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HR: A Smuggler's Paradise
By Harun Rashid

1/1/2002 10:52 am Tue

Jan 1, 2002

A Smuggler's Paradise

by Harun Rashid

Two recent news stories have an interesting relationship. The first gives notice that a reward of RM 2 million is offered by the Malaysian government for information leading to the arrest of rice smugglers. The notice is accompanied by an announcement that the quota for imported rice is now reduced from 600,000 tonnes to 400,000 tonnes. This is necessary in order to exhaust supplies of rice that are piling up at the mills.

The second article reports that the Bank Negara reaffirms the pegging of the ringgit at 3.8 to the US dollar. The peg has been in place since the end of 1998, and is a fundamental part of a national economic policy put in place by the prime minister. It is a point of pride, and has become a political issue apart from its function as an economic tool of government. Its ostensible purpose is to prevent fluctuation in the relative value of the national currency, functioning as a medium of exchange in the arena of international trade.

Opposition to the ringgit peg was a major factor in the schism that developed between Mahathir and his staunch friend and finance minister Anwar Ibrahim. Anwar opposed the peg as a hindrance to international trade, but Daim Zainuddin, an old political party pal of Mahathir's, supported the peg. According to trial records, it was Daim Zainuddin who instigated the conspiracy to remove Anwar, and it was Daim Zainuddin who assumed the responsibilities of the finance ministry (he was Umno treasurer of many years, and retained this post) after Anwar was forcably relieved. Forced to choose between the two, Mahathir chose Daim. He has come to regret it. Mahathir has a knack, when forced to choose between men of opposite character, to err.

Anwar began to expose widespread corruption in the government, of which he certainly had personal knowledge. The public perception was that in order to silence him, it was decided that the nearest SWAT team, a team of masked murderers, should arrest him, with instructions to shoot to kill at the first opportunity.

Anwar, confronted by armed and masked gunmen who broke into his home at night, did not give them that opportunity. He stayed within the protective cordon of international journalists and cameramen. The IGP, on being told that Anwar was brought in alive rather than dead, was so enraged he personally took the matter in hand. He ordered his men to blindfold Anwar and handcuff him to a chair. The courageous IGP then pummeled the helpless man about the head and face until it appeared that Anwar's life was exhausted.

Anwar was then left in poor condition without medical attention for at least four days. That he did not die is testament to his strong will to live. He was hidden from public view until most of his wounds had healed, but even after ten days the remains of the beating were still apparent. A puffy black and blue eye testified to the cruel treatment he had received at the hands of his fellow Muslims, in what is now trumpeted as "an Islamic State".

Though the beating took place in the national police headquarters in full view of various witnesses, including prominent prosecutors from the Attorney General's office, it took a Royal Commission of Inquiry to finally ferret out the felonious facts. The IGP was forced to resign, and subsequently served six weeks imprisonment.

The witnesses to the beating have escaped punishment, along with the man who ordered it. Basically speaking, the entire event has banished Malaysia from respectable company, especially after seeing those directly concerned rewarded with higher office, presumably partnered with pecuniary preferment.

Anwar was eventually tried in court twice, neither occasion rising to a level of reportable or responsible jurisprudence, and sentenced to a total of fifteen years. He serves his term in isolation, in order to prevent him from communicating further details of the corruption that prevents acceptance of Malaysia into the company of respectable nations.

Daim Zainuddin, who was revealed to be the originator of the Anwar plot, has so angered the public (and his party) with further massive transfers of public funds to agencies in which he is allegedly a principal, and thereby personally profiting from his position of public trust, that his departure from office (and public view) became necessary. He continues to operate behind the scenes. With the enormous funds at his personal disposal, he is able to take advantage of any opportunity that fortune affords in Malaysia, neighboring countries and further.

Unable to trust a successor, the prime minister has assumed Daim Zainuddin's duties as finance minister and Umno party treasurer. All aspects of the national and party affairs are thus now in trustworthy family hands.

Though Anwar and Daim Zainuddin have effectively left the immediate political scene, both have cast a long and continuing shadow. Both continue to exert a strong influence over current events. Mahathir and the ringgit peg remain. With this backdrop, we can now return to the two news items and an examination of the events that have transpired since the critical events at the end of 1998.

That goods normally move from a region of low price to a region of higher price, and not the other way round, is a basic observation of commerce and trade. [When the reverse occurs, it is generally a gift with a humanitarian motive.] The final price of goods at the point of consumption is determined by the cost of production in the region of origin plus the cost of transportation. It is further influenced by demand at the destination, which tends to inflate the price when it is high and to deflate the price when it is low.

The final price for a commodity at the point of consumption is also influenced by the supply available. When there are supplies in excess of demand, the price tends to be low, and the level of trade will decrease accordingly. When supplies are low, the demand will tend to put an upward pressure on prices. The higher price, with its promise of a nice profit, will then tend to increase the flow of trade.

These are the basic considerations that determine the flow of goods in international trade. When the flow of trade is free of any barriers erected by government, it is referred to as "free trade". But governments tend to give protection to their own domestic industries by erecting barriers, primarily in the form of customs duties, taxes and quotas. The presence of these barriers, and their removal, are the core issues surrounding the WTO meetings and the objections to globalisation.

Malaysia has interested itself in building a separate world, of which it is the major moving party. It is a founding member of ASEAN, a regional closed trading group with trade agreements allowing no barrier over five per cent. The national currency, now pegged to the US dollar, is suggested as the centerpiece of a new Islamic currency, somewhat like the Eurodollar. This group of Islamic countries is to become a competitive economic unit similar to the European Union.

But there are big problems. The first and greatest problem is the lack of competitiveness brought about by the ringgit peg. Malaysia has been raised by the ringgit peg to a position of privilege, in which Malaysian goods and services are at a price level that floats against neighboring countries as though it were the US dollar. While the currencies of surrounding countries have fallen relative to the US dollar, the Malaysian ringgit has remained pegged. Malaysia has in consequence become an economic island, and other countries in the region are now able to produce goods and services at a price lower than Malaysia.

In just twelve months all the remaining trade barriers must be lowered to a maximum of five percent. Malaysia has been granted an extension of an additional two years to allow Malaysian automakers time to adjust to the lower costs in Thailand. This exemption has caused many to suspect Malaysia of bargaining in bad faith.

A second area of immediate concern is the action of Singapore in arranging favorable trade agreements with major partners outside of ASEAN. This allows Singapore to enjoy a position of privilege, offering access to the other six ASEAN member countries through a "back door". This unilateral activity by Singapore effectively negates the purposes of ASEAN, and seriously threatens its effectiveness and survival as a significant economic entity.

Rice is a basic commodity throughout SE Asia, and it is produced in Indonesia and Thailand in large quantity at prices much cheaper than in Malaysia. Thus rice tends to flow into Malaysia, and a quota has been imposed to control and limit the flow to protect domestic producers. The quota is intended to protect local rice growers. Without this protection the growing of rice in Malaysia would slowly decrease until the agricultural base of Malaysia is seriously eroded. As local production falls, imports will increase. Eventually all rice will be imported, large scale domestic production will cease, and paying for the imported rice will be a severe drain on the local currency.

What is true for rice is also true for all agricultural commodities, so the threat is a real one, endangering the entire agricultural base of Malaysia. Rubber, for example, is produced at about the level of domestic consumption. But exports are also at the level of domestic production, so where does this extra rubber for export come from?

It comes from rubber that is produced more cheaply in neighboring countries, primarily Indonesia and Thailand. It is brought into Malaysia and re-marketed by exporters. The trend is for the flow of these imports to increase, while domestic production declines. The same is true for palm oil. The declining agricultural statistics for the past two years indicate that this is exactly what is happening.

Manufacturing is affected in the same way. While Malaysia's established industrial base does offer a temporary advantage, the disparity of price that exists between domestic production and manufactured goods from neighboring countries puts increasing pressure on both Malaysia's domestic market and Malaysia's ability to compete for the international export market. This becomes especially apparent when one considers the emerging economic power of China, which has a population of over one billion, compared with Malaysia's 23 million.

Malaysia has also become a paradise for cigarette smugglers, who make a profit of RM 2 million or more from each container of cigarettes brought in without paying the increased tax. There is no reward offered for catching cigarette smugglers, though smoking is detrimental to individual health and intolerably expensive for the national health system. The reward offered is for catching rice smugglers, though rice is a beneficial basic food.

Demand for cigarettes is not based on any biological need, and must be regarded as a created demand for a toxic and addictive drug (nicotine). Constant advertising on local billboards and especially prime time TV must stimulate the demand. Though the health minister constantly highlights the danger to public health, the illegal TV advertising continues through stealth and subterfuge.

Malaysia is now touted as an Islamic State, but cigarettes are forbidden for Muslims. Something of a double standard exists when the trade in health-destroying cigarettes is less odious than the trade in rice. Smokers are observed to consume more cigarettes when they are anxious. There is every reason to expect cigarette consumption to increase in Malaysia, simply because there is much for Malaysians to be anxious about.

Link Reference : HR Worldview: A Smuggler's Paradise