China - Friend or Foe?

I note with interest during the last couple of months, Malaysians took to social media to vent their anger against the apparent inaction of both Wisma Putra and Ministry of Defence against the intrusion of China's coast guard agency, known as China Coastal Guard (CGC).

National Security Council Bill

Social media in Malaysia was suddenly abuzz with the phrase words "National Security Council Bill". Out of nowhere, it was mentioned that National Security Council Bill would be tabled, and it was passed without much fight from the Opposition party.

The Opposition were crying murder, claiming the bill had been pushed through without them having much chance to go through reading it.

Frankly, I'm not sure how true is their claim. Too much politicking had been seen these lately, and I don't want to fall into another political gimmick (I had fallen to their tricks a few times too, accepting their version of the story till I got to understand them better).

So instead of relying on the words from any both sides, I decided to look into the Bill itself.  For the purpose of comparison, I will also compare the bill against Emergency Ordinance 1969 which had since been repealed and also against the Federal Constitution.

Malaysia - Defence Budget Constraint

Taking a short break from study and work.

Understand that the late Bernard Then's murder this week brought anger onto many Malaysians. The Govt's promise of a safe Sabah seems to have gone down the drain. That the Federal Govt does not care for safety of Sabahan and Sarawakian.

Love Your Country, Not Your Party

Not all is gloom with out opposition parties after all. We still do have opposition party people who care for our nation, and did not politicise defence issue for the sake of politicking.

Minimum Wage

Last Friday (23rd Oct 2015), Datuk Seri Najib Tun Razak had announced the Budget for 2016. Of all items in this budget, I noticed 1 item which I would like to highlight for its long term implication. That 1 item is minimum wage policy.

PDRM AW139 Purchase

Flabbergasted! That is how I am going to describe my feeling. No, no. It is not about Putrajaya buying 2 new helicopters at half a billion ringgit. But the reporting by TMI. You can read it here.

Expansionary Monetary Policy and Housing Developer

Expansionary monetary policy means loosening of interest rates. In Malaysia, this will be the OPR, which is Overnight Policy Rate (need to check this is correct or not).

As the interest rates are lower (loosening means to lower the interest rate), borrowing cost becomes cheaper. This encourages borrowing.

The effect on a housing developer comes in 2 ways.

Malaysian Economy and Currency

During the recent depreciation of RM, many were quick to blame the nation's leadership without understanding what actually caused the depreciation.

Many did not, or rather choose not to see that the depreciation was largely caused by external factors and further worsened by some internal factors. 

Farewell thee, Beloved Son of Malaysia

Death is unavoidable. The only question is when.

Tan Sri Yuen Yuet Leng
Nation's Unsung Hero
15 Sept 1927 - 1 Oct 2015

Today, Malaysia mourns one of her most illustrious sons, Tan Sri Yuen Yuet Leng.

Tan Sri Yuen Yuet Leng's contribution to Malaysia till today remains immeasurable. Simply because you can never quantify the meaning of peace.

Tan Sri Yuen joined the police force during a time when all police officers are marked men. The war against communist was very much at a stalemate then. And when he joined, he was yet the citizen of this nation.

Reasons Behind My Mistral Prank

A few days ago, I pulled a prank claiming I have exclusive photos of secret photo of Mistral in Malaysian colours, when in fact I had only a photo of Mistral-branded fan speed controller.

Apologies first to my readers. While the prank may seemed childish, I have every reason to commit to the prank. And tonight I'm sharing out my reasons.

What I did was only to offer something which was half-truth. And people fell for it. But I intentionally use the photo of the fan speed controller. Imagine the damage I would inflict if I were to use, say a photo of Dixmude and claimed that the ship actually belonged to us.

Yet, that is the very same trick that many Malaysians fell for when some irresponsible people claiming that our Scorpene are second hand, using either the photos of Agosta class Ouessant or the Zwardviss class submarines to prove their point.

Be wary when someone use words and phrases like 'exclusive', 'hot', 'top secret' and 'before it is being removed'. These are clues that these are likely to be tricks.

When I used the above words in my prank, I made sure my post is very obvious to be a joke. Yet, when a fraud calling himself Kapt Sharifah Sofea, using the very same words, many fell for it. Claiming exclusivity and yet, identity is unknown, man, I surely have trust issue.

One last one.

And yes, a when something is too good to be true, be careful. It might be a fraud. Let's just say I put this warning up because I hate handling all those complaints from people claiming they were cheated.

Oops! One more one last one. If I ever say I have top secret information, don't believe me. I don't have such access. Even if I have, I won't share it out loud. I rather be dead than be a traitor.

Riddle of the Day

Even when the haze moves in, even when the sky darkens, I know, that I can find KLCC out there.

Likewise, even with so much noise, with tonnes of allegations of misdeeds, I have yet to see one concrete evidence.

Sometimes what you see, and what you hear, is not what is real. And at the end of the day, it is about standing firm with your faith, and understanding why and how does the water flow that you will see and hear what is true.

Don't blame the King for not taking up to the honey bee. The sting of the bee would have killed it. Blame the bee for smelling like a cabbage when the King makes friends with the rooster. Not even the intoxicating October can convince the King that life is gay with him.

So Honey Bee is dead, blown to pieces. And here come the ants, trying to make the King to bite the silent one. But the silent one will be free, not because he is silent, but the cabbage smelling bee sting can kill.

Don't understand what I'm saying? Tough luck.

Berita Panas! Mistral pasti milik kita!

Kami baru sahaja mendapat maklumat panas ini. Mistral sebenarnya telah pun beroperasi di Malaysia. Kami baru sahaja mendapat gambar bukti kehadiran Mistral.

Ikuti pautan berikut di mana kami telah mendapatkan gambar terkini Mistral dalam operasi. Sebelum dipadamkan!

Mistral dalam operasi harian

Mistral

Kipas jenama Mistral

Budget 2016 Suggestion Forum

Going through PM's Budget 2016 suggestion page, I saw an insurmountable task ahead. Not just in defence, but the whole government machinery.

Many of these well-meaning suggestions are actually already in place. 

So where is Kementerian Penerangan? Sleeping on the job?

Photos surrounding Merdeka Day 2015

Mistral Fiasco - Malaysia to the Rescue?

It is with my firm interest that the YB for Pandan, Rafizi Ramli had shown his interest on defence issues by bringing up the issue of Mistral class LHD. First of all, thank you for your kind interest and willingness to look into the issue. I am honoured that the YB is willing to look into the issue for the Rakyat's sake.

The good YB must have been flabbergasted when he had found out via unconfirmed report and writings by his eminent Dr. Kua Kee Siong that our govt had solicited for the purchase of the aircraft carrier from France.

Redundancy

Redundancy is defined as additional capacity which is not being economically utilised. Therefore can be done away with.

Well, that is just one of the many definitions we can use to describe redundancy. Unfortunately, that is how most of us Malaysians understand the meaning of redundancy.

Ditto to MINDEF's Response Over Dress Code

In facing the flood of criticism over dress code violation nationwide, nearly every ministry, agency and office had decided to back down. They backed down, and criticized the poor guards who had been left to hold the blame. Nearly every ministry, except for MINDEF, or Ministry of Defence. I strongly applaud the Ministry for standing firm with the issue as it is beginning to get out of hand.

The reporter or the news - you decide

Take security issues seriously

2 JULY 2015 @ 12:00 PM

I READ with interest your expose on the security concern of the Royal Malaysian Air Force’s Butterworth Air Force Base (AFB) (“Big, Fat, Juicy Targets” — NST, June 29). I would like to applaud the journalist for her good work in highlighting this issue.

Finally, this blog of mine have reached a new milestone of 6 months.  This is the first time any of my blog managed to last for 3 months.  All my previous blogs were unfortunately half-hearted efforts.  So what made this blog last longer than all my previous blogs?

Perhaps I am writing from my heart.  Many of my posts are results of years observing, reading and understanding.  Thus, allowing me to provide views with slightly different slant.

While what I write is essentially my world view, I do respect the view of others.  At times, I would be harsh on others, years of frustration in military writing tends to come to the surface at times.  Sarcasm, yes, sarcasm bites.

Let's hope I can write longer.

Sharing is Caring

Caring is sharing. Sudah tentu ramai yang pernah melihat frasa ini pada post-post viral. Ramai pula yang terbaca frasa ini terus terdetik di hati untuk share post-post sebegini tanpa berfikir terlebih dahulu, apakah tujuan asal orang yang memulakan cerita tersebut.

The Submarine that Never Was

When Malaysian govt decided to buy a couple of Scorpene class submarines from DCNS, it was inevitable that the issue became politicised. Amongst the accusations thrown at our Navy was we had paid RM6.1 billion to buy a couple of scrap metals as submarines.

RMN Scorpene class Submarines, renamed as Perdana Menteri class. Photo sourced from Wikipedia. 

What more, some of these rumour mongers said they had heard it from their relatives who were serving in the Navy. They saw the rusting submarines under the sun berthed at Lumut Naval Base.

Many of us defence writers had tried to correct this perception for years. True, we bought a couple of submarines. They were bought brand new, and no, they are not rusting out at Lumut Naval Base.

The culprit of the rumour is actually PSC Naval Dockyard Sdn Bhd. Well, it was not their intention, but it was the unintended consequences of their actions when they purchased a couple of Zwaardvis class submarines from Holland, hoping to score quick cash from the Navy.

Photos of Zwaardvis class submarines rusting in Lumut. Photo credit to now defunct defence magazine, Tempur.

Both submarines were not only rusting, but were rickety and may not be sea-worthy anymore. But that didn't stop the then owner of PSC Naval Dockyard Sdn Bhd, Datuk Amin Shah from his greed of trying to push these submarines to the Navy. I still hold that this man single-handedly destroyed our Royal Malaysian Navy.

Thankfully, the Navy was adamant and Zwaardvis never made it even through the selection. PSC ended up with a couple of rusting scraps, which they had sold later as scrap metals.

As for him, he is still a free man, despite single-handedly destroying RMN.

Know Your Stuff Before You Try to Talk Shit with Me

Say that you got a job and a girlfriend. And now you're looking for a car to impress your girlfriend. What if I tell you I can sell to you a Mercedes-Benz at the price of RM1,000. I tell you why buy from Mercedes-Benz Malaysia for RM300,000 when you can get the same for only RM1,000. But there is a catch. I'm selling to you a Mercedes-Benz made in 1965, as compared to the 2015 Mercedes-Benz that Mercedes-Benz is selling to you. Which car will you buy?

Definitely a no brainer. You will definitely buy a 2015 Mercedes-Benz even though it is much more expensive.

Helicopters of Malaysia

The recent hogwash over the so-called reluctance of rescue helicopters going up to Mount Kinabalu, specifically Laban Rata to rescue climbers trapped on the Mountain after the earthquake made me think.

Just so people can understand better, I've decided to compile a datasheet of helicopters that are in Malaysian government service, both military and civilian.  From this datasheet, you may determine if I had tried to pull your legs why we should have bought all 25 units of EC725 instead of only 12 units.

Sabah Earthquake - Lessons Learnt

The recent earthquake in Sabah has exposed once again the inadequacy of Malaysian government's approach to Search and Rescue operations.  However, contrary to the approach that many people took the last few days when it comes to criticizing the Malaysian government's response, I choose to look at this unfortunate event from a different perspective.

And They Say We Don't Need It

When the Government under Tun Abdullah announced Malaysia intended to procure Eurocopter EC725 CSAR version with 5 rotor blades, there was a strong uproar from the opposition party, saying the helicopter was way overpriced and the government did not study other options before putting the dots on the i's and crossed the t's.

Dissemination of Preliminary Investigation Report without Permission

The last 2 years, I've been receiving multiple messages that looks to have been written by investigation officer.

These messages received via whatsapp reads like preliminary investigation reports. Often, these reports contain information which are supposed to be embargoed from non-personnel like me.

Tommy the Pacifist

The year was 1982. Tommy (let's call him Tommy) was fed up with the world. The world was in turmoil, with war in the Middle-East just about to reach its 2 years mark (the war will go on for another 5 years). You see, Tommy is a pacifist. He hates war. So one fine day, Tommy decided to throw in the towel. "Away with the world that had supported the war," he said.

Short Update - May 2015

Malaysia

1. 11th Malaysia Plan is now being presented in the Parliament.  So far, no update on defence allocation.
2. Mindas Muktadil, one of the Muktadil brothers who was involved in the recent spate of kidnapping in Sabah had been gunned down by security guards in Jolo. 
3. Suspected mass graves of human trafficking victims are believed to have be been found along Malaysia - Thailand border.  Further details on this, probably in 2 weeks time after I finished my exam. 

South China Sea

1. Things getting hotter with USN P-8 Poseidon flying near Fiery Reef had been challenged by China's PLA.  Recording of the challenge had been released by CNN.  And yet, we are behaving as everything is ok.  More on this after my exam.

Next Article

1. Saab 2000 AEW&C.  Why we need the system and how it will help us to solve the above-mentioned problem.  

11th Malaysia Plan - First Glance

Yesterday, the gist of 11th Malaysia Plan was first tabled by the Prime Minister Datuk Seri Najib Tun Razak.  And it is disconcerting there is no mention of plans for defence expenditure.

While so-called pacifists and activists may sigh a relief that Malaysia is not going to be part of a global arms race, this may not bode well to our nation's sovereignty.

However, it is still all too early to throw in the towel and speculate. Let's be patient and see how well did Defence Minister Datuk Seri Hishammuddin Tun Hussein had managed to convince Ministry of Finance for 11th Malaysian Plan.

Meanwhile at South China Sea, the Dragons of Middle Kingdom did not sit still...

Defending Malaysia - 11th Malaysia Plan

Credit - Najib Razak's Facebook

Early today, I received excerpt of speech by our Defence Minister, Datuk Seri Hishammuddin Tun Hussein in the Parliament with regards of the 11th Malaysia Plan.  The content of the speech is to me very disturbing.  I will let you be the judge of it.

Pameran Evolusi Senjata dan Kemanusiaan Sejagat - Home Guard

Just to share this video which I took end of last year.

Income Disparity - Income Growth in Malaysia

Allow me to share the following 3 stories.

The first story was related to me by my friend.

About 20 years ago, her family moved back to Ipoh. Her mum took up a job as a secretary/clerk. Her pay back then was RM800. About 5 years ago, I bumped into her again and she shared that her mum had just switched to another company, also as a secretary/clerk. Her pay? RM800.

The next story is about Metroview Condominium, a condominium in Wangsa Maju.

When the property was first launched, it cost about RM240,000. In a short span of about 4 to 5 years, a unit cost RM420,000.

The next story is about the humble Maggi noodle, a favourite for migrant workers and college students.

Back in 1997, a packet of Maggi Chicken or Curry weighing 85g cost RM0.40. By 1998, the price had gone up to RM0.50 per packet of 80g. Today, a packet of Maggi Curry or Chicken, weighing a princely weight of 79g cost RM0.75.

Income Stagnantation

Despite our GDP per capita have increased from USD10,159.20 as in 1990 to USD22,589.37 as in 2013, many Malaysians are still facing economic conundrum. One question one must ask, if the GDP per capita had doubled, where did all the wealth has gone to?

One can only conclude that most of these wealth had flowed into the hands of few rich individuals, rather than having these income being spread around.

Perhaps, the revelation from EPF is a clear indicative concern of what we are facing. In Sept 2014, Employees Provident Fund revelaed that 69% of its members above the age of 54 has less than RM50,000 in the retirement fund. Discounting the possibility that all 69% of these members  had withdrawn part of their savings to buy their own houses, or for educational purposes, and assuming the statistics of 69% is applicable for all age groups, this could well point at the fact that large portion of Malaysians are still earning pays that had stagnanted years ago.

Where did we go wrong?

To assume I would be able to provide the exact answer where did we go wrong would be callous on my side. All I could is to provide pointers of what went wrong and where. What more, my worldview would have been distorted by my own political stance, and not to mention, my economic views too.

My economic leaning would be closer to that of Keynesian, as expounded by celebrated British economist, John Maynard Keynes. But at the same time, it is also tempered by socialism (on the microeconomics side).

What I could do, is to dissect what I believe to be the cause(s) to our current economic predicament.

Subsidy - The Poison

Top on my list would be subsidy. Most economists disagree with implementation of subsidies, especially indirect subsidies as this would generally distort the economy. But before I go any further, let us understand first the purpose of subsidies being implemented in Malaysia in the first place.

History of Subsidy Implementation in Malaysia

Subsidies, specifically fuel subsidy was first implemented in Malaysia in the early 70's by our second Prime Minister, Tun Abdul Razak. Malaysian economic backdrop then was bleak. 

With nearly 80% of the nation were classified as poor, they could ill afford sudden changes.

Then, the first energy crisis happened. Using the backdrop of Yom Kippur War, whereby the Americans had conducted resupply to the Israelis forces, OPEC (Organization of Petroleum Exporting Countries) had announced a global embargo to America's intervention. The embargo caused global oil price to shoot up.

The effect was disastrous to Malaysia. Cost of living shot up. To amoleriate the situation, a blanket subsidy was imposed, allowing the rakyat to buy the subsidised goods at a cheaper price. Thus, lowering their cost of living.

If the intention of the subsidy is good in the first place and it helps the rakyat to lower their cost of living, why is it bad in the first place?

Like all good things, it must be taken in moderation and it must end one day.  What was probably intended as a temporary measure to provide relief to Malaysians, soon became an addiction.

The negative effect from subsidies come in two forms; market distortion and runaway budget. Of these two, let us focus on the first part, on market distortion.

Market Distortion

Market distortion happens when an external force other than supply and demand is exerted onto the supply chain within the economy. In the case of Malaysia, the external force is subsidy.

As the applied subsidy is a blanket subsidy, overall cost of living is lowered, which in turn helps to bring down cost of labour. This allow companies in Malaysia to produce export products using an artificially created competitive advantage.

This demotivates employers from investing in technology which would further improve their productivity as there is an abundant of cheap labour which in turn, put us in a vicious cycle of low income.

Runaway Budget

When a society or rather an economy relies too much on subsidy, you face a situation of runaway budget. Globally, we have seen Venezuela succumbing to this trend. With many consumer items being subsidised at a ridiculously low price, the nation is actually now suffering from hyperinflation.

Two other countries where near runaway budget had occurred are Indonesia and ourselves. Due to populist policy, both nations were reluctant to rationalise the subsidy. In our own Malaysia, our budget in 2013 nearly became a full blown runaway budget when the budget for subsidy alone is nearly equal to our development budget.

Subsidy Rationalisation

Blanket fuel subsidy in Malaysia has officially ended end of last year. However, do bear in mind that the result of subsidy rationalisation would bear fruit. For the subsidy rationalisation to work, there would be two key factors that would allow us to reap the benefit from subsidy rationalisation (other than a more balanced budget).

With our near full employment rate (around 3% of unemployment rate), subsidy rationalisation would push for the workforce, especially those who are to be affected by the increased cost of living to switch jobs. With near full employment, it would not be easy for employers to replace these employees if they are not willing to provide better enumeration.

Second is minimum wage policy. With a minimum wage policy, employers would have to pay employees certain amount of wages. 

However, a word of caution. The minimum wage policy must be reviewed every 2 years. And the policy should soon cover foreign workers as to prevent exploitation of foreign workers to circumvent the policy.

(Update: - as was highlighted by Tuan Ahmad Rafdi Endut, government has already mandated the review to be performed every 2 years from the day the policy was in place. Therefore I have updated this from 3 to 2 years.)

Stifled Unions  

The next cause that had led to our current conundrum is our economy has basically stifled most of the unions that operates in Malaysia.

It is unfortunate that unions are mostly regarded negatively by Malaysians, especially by employers. This is made worse by the fact that Malaysian government generally distrust unions. Not that it did not come with a logical reason.

Brief History of Unions

The root of Malaysian government distrust in unions can be traced back to the 1930's where unions were very strong and vocal. So vocal they were that Malayan economy frequently suffered from picketing.

This was then worsened when the Malayan chapter of communist party (Malayan Communist Party was then just a chapter to China's Chinese Communist Party) took opportunity to infiltrate into the trade unions and labour unions.

It did not help that when the British Special Branch smuggled an intrepid man named Lai Tek into Malaya from Vietnam, he was introduced as a trade union leader that had to escape from the clutches of French military. He soon took control of MCP, and also seen leading trade unions. (We shall talk more about him another day)

Today's Union

Today, most unions are rather muted. Saved for CUEPACS, NUBE and MTUC, most unions do not make much noise. They are just background statics.

Let's look into NUBE, or National Union of Bank Employees as an example how unions, when it works properly would help to improve the welfare and ultimately income of the workers in the particular industry.

NUBE was formed to protect the rights of bank employees from being mistreated by management of their employers. NUBE's membership is only open to non-executive due to executive being classifed as management.

Other than protecting their rights, the union also serves as a collective body, or a representative body to negotiate their wages and other benefits with their employers. The result of these negotiations are known as collective agreement, or in short CA.

Successful negotiations would allow increased in wages, especially for jobs in the lower rung. With the pay gap between executives and clerical staff (who incidentally are union members) closing, this provides a disincentive for employees to accept promotional offer from clerical to executives. This is due to the relative increase in responsibility in now seen does not commensurate with the smaller increment that they would be getting.

While it can be argued that banks can still look for people from outside to fill up the vacancies, this disincentive would also affect the morale of executives of lower grades, especially those who had just made the cut to move up into executive grade.

To mitigate the drop in morale, management would be compelled to improve the pay package across the board.

Destructive Unions

Like always, I would still need to give a word of caution. In some instances, unions could also be the cause of downfall of a company. We need not to look further. Let's take Malaysian Airline (MAS) as an example.

As Malaysia's national carrier, it is the pride of Malaysia. But the airline has been suffering badly from operational losses. The airline is suffering from lack of operational efficiency, but past management attempts to fix the problem faced heavy resistance from the unions within MAS. Yes, unions.

MAS has a total of 9 unions, each covering different roles within MAS. Baggage handlers have their own unions, stewards and stewardess have their own unions, counter staffs have their own unions. The competing nature of all these unions in protecting their turfs is now forcing the management to spend more time dealing with unions rather than to improve operational efficiency and in marketing.

Mega-Projects

Let's face it. Mega-projects are things of the past, especially if the return from the project is localised. Let me why mega-projects worked in the past, but no longer in the future.

Past Mega-Projects - Why They Work

In the early 80's, Malaysian economy was basically still primarily an agrarian economy. Most of our exports were commodities. Foreign investors did not see us as a potential ground for industrialization as we lacked the physical infrastructure. Our road infrastructure back then were rudimentary, and our deep sea port had fallen behind. Thus, the need for mega-projects focusing specifically in these areas.

When these projects were completed, the world still did not know us. Malaysians abroad have to introduce our country as the country located south of Thailand and north of Singapore.

Thus, the need for KLCC. Once derided for being wasteful, the project had actually help to propel Malaysia's image to the forefront. We now no longer need to promote Singapore and Thailand in the same sentence when telling foreigners where do we come from.

Why Certain Mega-Projects No Longer Works in Some Areas

As more and more infrastructure are being completed, we are now slowly having the problem of infrastructure glut, specifically in the surrounding of Klang Valley. Further infrastructure development in this vicinity would no longer be able to bring the same return in investment as in the past.

Additionally, infrastructure development in the past requires use of hard labour. Most of these were sourced locally then, providing jobs for Malaysians. The wages they earned were then spent in Malaysia, thus energising the local economy.

But today, it is quite hard to find Malaysians willing to work in the construction sector. Instead, these jobs are mostly outsourced to foreign labours, mostly Indonesians and Bangladeshi. These foreign labours do not spend much within our economy, but instead send their hard earned pay back to their countries of origin.

To better illustrate this. A newborn baby needs his mother's milk. Slowly and surely, he would begin to crawl, to walk and to run. By then, he could no longer rely on his mother's milk. He needs to have solid food. Thus, the need to slowly gravitate away from running the economy using mega-projects.

Qualifying Statement

However, I would need to qualify my statement. Certain mega-projects can still bring high return. Klang Valley for example would need more public transport infrastructure development. Such projects, like MRT1, MRT2, and MRT3 are much needed infrastructure projects in the Klang Valley to improve the connectivity between locations.

Similar infrastructure development like those in the late 80's to the 90's can still be invested in nationwide. Some of the mega-project that I wish to see to come true would be the double-tracking project for railway from the north to south and an airport in Kulim. I'll explain why later.

Currently, our rails are running on a single track, which does not bode well for logistics transportation. This has caused further reliance of highways to transport goods within Peninsular Malaysia. With double track, goods can be transported to both directions at the same time instead of one train waiting for the other train to arrive before starting its journey. On this account, Tun Mahathir's anger at Tun Abdullah is very much justified (a double tracking project was signed before Tun Mahathir stepped down, but was cancelled when Tun Abdullah became the PM).

Kedah's request for an airport to be built in the vicinity of Kulim is a good long term project. The project would complement Kulim High Tech Park and would allow more investment flowing into Kedah. While this may result in investment to Penang to be diverted to Kulim, this would help to spread the wealth over to Kedah and concurrently alleviate the housing problem on Penang Island.

Sabah and Sarawak - Land Fertile for Mega-Projects

Another area of focus for mega-projects would be Sabah and Sarawak. Both states are very much left behind during previous administrations. This in turn helps to create an environment that makes both states to be suitable to implement mega-projects.

Lack of job opportunities have seen many youths from both states to migrate to greener pasture, either in Peninsular Malaysia or overseas. Mega-projects on the other hand would help to attract these youths (and myself hopefully) to return to both states. Such projects would serve a double-pronged approach for both states. First, creation of jobs that would help to fuel the local economy. Second, increased population would allow both states to request larger budget allocation from federal government, as budget allocations for states by federal government are dictated by headcount, as enumerated under the Federal Constitution.

Monopoly of Business

Another aspect of Malaysian economy that would need to be looked into would be monopoly of business. Many types of business in Malaysia are still being monopolised by select few individuals.

Businesses that deal with consumer goods are still being monopolised by these select few traders. This creates an unhealthy consumer goods environment as there are no competition that would help to push prices down. Just to illustrate, in Sarawak imports of certain goods can only be made from certain individuals who in turn control the business statewide.

However, not all types of monopolies are bad. Some monopolies had to be accepted as there are no other business willing to enter the industry. Some businesses are of strategic in nature. And some businesses required to be a monopoly due to economic of scales. Thus these require large amount of capitals that may not necessarily translate to return in investment.

Education System - Neither Here Nor There

A lot has been bragged about our education system. But the hard truth is our education system is not here nor there.

Rote learning has rooted itself deep into the system that our education system are producing only regurgitators. It was so bad that when I took my SPM, I recalled some of my batch mates had actually memorized several sets of essays for SPM.

Sometimes, it is not what the system wants us to be, but the implementors of the system that has other ideas. I recalled having my essay marks being deducted as I had given points which were logical, but were not part of the proposed answer scheme.

Why is this bad for us?

In the long run, we are creating a generation of zombies. Zombies that could accept orders and suggestions, but could not think for themselves. This is not healthy as this would bring about a citizenry that can be manipulated by people in interest.

In fact, I would say this is the particular reason why our 13th General Election was a very heated general election. Previously unfulfilled promises by the ruling coalition has resulted at least half of the voters to no longer trust their election manifestos, or even actual good news that comes out of them. As the education system had created a generation of individuals who would take whatever being bandied around as truth, this gave the opposition of the day to spread rumours that had angered a small part of the voters to switch sides during the general election.

The best example would be that of the presence of 40,000 Bangladeshi being imported for the purpose of the election. Many took to the election centres nationwide to catch South-Asian looking individuals as potential phantom voters. In one case in Terengganu, they did netted 3 young men, who were managed to be prevented from voting. These 3 young men were later proven to be Malaysians who happened to study in Universiti Malaysia Terengganu. One of this men much later even swore an oath for King and Country, now serving as a police officer. Yet none of those who had prevented them from performing their rights as citizens apologise to them.

Conclusion

What I have just proferrred, is not the complete list. There may be other causes that had led to our current predicament. Nor should I claim a moral high ground with what I have just shared, especially if there are other circumstances that is unknown to me that had happened and had led to the examples I have shared. But I do feel, the steps been taken by our current government would be able to lead us to a high income nation.

However, I would need to caution the current government on 3 areas.

Perception Management

The current government has failed tremendously when it comes to perception management. Not only they have failed to deliver the required messages to the citizens, but they have managed to jumble up the messages and have the same message being seen as cynical towards themselves.

If the current government wish to win in the next general election, then they need to begin to manage this area.

Sovereignty of Nation

A weak nation is never a sovereign nation. As discussed in my previous writing, I foresee a much weakened Malaysia. With disputed claims over South China Sea (with ASEAN now proposing to name the sea as Southeast Asian Sea) potentially getting even hotter within the next 5 years, I fear we may be too late to procure sufficient surface combatant vessels and sub-surface vessels to protect our sovereignty over our Economic Exclusive Zone. Similarly, any conflict over at South China Sea would also damage the economy of the region as the main Sea Line of Communication (SLOC) does pass our country.

Increasing Cost of Living

As mentioned earlier, the subsidy rationalisation has slowly resulted in increase in the cost of living. However, there seems to be a huge disconnect between the efforts of some agencies when it comes to the increase in cost of living.

Best example would be the Land Transport Commission, or SPAD (Suruhanjaya Pengangkutan Awam Darat) recent announcement to allow the increase of public transportation fee, which happened to be timed together with the implementation of GST.

A better approach by different government agencies are to coordinate the increase on a gradual basis, timed differently to allow adjustments to be made by the citizenry.

As I have addressed some of the economic concerns in my previous writings which I had also shared in this same blog, I would not further elaborate these. These concerns implementation of GST, why GST is needed by Malaysia, and why BR1M is essential and how it generates local economy.

I would however like to touch a bit on the timing of GST implementation. Many have argued that with the worsening global economy, it is not the right time to implement GST. However, I would like to state that implementation of GST is very timely and this is the only right window of opportunity left for us. With the 11th Malaysia Plan to be debated in the Parliament somewhere next month, GST would be the primary driver for source of allocation for Malaysia in the future. With petroleum price being unstable, GST would be able to provide Malaysia a stable income. Plus, petroleum is not a renewable resource. One day it would be depleted.

With that, I end my case.

Note: feel free to point out what I may have gotten wrong. But please do it in a respectful manner.

Malaysia And South China Sea

Recent revelation of China making land reclamation on Mischief Island which form part of the Spratly's had raised the concern of other claimants to the chain of islands.

Leading the charge is the Philippines and Vietnam, both nations who not only distrust the country, but had actually fought against the Chinese military might before; the Philippines while under the aegis of UN during the Korean War while Vietnam during the Sino - Vietnam 1979 border clashes.  The Philippines had hoped Malaysia as the current chairman to ASEAN, a regional grouping that Vietnam, Malaysia and the Philippines members would be firmer towards China.  However, there were not much noise coming from the recently concluded ASEAN Regional Ministerial Meeting, which was held in KL.

In fact, Malaysia is being seen playing it coyly with China on matters pertaining to South China Sea, even when the People's Liberation Army - Navy (PLA - N) had conducted a naval exercise in the vicinity of James Shoal (Beting Serupai to Malaysian and Zhengmu Reef to China), a rocky outcrop located about 80 nautical miles away from the Malaysian town of Bintulu back in 2013.

This fact is not lost to the Chinese, who had reciprocated Malaysia by giving the country a differential treatment.  This has led to PLA conducting a table top military exercise with Malaysia at the end of 2014, with a full fledged military exercise planned for this year.  Add on top of it, Chinese Politburo is said to be behind the recent visit of Chinese August One acrobatic team to Malaysia's Langkawi International Maritime and Air Show (LIMA) 2015.

Why does Malaysia, a regional powerhouse in the 90's, choose to pander to China instead of being aggresive towards China's military expansionism in South China Sea?  For us to understand this quirkiness, let us first understand the unique Sino - Malay relationship which has been in play since at least 649 AD.

EPF and Retirement Age

A few years back, when the Govt had decided to increase the retirement age for civil servants from 55 to 56, and then to 60, it was only time before the private sector is being compelled to adopt the same retirement age. When that had happened, there was a mismatch between the private sector retirement age and the EPF's retirement age.

Employees who were supposed to retire at the age of 55, were instead continued to work. Yet they received the fund that they were supposed only to receive upon their retirement. At the same time, they no longer contributed to EPF even though they are going to work for at least another 5 years.

Upon receiving the fund from EPF, many used up the fund within 5 years.  With Malaysian life expectancy currently hovers between 75 to 76 years old, this means many of our senior citizens will be left without fund for the next 10 to 15 years.

EPF
EPF has its roots in its predecessor, the Employee Provident Fund Board which was formed under the Employee Provident Fund Ordinance 1951. In 1982, the ordinance was upgraded to an act, and in 1991, the law was replaced with EPF Act 1991. The sole reason of setting up the fund was to assist Malaysians to save money for their use when they retire.

Retirement Age
The original act, which was an ordinance was created during pre-independence time. Back then, access to healthcare service was not available to most Malaysians. Today, you can find rural clinics at almost every district nationwide. With availability of cheap healthcare services and improving hygiene awareness, life expectancy for Malaysians gradually rose from 60 to 75 today.
The removal of communist threat had also helped this as people can live longer without being worried their lives would be snuffed out be these terrorists.

Unclaimed Monies Act 1965
You would have thought that people would ensure their hard-earned money would only be spent by themselves. However, the opposite is true. Every year, banks around Malaysia had to remit millions of ringgit worth of fund to the Unclaimed Monies unit, which is located at Menara Maybank. What constitute unclaimed monies are monies kept in CASA (current account and savings account) that are inactive for period of more than 7 years (meaning no deposits or withdrawals), non-auto renewal fixed deposits/investment accounts more than 7 years) and unclaimed EPF fund belonging to members who are more than 75 years old. Apparently there are Malaysians who forgotten they had opened EPF account which had accumulated funds for their retirement. Yet they had forgotten (or they had died without informing their next-of-kin.
So what was EPF's actual proposal that got buried under tonnes of misplaced concern that the EPF monies would have been used to bail out the so-called mismanagement of 1MDB?

EPF's Proposal
Far from being used for sinister purpose, the suggestions floated by EPF consist of 2 distinct amendments.
To raise full withdrawal age from 55 to 60.
To increase maximum tenure for members to keep their funds in EPF from 75 to 100. This is to allow the members to continue receiving dividends over their fund in EPF till the member reaches the age of 100.

My Stance
As always, I would need to state my stance.
I have no problem to wait till 60. So far, EPF had done a good job in their investment. So I am not duly worried. But that is just me.
This is something we should consider on. This would do good to the member and his/her next-of-kin. To prevent this from ever happening to us, make sure we prepare our will to include our EPF savings. Then again, if you don't formalize your will, your funds might end up in the hands of Amanah Raya Berhad. That again, would be something for discussion on another day.

Note - currently I have a deluge of ideas what to write about our socio-economics (my background was in accountancy, with strong flavour of economics), unfortunately my focus would be more towards economics. Once I settle back into my old routine, I will write again about military and defence. One topic is dancing behind my head right now. Will see how it ends up.

End of Sabbatical

The last couple of months, I have not written much any heavy analytical driven articles due to my commitment as a new employee in a new environment. As I am slowly sliding into the new role comfortably (a credit to a great boss and a great team - identities all withheld), I would slowly start my writings again.

The month of May would probably see at least one current issue article, but that is not a promise as I have an exam end of May. So wish me luck!

At any rate, if I have good ideas, or I'm on the heat (means I need to write something to let me have a good night sleep), I would put it down. As promised, I will now focus more on my blog rather than Facebook.

GST, Transfer Pricing and Money Laundering

From Day 1 the Govt had announced the implementation of GST to replace SST, proponents (myself included) of GST had been highlighting how implementation of GST would minimize or eradicate transfer mispricing. However, I noted that most of the articles covering this pertinent topic (myself is guilty as well) are written in a very technical language that the message missed the target audience (whether the target audience is willing to listen is a moot point).

Before I go any further, allow myself to explain what is transfer pricing. I will try to explain this in the most laymen term as possible.

Transfer Pricing

Transfer pricing is the act of assigning value to a cost of operation, be it in completed product (goods), or services between related companies located in different tax jurisdictions. Th cost assigned to these goods or services should be the based on an arms length deal (meaning the assigned cost should be as if the goods or services are obtained from a non-related business). An illustration of transfer pricing in an ideal environment would be as follows.


Ali owns My Company Sdn Bhd which manufactures frozen putu mayam for export. He also owns Sg Company Pte Ltd which operates in Singapore to sell his product in Singapore. His former partner, Muthusamy owns MutuPutu Sdn Bhd which also sell putu mayam. As MutuPutu is selling putu mayam at RM10 per packet, Ali priced the cost of putu mayam made by his company for sales to Sg Company Pte Ltd at RM9. While the price is RM1 cheaper than what Muthusamy is selling, the pricing can still be considered as at arms length as Ali did not seriously underpriced his putu mayam and the difference can easily be attributed to savings from promotional activities (Ali doesn't need to promote to his own company to sell his own products).

In the real business world, transfer pricing are mostly applied on multinational corporations or MNC. We have lesser concern with MNC's conduct in transfer pricing as they would be very sensitive of transfer mispricing. What we are concerned are small and medium size industry owners, like Ali.

Using the same example as above, now we consider the effect of corporate income tax. The corporate tax rate for Malaysia and Singapore respectively are 24% and 17%. Say Ali receives an order of RM9,000,000 of putu mayam to be exported to China. Instead of selling to China via My Company Sdn Bhd to China at RM9 per packet, he now sells it to China at RM5, which is only RM1 lower than his actual cost. At RM5 per packet, his tax incurred is RM240,000 (assuming 100% of his cost is tax deductible). In Singapore, he bills the Chinese company his putu mayam at RM9 (let's keep it to ringgit to better illustrate it). Thus, he incurs tax of RM680,000. This totals up to RM920,000. Had Ali exported everything from Malaysia, he would have to fork out RM1,200,000 over the same deal.

With GST in place, the government can afford to lower down the corporate tax rate to attract more investment into Malaysia. One of the key reasons MNC are investing in Singapore today is because of its lower corporate tax rate compared to Malaysia. You can say infrastructure and human capital, but infrastructure can be built, while Singapore's human capital are largely powered by Malaysians and other foreign talents from countries like China, India and Philippines.

Money Laundering - The GFI Report

The last five years saw the emergence of an international lobbyist group called Global Financial Integrity. It had twice labelled Malaysia globally as the 3rd highest outflow of funds suffered from purported money laundering. The report had prompted Bank Negara officials to check with the group on how they had derived the figure. The group had sheepishly confirmed that they had obtained the figure from calculating the bill difference of products exported from Malaysia to overseas, and most of the figures if not all are exports via Singapore. Unfortunately, Singapore govt was reluctant to release the figure how much of the exports to Singapore had actually passing Singapore and later being repriced higher. Much like what Ali did in his export of putu mayam to China.

With the corporate tax rate lowered, this would provide disincentive to people like Ali to evade corporate tax in Malaysia via transfer mispricing. Effectively, this is creating a self-imposed barrier to have the products or services exported via Singapore.

How does lowering corporate tax rate helps me? I still pay the same tax.

As mentioned, lowering tax rate for corporation would attract more investment into the country. In fact, we have places like Bayan Lepas Free Trade Zone and Kuantan Free Trade Zone built solely to provide pioneer status for corporate investment into Malaysia, where they get to enjoy pioneer tax status at the rate of 10% for 10 years.

Using the same template as the second scenario, say now Malaysian corporate tax rate is at 19%. Ali would be paying only RM950,000 in tax. If he exports through Singapore and tries to misuse transfer pricing, he would be paying tax of RM870,000. While he still saves RM80,000, his cost of delivery and exposure to 2 to 3 exchange rates (RM to USD to SGD to RMB), would discourage him from using the same method (export to China via Malaysia would only incur 1 conversion rate as Malaysia and China have special trade relationship).

Disclaimer

While the scenario that I have explained above shows how GST will help to minimize transfer mispricing, there is another 2 component that would lead to transfer mispricing.

Currency Flunctuation - SGD

While most Malaysians see the strengthening of SGD as proof of a better managed Singapore economy (which in a way is true), many do not realize that SGD is not a fully trade-able currency. It is in fact tightly controlled by Singapore's MAS in order to control inflationary effect in Singapore.

To maintain Singapore's competitive advantages, SGD is being traded based on a basket of currencies, with the weight-age for each currency, including RM being classified as national secret. Thus, the one possible mean for Singapore to sabotage the weakening reexporting from Malaysia is by strengthening her currency against RM, which would still attract transfer mispricing to occur. However, this is unlikely as how far does Singapore is willing to go? The very act is like ingesting a poison pill. This action would only make cost of operating in Singapore far too expensive for companies and might even backfire against Singapore royally.

Corruption

Lets face it. Corruption is rampant in Malaysia. Some people claim you need to grease some hands for things to move.

Some of these people who are more than willing to pay to grease some hands too are more than likely to be miffed when the enforcement officers do not want to accept their bribe. So whose fault is it?
For corruption to go, don't give. Two wrongs doesn't make one right.

Conclusion

We are all one the same boat. We live and we sink together. For the last 40 plus years (I'm counting from 1973, when Petronas was formed), the burden to fund the development of Malaysia had fell on the shoulders of Sarawak, Sabah and Terengganu. Now that GST is being implemented and petroleum revenue is slowly diminishing, time for the rest of Malaysia to repay back to the 3 states for their contribution.

'The only thing that is constant is change'

'The only thing that is constant is change'
(Heraclitus, circa 500 B.C., Ephesus, Greece)

More than 2,500 years ago, Heraclitus, a Greek philosopher propagated the above. And till today, he is still right. Well, nearly (everything changes except God).

But what we have today are a bunch of people, mostly in their youthful confidence, that they can bring immediate change. Would immediate change be good?

This would be something I have to disagree to as I believe in that changes must go through a process.

An expecting mother will carry her foetus for approximately 9 months. Too early, the baby might not survive; too late, the baby faces complications in later life.

Same as change. Follow its process, the change will lead to improvement. Improvement itself is a set of controlled chaos.

Sometimes, changes has to be forced upon. I have to agree. But always, when changes that are forced upon us is successful, there must be an agent of change to control it.

Using back the analogy of birth. Sometimes, a mother has to undergo Caesarean section surgery. It does not come without danger, but we seldom hear unsuccessful delivery. Why? The presence of a doctor as an agent of change.

One last analogy when it comes to change. When seeds are sown onto the ground, the seeds will take time to grow. It will grow its roots into the ground. Come the weather shine or rain, how deep the root will determine how the seed, now grown into a tree will survive. Not deep enough, the wind will uproot it, and the bright sunlight will wither it.

So, do you want to be an agent of change?

Due credit to my fellow patriot Brother Jamalee Bashah for prompting me to write about change.

First published on 4th June 2015 at 10.48pm.

Malaysian MRCA Programme - The Next Step

As the curtain falls over the Langkawi International Maritime and Air Show 2015 (LIMA 2015), the long anticipated announcement on RMAF MRCA programme to replace the RMAF ageing Mikoyan Gurevich MiG29N air superiority fighters were yet to be announced.  While the lack of announcement was a dampener for LIMA, it was a foregone conclusion, considering capital funding for the programme under the 10th Malaysia Plan had long since been exhausted and the budget for 11th Malaysia Plan is only expected to be tabled in April or May 2015.

However, the lack of announcement does not mean that Malaysian Government is not committed to do window shopping during the same air show.  The lack of announcement had instead resulted in an even more intense jostling and bidding behind the scene for the small pie in Malaysian defence budget.

Updates and What not

It has been about a month since I last properly update this blog.  And within this one month, a few things have had occurred.

Updates:

1. The first A400M had just arrived in Malaysia today.  One of the giants had landed at Subang AFB late evening today.  Unfortunately, I wasn't there for its arrival as I was engaged in a separate event.
2. Views on the war against Da'ish as an ideological war has been strengthened by a writing by Fareed Zakaria recently.  He stated that Pentagon has now approach this issue as an ideological war instead as a normal all out conventional war.  Finally, someone in US are really thinking things through.
3. EA forms are out.  Time to pay your tax and be 'patriotic'.
4. AFP was informed of the Battle of Mamasapamo by MILF, not by AFP.  Now that is something to ponder about.
5. Cold War 2.  What you think about it?  
6. Myanmar conducted an air raid on a town in Yunnan Province, China, killing 4 civilians.  Remember #5?

Till I have the time to further update the blog.

Majlis Tahlil Kpl Azrul Tukiran (PGB - KIA, Kpg Simunul Jaya, Semporna - 2 Mac 2013)

Suasana syahdu di Kampung Rantau Panjang, Klang, Selangor masih terasa walaupun sudah dua tahun arwah Kpl Azrul terkorban dalam pertempuran berdarah di Kampung Siminul Jaya, Semporna di tangan pengganas Tausug Filipina.

Demi Tanahair Tercinta

Sleeping on the job - Symptom of Manpower Stretch?

This photo have been spreading like wildfire on the internet, partly because of people's unhappiness with rising crime rate and perceived laziness of police in pursuing and arresting criminals on the street. But more so due to these officers being part of an establishment that is being purposely portrayed as the reason the current government could stay in power. 

Action had since been taken on the 2 officers. And the internet is now filled with condemnation at these officers. 

Happy Chinese New Year

Dear readers,

In view of the upcoming Chinese New Year, I will be taking a short break from writing to focus on my family & my studies (knowledge upgrading).

To all who celebrates Chinese New Year, Happy Chinese New Year to all. May the Year of the Ram brings better tidings to all of us after a tumultuous Year of Horse.

A400M - Boost in MAF Strategic Capabilities

On February 3 2015, the first RMAF A400M Atlas took to its maiden test flight. The historic flight means soon RMAF will have strategic lift capabilities, and thus will elevate MAF abilities to move fast to face the ever evolving threat matrix.

The first RMAF A400M in flight.  Photo courtesy of Airbus Defence & Space

The first RMAF A400M in flight.  Photo courtesy of Airbus Defence & Space

RMAF Current Transport Aircraft

Currently, RMAF are operating 2 types of transport aircrafts; the venerable Lockheed Martin Hercules C-130, which is affectionately called Charlie, and Indonesian-made CN-235 transport planes.

Threat from Daish - Religion or Ideological War?

The rise of a previously obscure militant group that sought to overthrow Syrian President Bashir al Assad were first noted somewhere around September or October 2013.  The then militant group that called itself as ad-Dawlah al-Islāmīyah fī al-‘Irāq wash-Shām (loosely translated to ISIL or Islamic State of Iraq and Levant) was headed by Abu Bakr al-Baghdadi, a man believed to be a former inmate of the infamous Abu Ghraib Prison (he was imprisoned in Camp Bucca, where former interns of Abu Ghraib were placed after the Abu Ghraib scandal was broken to the world.

Back then, the civil war in Syria had worsened and US government had begun to supply weapons to militant groups in Syria that were opposed to Bashar's government.  Apparently, some of the weapons that were supplied by the US were later found to have made their way back to Iraq and were used in several attacks within Iraq itself.  It was only then that the US government realized that the ISIL that they had been supplying weapons to fight the Syrian government were actually the same Al Qaeda in Iraq (AQI or Tanzim Qaidat al-Jihad fi Bilad al-Rafidayn).  This was despite the fact that Iraqi military intelligence had warned the Americans of the links between the two groups.

DS Hishammuddin in answering the Q&A session during 3rd National Aspiration and Leadership Symposium

The Fallacy of a Patriotic Tax Payer

'I want this to be done this way, this way and not that way'

'I have the right to say because I am a tax payer'

'Do you know how much tax I pay? I pay ten times more than you'

Often we hear and read such retorts whenever we are in the midst of heated arguments on the direction of one's country or state. The view was that every single tax payer has the right to determine how his or her tax is being used in the development of his/her country.

Often, many choose to highlight the tax they paid as their patriotic contribution in nation-building.

Murkier Account of Battle of Mamasapono

The aftermath of Mamasapono attack that cost the lives of 44 Philippine National Police Special Action Force (PNP - SAF) together with 17 MILF and 5 other civilian lives is getting murkier.  After the initial shock that 44 police commandos had lost their lives in the erstwhile successful raid that was said to have managed to eliminate Marwan @ Zulkifli Hir, holes begin to appear in the official version of the incident.

Condolences to Philippines National Police Special Action Forces (PNP - SAF)

We were lucky.

In the Kampung Siminul Jaya ambush that killed 6 of our men, of which one of them was the husband of my ex-colleague, we were lucky that Kiram's terrorists did not press their advantage. Why they did not press their advantages, we will never know.

My View on BR1M

BR1M by and large is being maligned on both sides of the political divide; pro-BN side (or rather pro-Mahathir side) holds onto Tun M's argument that BR1M is a waste of valuable govt resources and should be used in subsidizing the petrol price, while pro-PR sides had claimed that BR1M is a form of bribery, a means to buy vote.

However, for those who come from economics background will understand that BR1M is what we called as negative taxation.

Govt has 2 tools in managing an economy;
1. Fiscal policy,
2. Monetary policy.

Monetary policy, ie increase/decrease of interest rates may not help to stimulate the economy. In fact, in Malaysian economic context, monetary policy is no longer flexible enough to be stimulate the economy. A decrease in interest rate will help to push people to spend, but it will result in increased loans in the property market, which has already pushed housing price far away from the reach of most working class Malaysians.

Increasing interest rate on the other hand will stifle market liquidity as cost of loans increased, and individuals may choose to save the money instead of investing them into ventures.

Another component of monetary policy, the exchange rate, can and is still be manipulated by Bank Negara. While ringgit isn't tagged to any currency anymore, revaluation of currency to stimulate the economy may have an even more adverse effect on the long term economy.

A strengthened ringgit will help to lower cost of living in Malaysia, but conversely, it will result in higher outflow of liquidity as more money is spent on imported products. Local manufacturing will also suffer hits as dropping demands for their products due to drop in foreign exports due to pricier goods and increased demand of imported goods will be a double whammy. These will affect the liquidity of these producers and they may have to close their businesses. This in turn will result in job losses which in turn force the economy to contract.

That leaves fiscal policy. Usually, in most economies, especially western economics, the step that is taken is by affecting changes in the tax.

Lowering tax is a sure way to free more money into the market.

But lowering tax rate will result in benefits that would be enjoyed mostly by higher income group. As those in this group usually have high disposable income, this may in turn result in the tax savings being saved instead of being spent.

Since the poor don't pay tax, a negative tax is introduced, ie BR1M. The effect of BR1M by large is similar to reduced tax rate, but since the recipients have less disposable income, this benefit will definitely be spent and thus, turn the economic wheel.

The problem however is at our rather inefficient distribution of BR1M.

Ideally, BR1M distribution via banking account is the most perfect method. However, due to large number of population in East Malaysia do not have and do not need banking accounts, distribution of BR1M to both states have to be via direct disbursement.

Direct disbursement in cash is dangerous. You might have instances where the money is embezzled by individuals or even by the distribution team.

Thus, printed vouchers with (security features) that need to be acknowledged had to be used (note increase in cost).

Due to lack of banking accounts, the vouchers will need to be distributed by banks. Cost to transport the cash to these locations will then again cost money.

And not to forget the allowance paid by the respective services to their staffs in helping to distribute the aid.

First published on 15th Jan 2015 at 12.37pm at https://www.facebook.com/danny.liew.18/posts/786366261400630