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http://www.geocities.com/harunrmy/18Malaise.html
Jan 17, 2002 by Harun Rashid The official policy of the Malaysian government is to deny any decline in
the level of national economic activity from the end of the year 2000 to the
end of the year 2001. The economy, as reflected by the Gross Domestic
Product, is demanded to show some growth, even if only a fraction of a
percentage point above zero. It is so ordained by fiat of the prime minister.
Everyone in government service is thus at pains to conceal the fact that
the Malaysian economy is suffering as much or more than its neighbors.
Views from realists are routinely rejected. As a result, employed
economists tend to be bulls, often sounding more like a customer's man for
the share exchanges than an objective analyst of current market forces.
As an instance, the local bourse (as represented by the KLCI), is presently
levitating for an election portrait, having been actively pushed upwards by
local funds controlled by the government in a coordinated and concerted
effort to convert wish into reality. The government servants and
sycophants, servilely trying to suckup to the prime minister, are engaged in
a conspiracy to camouflage the conflagration. The confusion created by
this effort contributes to the continuing corrosion of capitalism in the
country. Further chaos is caused by uncontrolled and even officially
condoned corruption, incompetence and collusion in corporate and civil
contracts. The economy, in spite of defensive deficit disbursement by the
government, has failed to take much note. The massive bond defaults
continue. The government assumes the defaulted debt in the name of the
public, and issues new borrowings in a misguided effort to cover the
deficiency. The large national companies, controlled by the prime minister and his party
in total contradiction of all capitalistic theory, record lower collections with
each coming month, pushing the companies (and the country) further and
further into the red. Electricity demand continues to decline, with lowered
billings and collections each month. The loss of revenue has forced the
cancellation of three overly ambitious power plant projects (but
unfortunately not the ridiculous and imprudent Bakun Dam).
The cronies are crying, but the ministers say excess capacity is around
35% over current demand, and as everyone knows, electricity cannot be
stored. About six months ago a minister announced that an excess of
generating capacity existed, and said no new projects were to be approved.
But then some new ones were approved. This time the government seems
adamant. That can only mean the money has run out, and there will be no
more handouts. But the bailouts will surely continue. These onloadings of
heavy debt to the poor public's back are seen as the seeds of an
Argentina-type heart failure to come.
Telecom, the national telephone utility, is one of the keystone stocks in the
Kuala Lumpur exchange. Its billings and collections, according to the
auditors, are steadily declining month by month. Yet the stock price
continues to be pushed up against all logic. Insiders see that it is all smoke
and mirrors, a magic market with the magicians of local funds trading with
each other using public pension money, and done at no expense because
they are allowed by the government to trade without fees. The appearance
is that the market is being artificially manipulated to draw in the unwary,
both local and foreign. "From strong hands to weak hands, in the
distribution phase," is the old market wisdom.
Share prices of bankrupt companies should not appreciate unless there is
mischief afoot. In the absence of any foreseeable dividend, the share price
of a stock should not reach, much less exceed, the net tangible asset
value. These facts are concealed while the stock prices continue to climb,
against all market logic. It is a thing which cannot survive long beyond the
coming election. The national economic policy is to defer the debt indefinitely, raising fresh
cash to postpone the day the piper must be paid. Unfortunately this
maneuver becomes more suspicious in the aftermath of Argentina's
national deflowering. The Argentina collapse is probably a greater threat to
the international financial system than is currently recognised. The long
term psychological effects approach that of the September WTC disaster.
A study of the policy of Argentina, leading to its current troubles, is
instructive when viewing Malaysia. Another fruitful source is the unfolding
story of the Enron corporation, focusing on the corruption of its executive
managers and the covering up and shredding of documents done by the
external auditors whose fees they paid. Taken together, these two case
studies offer excellent insight and exact parallels into Malaysia's
government and its personalities, along with most of Malaysia's
pseudo-public companies. Crony capitalists routinely reject realists when the auditing gets rough. As
a result, employed economists tend to be bulls, often sounding more like a
customer's man for the share exchanges than an objective analyst of
current market forces. Today's optimistic economist finds a warm
welcome from the media. "Don't sell now. Better advice is to buy instead,
while prices are still fairly low. The recovery is just six moths away."
This advice seems bereft of any sense of history, which is replete with its
prolonged bear market pitfalls. The current trends are on the graphs in front
of everyone. Those who refuse to see become the natural ally of the
politician who lies while he betrays the public trust.
Even when the eminent American economist Greenspan says the future is
bleak, with little sweet in sight to offer succour, the projections continue of
a recovery two quarters hence. That is the morning's magic mantra, "Two
quarters from now the recovery will begin." Quarter after quarter we have
heard the same projection made. It is always just two quarters away. The
elusive recovery is every day pushed ahead like an empty wheelbarrow,
with the same noise and content. This built-in bias of the analysts makes it easier for the prime minister to
peddle his redundant "positive growth" program to the public. It is published
in the local media ad nauseam in order to steady his increasingly shaky
seat in the saddle. The real situation becomes much clearer if one alters
the standard definition slightly, with a recession recognised as a line with a
declining slope on a graph. If the line, however it is smoothed, points downward over a period of six
months, that sector of the economy the line represents is in a recessionary
phase. This is not far from the accepted definition, two consecutive
quarters of decline in the national GDP. Malaysia's manufacturing sector
has been in a decline since the end of September 2000, a period of 14
months, and thus this sector may be said to be in recession. And it is
definitely an important sector, along with tourism and agriculture.
Malaysia's manufacturing sector, at the core of the national economy,
provides both jobs and products to meet domestic demand and for export.
The raw data below, of Malaysia's manufacturing sector through
November, 2001, is provided by the Malaysian government, and is available
on their internet web page. MANUFACTURING (total sales value)
Nov 2001 vs. Nov 2000 Nov 2001 vs. Oct 2001 Year-to-date EMPLOYMENT Nov 2000 vs. Nov 2001 Nov 2001 vs. Oct 2001 SALARIES Nov 2001 vs. Nov 2000 Nov 2001 vs. Oct 2001 Year to date These results may be graphed for ease of interpretation. This graph
contrasts the past eight months of 2001 with the same months of 2000.
The red line for 2001 not only shows no growth for 2000, the month of
November indicates a sharp decline. We must assume the manufacturing
sector is not the economic activity the prime minister points to when he
says Malaysia is not in a recession, and that economic activity for the year
2001 will be positive compared to the end of 2000. Manufacturing is
certainly not positive at the end of November.
But it is the end of December 2000 which is the base from which the
change is to be measured, and one sees that a peak occurred at the end of
September 2000. It has been consistently lower since. Unless December
2001 is the greatest December in history, the year 2001 will end with a
significant decline from 2000. Though it is premature to attempt an exact
figure, an extrapolation allows an estimated decline of -3.5% for
Malaysia's GDP which is not unrealistic.
The sharp decline in the value of manufactured products in the
year-on-year figures (decrease = RM 19.7 billion) is confirmed by a loss of
almost 65,000 jobs in the manufacturing sector. The loss in value of
manufactured products in the month of November (RM 5.1 billion less than
Nov 2000) is 25.5% of the total loss for the year-to-date (RM 19.7 billion).
This decline, however, is not matched by a concomitant loss of jobs.
In the month of November 2001, only 6,417 jobs were lost, which is just
0.6% of the total employment. Though the value of manufactured goods
has declined in the last twelve months by 17.2%, the number of employees
retrenched since November 2000 is only down 6.2%. This suggests at least
another 90,000-100,000 jobs are in jeopardy, and this number corresponds
with the figure released earlier by the government.
The average of manufactured goods per employee at the end of November,
2000 was RM 28,282. This is high when compared to the end of October
2001, when the value of goods produced per employee had declined to RM
26,119. By the end of November 2001, just one month later, the value
dropped further, to RM 24,969. This is a significant loss in productivity, and
unless the trend is corrected, will further reduce Malaysia's
competitiveness in the regional market.
Salaries and wages have not declined in proportion to the loss of jobs or
value of manufactured goods. The total wages and salaries paid at the end
of November 2000 indicates each manufacturing sector employee received
an average monthly income of RM 1,438.
By the end of October 2001 this figure had risen to RM 1,462, and at the
end of November was RM 1,482. Thus the average Malaysian worker now
receives RM 44 more per month since last year, while the value of the
goods produced has declined by RM 3,313. When the value of goods
produced declines, and the labor cost of producing those goods increases, a
squeeze is put on profit. There is erosion of profit in the manufacturing
sector, and this negatively affects the potential for earnings and dividends.
The Malaysian government actively discourages the retrenchment of
workers, hoping to avoid high unemployment and political unrest. The prime
minister likes to boast of his economic prowess, but his policy tends to
favor an economy dependent on retail consumerism rather than soundness
based on such fundamental factors as honesty in the market system and a
judicial system free of interference from the executive department of
government. The problems of the Malaysian economy have not escaped the international
community of investors. The continuing bond defaults, followed by
inevitable bailouts of cronies and the absorption of losses by the public, has
soured whatever prospects Malaysia had to avoid the consequences which
follow inept management, concerned only with rapid self-aggrandisement.
Link Reference : HR Worldview: Malaysia's Manufacturing Malaise |
