on how well the program is reaching its targeted beneficiaries.

It will also make it possible to assess the program’s impact on the consumption and well being of beneficiaries. Solid and rigorous impact evaluation is also necessary to assess the impact of particular interventions.

Much of the information needed for such evaluations is collected but severely under-used in policymaking and program management. What is needed are a results-focused management requirement for all interventions, a well developed monitoring and evaluation system, and a strengthened capacity of the implementing agencies (and government) to assess and to learn from experiences.

*end of excerpt

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The question that remains is : ARE THEY WILLING TO DO ALL THAT?

They HAVE to - if they love Malaysia and if they want to serve the rakyat and save us from a rotten future!!!