Global fund managers look to trim Malaysia holdings

By Lee Wei Lian

July 16, 2010

Datuk Seri Najib Razak’s administration has been trying to raise Malaysia’s profile as an investment hotspot. — file pic

KUALA LUMPUR, July 16 — Malaysia was the second-least-favoured destination among global emerging market (GEM) fund managers, according to a poll by Bank of America Merrill Lynch Global Research released this week.
The July survey had Taiwan, Malaysia and Chile as the most underweight markets for GEM investors. They were also slightly underweight on China due to slower growth prospects.
In financial markets, the term underweight is used by analysts to advise investors to reduce their holdings.
The findings of the survey could potentially signify a setback for Malaysia’s bid to become a more competitive destination for global portfolio investment.
The Najib administration has been trying to lift Malaysia’s profile as a destination for foreign investment to help the country achieve an average gross domestic product growth of at least six per cent per annum over the next five years, in an effort to become a high-income nation.
The country’s foreign direct investment rates have fallen faster than other regional players like Singapore and China, and at the same time, capital outflows have dampened private domestic investments. Net portfolio and direct investment outflows had reached US$61 billion (RM197 billion) in 2008 and 2009 according to official data.
Asia-Pacific fund managers that were surveyed, though slightly underweight on Malaysia, held a more favourable view of the country and were looking to cut back the most in Korea, India and Australia instead, while China, Indonesia and Taiwan were the most-favoured markets.
There was an increased pessimism among the fund managers overall on the economic outlook, with a net 12 per cent expecting weaker economic conditions over the next 12 months, as compared with a net 42 per cent expecting a stronger global economy in a survey two months ago.
The fund managers also expect China’s prospects to worsen, with a net 39 per cent expecting weaker growth, as compared with 60 per cent seeing stronger growth in January of this year.
Malaysia’s economy grew by an impressive 10.1 per cent in the first quarter of this year but the prime minister had on July 6 cautioned that growth in the second quarter could be slower due to deteriorating external circumstances.
The local stock market had been on a seven-day winning streak and neared a two-year peak before succumbing to profit-taking yesterday.
About 200 global fund managers with portfolios worth from US$250 million to over US$10 billion had participated in the Bank of America Merrill Lynch survey.

A deliberate backwardness: This is how Umno-BN stays in power

Why are the majority of the Malay and other bumiputra communities still lagging behind even though their so-called champion, Umno, has been continuously victorious in the past general elections?
By Viktor Wong, Malaysia Chronicle
Why is it that after more than 50 years of independence, the majority in the Malay and the other bumiputra communities still lag behind? Why is that after more than 50 years, they are still suffering from backwardness despite hundreds of government corporations and agencies specially established to enhance their livelihood?
Or perhaps the key question to ask should be, why are they still lagging behind even though their so-called champion, Umno, has been continuously victorious in the past general elections?

Even until now, many in these communities do not have access to the basic comforts that their counterparts in the urban areas take for granted, as a matter of right as citizens of this country. Yes, many Malays and bumiputra still live in areas that do not get water or electricity. Neither can they afford basic education for their young and have to live in old and dilapidated huts. The New Economic Policy (NEP) did not reach them at all. Why and how come?

Sadly, the answers are very much connected to how Umno brought about their continuous electoral victories and the methods they adopted to maintain their influence in the villages and other rural parts of our nation.

One of the main factors contributing to the party's success is to keep the communities they claim to represent in the dark - for decades. And we are not just talking about the lack of electricity. There is a greater darkness - from the standpoint of education, blackouts of information and distribution of deliberate misinformation.

Indeed, the rural folk have been denied the pace of development enjoyed by the town and city dwellers - quite often, it is deliberate. For example in the development of information technology, or rather, the lack of so as to make sure that the rural communities are solely dependent on government TV and RTM channels for their daily consumption of news and data. In the eyes of the official media, everything about Umno and BN is good and benevolent, all others especially Opposition Leader Anwar Ibrahim are traitors and enemies of the state.

Also, despite all the cheap funding and loan facilities offered under the so-called bumiputra schemes, special share option schemes, special economic assistance, by and large, the majority of the Malays and bumiputra do not get to tap these opportunities to create a better livelihood for themselves. Instead, the facilities end up being enjoyed only by the Umno elite and the families of the mid-level leaders. These people become wealthier and more powerful, finally entrenching themselves into the "golongan bangsawan".

What about the non-Umno members and the ordinary man-in-the-street bumiputras? No doubt, some of them have been lucky enough to get some benefits, but the fact is most of them do not. That is why the poor are still very poor today, those uneducated are still uneducated, while those living in backwardness are still totally backward.

Yet, despite these terrible conditions and outright marginalization, why do they still vote and support Umno-BN?

The reasons are simple. One of these is because they are constantly fed information and data sourced only from RTM, Utusan Malaysia and Berita Harian. No Internet - this means they are unable to get any news from opposing or independent sources. The excuses given by the government include no coverage, or coverage is too expensive, or the villagers will just have to wait.

That is the official line but what they don't tell you is that they don't really need any sudden explosion of progress in their traditional bastions of support. After all, to these Umno-BN leaders, prolonging their vested personal interests come first. As far as they are concerned, independent sources of information and news are lies anyway - defamation in disguise from traitors and so on!

So, brainwashed is the word. Malaysian villagers and rural folk, due to limited development through the decades, have been co-opted into supporting Umno-BN blindly and continuously. This is why many of the rural constituencies are still firmly controlled by Umno leaders and their local warlords. The votes for Umno are indeed 'controlled, manipulated and guaranteed' in these areas.

They are traders, not traitors!

By HWN YAUL LEN

It is an irony and certainly an injustice that those who publicly defend their vernacular educational system or fight for the legitimate right of their own racial groups are accused of not being patriotic.
And those who advocate open liberal policies and opposed protectionism are said to be treasonous
Now, even traders who made a principled stand against the implementation of what they perceived as an unfair and unjust ruling are labelled as traitors and betrayers of the nation.
However, those who have leaked national secrets, collaborated with foreign countries to undermine the country's reputation, sold their MyKads to foreigners or stole a RMAF fighter jet engines and sold it to foreigners, etc are not considered anti-national traitorous elements.
In Malaysia, the definition for “betrayer” or “unpatriotic” apparently depends on who is being referred to.
And the same goes for “national hero”, too.
Take for example, the recent Thomas Cup tournament. When the first single and first double of the Malaysian team earned two points for the country, they were not considered “heroes”. But, when the third single earned the third point that permitted the team to play in the semi-final, I heard a television host shouting excitingly: "Hero! He is the true hero of our country!"
Many people were worried about Malaysian volunteers, who were on board a humanitarian aid ship attacked by Israel while on its way to blockaded Gaza. The incidents were being extensively reported by the local media.
The hostages were finally released and, when they reurned home, they were personally greeted by the country's leaders. Also, they were called the "true heroes".
The country had spent a great amount of money to send our "astronaut" into space but eventually, he terminated the contract with the government and did not fulfil his obligation. But he was also called a national hero.
The popular definitions of national betrayer and national hero are actually quite reckless and unreasonable.
The traders, who decided not to sell sugar to safeguard the industry's interests and dignity after failing to ask for the cancellation of the unfavourable measures, were inexplicably labelled as "national betrayers".
It is simply mind-boggling to understand how an ordinary co-operative action by the small-time traders to stop selling sugar could be considered as “treason”!
The local groceries are hardly able to compete with powerful mega hypermarkets. The rulings requiring the traders to have a special licence to sell price-controlled items, and to limit the amount of sugar they are allowed to stock have caused them much inconvenience.
The government is only scratching the surface of the problem when it attempts to cut sugar subsidy indirectly by controlling the sales of it. But no matter how hard the traders try to explain to the government, their legitimate plea was unceremoniously dismissed.
Even though the government has claimed that it is practising the principles of upholding business interests and cultivating people friendliness, the discourteous way the Domestic Trade and Consumer Affairs Ministry rejected the traders’ request to review the matter is shocking, to say the least.
Moreover, the ministry’s decision to issue licences to petrol stations to trade in the price-controlled items is surely contemptuous of the significant economic role that the traders and groceries have been playing in the country for a long, long time.
The small-time traders and grocers could not and should not compromise on this matter. The only way for them to defend their dignity is to stand firm together and stop selling sugar, until the status quo is restored.
This is not treasonous or unpatriotic! The traders are simply exercising their right to have a level playing field, with just rules and a fair deal to make an honest living.

10MP injecting cash for KL 'ghost towns'

By Syed Jaymal Zahiid KUALA LUMPUR

The DAP's chief economist Tony Pua said the plan to develop the Kuala Lumpur financial district as well as other grand construction projects within the area as outlined in the 10th Malaysia Plan (10MP) is a waste of taxpayers' money.


Pua, the Petaling Jaya Utara MP, said this in support of a report by OSK Research which was published in an online news portal that said such investment was likely to create a commercial property glut.


The report said that the redevelopment of Kampung Baru could destabilise the property market around the KLCC area which is already suffering from a high vacancy rate of 17%.


“The temptation to rush into developments without any regard to the supply-demand dynamics can be very hard to resist in economic boom times.


"It will destabilise the entire market and can be calamitous to all market players in the long run,” said the report.


It stated further that the area would suffer from an overabundance of empty office spaces amid an influx of existing but yet-to-come spaces in the coming few years.


"It is very possible that the area would suffer from a property glut... this is typical of the economic framework where the 10MP is relying on the construction factor to push the economy," Pua told FMT.


The "construction factor", meaning injecting money into the economy through infrastructure developments, cannot generate income on its own, said Pua.


"It must coincide with other initiatives or you will end up creating more office spaces but having no one picking them up," he added.


Crony economics ala Mahathir


The redevelopment of Kampung Baru (right), the KL Financial District and the Sungai Besi Airport were unveiled under the 10MP by Prime Minister Najib Tun Razak in Parliament yesterday.


Pua said the projects reflected Barisan Nasional's bankrupt economic ideas where economic stimulation heavily depended on pump-priming activities.


"This is like what happened under the administration of (then premier) Dr Mahathir Mohamad. It is a simple way of fishing out projects to crony companies."


The first-term MP said much of the promised transparency under Najib's New Economic Model was invalidated by the lack of government assurance that all mega-projects in the plan will be sourced via an open tender process.


Pua argued that the cash should be invested in improving the deplorable education system and industries that ensures healthy competition and economic progress.


As much as RM230 billion will be injected into privatisation-driven activities under the new five-year plan, Najib's first as prime minister.


The sixth premier is facing a stiff test to revive the ailing economy amid opposition to his mass liberalisation efforts by internal and external political foes.

Malaysia Forex Regulations

FROM THE ECONOMIST INTELLIGENCE UNIT

Malaysia in recent years has relaxed or abolished several foreign-exchange
policies in line with the Capital Markets Masterplan launched in February
2001. Of the exchange controls introduced by the government in September 1998,
the ban on offshore trading of the ringgit was the last substantial measure
remaining in April 2010. Many analysts had expected this ban to be lifted in
2007 or in 2008, but Bank Negara Malaysia (BNM), the central bank, said on
several occasions in the past few years that the ban will end only when
Malaysia’s foreign-exchange markets are “very developed” and more “robust and
vibrant”. Although BNM has noted that the instabilities the global financial
system during 2008–09 did not augur well for further liberalisation in
foreign-exchange rules, it also has stated in early 2010 that it does not plan
to re-introduce capital controls. The 1998 controls, established following the
Asian financial crisis, never affected the operations of long-term investors
in manufacturing and related services.

Offshore entities in the Labuan International Offshore Business and Financial
Centre are considered non-residents for foreign-exchange administration
purposes. As a non-resident, the offshore entity may undertake, among other
actions, the following: obtain any amount of foreign-currency credit
facilities; invest any amount in foreign-currency assets; enter
foreign-exchange contracts involving foreign currencies with licensed onshore
banks, licensed offshore banks in Labuan and any overseas counterparty; and
buy or sell foreign currency (other than the currency of Israel) against
ringgit with licensed onshore banks for permitted purposes.

A company with Multimedia Super Corridor Malaysia status is exempt from
foreign-exchange administration requirements for transactions undertaken on
its own account. An operational headquarters (OHQ), regional distribution
centre or international procurement centre is subject to policies applicable
to a resident. In addition, an OHQ is allowed to obtain any amount of
foreign-currency credit facilities from licensed onshore banks in Malaysia,
and from any non-resident, as long as the OHQ does not on-lend to, or raise
the funds on behalf of, any resident; invest any amount in foreign-currency
assets to be funded with foreign-currency funds or borrowing; and use proceeds
of any amount from the issuance of ordinary shares through an initial public
offering on the Main Board of Bursa Malaysia for investment in
foreign-currency assets.

Resident corporations approved under the Iskandar Malaysia framework and
biotechnology companies approved under the National Biotechnology Policy (for
both, see National incentives) are allowed to do the following: pay and
receive payments in foreign currency, other than the currency of Israel, with
residents; borrow any amount of foreign currency from licensed onshore banks
and non-residents; invest any amount in foreign-currency assets onshore and
offshore; and retain export proceeds offshore.

Travellers may import or export up to M$1,000 in ringgit per person, and any
amount of foreign exchange, subject to declaration rules.

In recent years, BNM has simplified and streamlined its foreign-exchange
registration requirements. Forms for the few remaining such requirements can
be completed online at http://www.bnm.gov.my/microsites/fxadmin/index.htm.

The Anti-Money-Laundering Act 2001, Malaysia’s first legislation to combat the
movement of illegal funds, came into force on January 15th 2002.

No controls exist for repatriating invested capital, including reinvested
profits, other than nominal transfer approval by Bank Negara Malaysia, the
central bank. Transfers may be in any currency except for the ringgit and the
New Israeli shekel.

These corporate transactions do not require permission from Bank Negara
Malaysia, the central bank. Commercial banks may approve and handle overseas
payments of any amount.

For portfolio investments, exchange controls allow the repatriation of funds
by non-residents arising from the receipt of dividends, interest, rental,
fees, commissions or profits.

Since April 1st 2007 resident corporations (on a per-corporate-group basis)
have been able to obtain foreign-currency credit facilities up to the
aggregate of the equivalent of M$100m (up from M$50m). The company may use the
foreign-currency borrowing to finance overseas investment up to the equivalent
of M$10m. The aggregate limit for foreign-currency borrowing by individuals
was doubled from the equivalent of M$5m to the equivalent of M$10m; the funds
may be used for any purpose, including financing overseas investments.

There is no restriction on a resident to repay or prepay permitted credit
facilities. Any prepayment exceeding the equivalent of US$10m has to be
registered with Bank Negara Malaysia (BNM; the central bank) prior to the
prepayments.

Residents may obtain any amount of foreign-currency trade financing with an
original tenor of 12 months or less from Malaysian banks. Residents may also
receive any amount of financial guarantees from Malaysian banks or licensed
offshore banks in the Labuan International Offshore Business and Financial
Centre, and from non-residents that are not financial institutions and are
shareholders, subsidiaries, or related or associated companies.

BNM stipulates that any transfer of funds from Malaysia to or from
foreign-currency accounts maintained with a licensed offshore or overseas bank
must be in the foreign currency in which the account is maintained, not in
ringgit.

Residents must seek prior permission from the central bank to obtain any
amount of credit facility in ringgit from non-residents, including from
non-resident shareholders or directors. Residents can obtain foreign-currency
credit facilities from non-residents up to an aggregate of M$10m (equivalent)
per individual or M$100m (equivalent) on a corporate-group basis. Since
April 1st 2007 residents may use foreign currency to purchase financial
products denominated in foreign currencies but offered onshore.

Credit facilities to non-residents. Since April 1st 2004 all ringgit lending
by banking institutions to non-residents (excluding stockbroking companies,
custodian banks and correspondent banks) has had an aggregate limit of M$10m.
The non-resident may use the ringgit credit facilities for any purpose in
Malaysia, excluding financing or refinancing the purchase or construction of
immovable properties. Residents (banks and non-banks) may extend ringgit
credit facilities in aggregate up to three property loans to non-residents to
finance or refinance the purchase or construction of immovable properties in
Malaysia, excluding only the purchase of land. (Before April 1st 2004 only
financial institutions and employers were allowed to extend property loans
to non-residents.)

Since April 1st 2007 onshore licensed banks can extend an overnight overdraft
facility of any amount to non-resident stockbroking firms or custodian banks
for settling or purchasing shares listed on Bursa Malaysia (the previous limit
was M$200m). Resident stockbroking companies may extend margin-financing
facilities to non-resident clients for buying shares listed on Bursa Malaysia.
Non-bank residents may extend credit facilities in ringgit to a non-resident
up to an aggregate of M$10,000.

Licensed onshore banks may extend credit facilities in foreign currency to
non-residents for any purpose. Since April 1st 2007 non-residents can obtain
any number of residential or commercial property loans (previously, only
three).

Hedging. Residents may enter hedging arrangements with licensed onshore banks
for payments and receipts for import and export of goods and services either
based on a company’s underlying commitment or on an anticipatory basis if the
amount entered does not exceed the total amount paid or received in the
preceding 12 months. Residents may hedge capital-account transactions with
licensed onshore banks based on committed capital inflows or outflows and are
also allowed to hedge their existing holdings of foreign-currency assets.
Non-residents are allowed to hedge any inflow or outflow of funds for firmly
committed transactions.

BNM stipulates that the maturity date of the forward foreign-exchange contract
should be the expected date of receipt or payment of the underlying
transaction. If the foreign-currency receivables are received earlier, the
resident can sell the foreign-currency receipts for ringgit on a spot basis or
temporarily retain the receipts in an onshore foreign-currency account,
pending maturity of the forward foreign-exchange contract. For forward sale of
export proceeds, the maturity date of the forward foreign-exchange contract
should not be later than six months after the intended date of export. For a
forward foreign-exchange contract involving two foreign currencies, the use or
retention of the foreign currency purchased by the resident must be for
permitted purposes.

A non-resident is free to enter into a foreign-exchange contract on a spot or
forward basis with a licensed onshore bank to buy ringgit to make payment to a
resident or to sell ringgit funds arising from a committed transaction in
Malaysia. The maturity date of the foreign-exchange contracts should be the
expected date of payment or receipt of the underlying committed transactions,
and the total amount of the foreign-exchange contracts should not exceed the
expected sum of payments/receipts of the underlying committed transactions.

Swaps. A resident with a firm underlying commitment may enter into
interest-rate swaps with licensed onshore banks and licensed offshore banks in
Labuan.

The procedure for remitting royalties and technical-assistance fees is similar
to that for repatriating capital, profits, dividends and interest. Such
transfers are freely permitted, and licensees have reported no problems as
long as the original arrangement had received the required official approval.

Withholding tax on royalties and technical fees is 10%, though it may be lower
under bilateral double-taxation treaties. Tax deductions are available for
expenditures incurred in acquiring patents, designs, models, plans, trademarks
or brands and other similar rights from foreigners.

Export proceeds may be received in foreign currencies, except the New Israeli
shekel, or in ringgit from an external account. Payment must be received
within six months of the date of export. Export proceeds can be retained in
foreign-currency accounts with banks in Malaysia or at overseas branches of
Malaysian-owned banks. Since November 28th 2007, a resident corporation with
export earnings has been free to pay another resident corporation in foreign
currency for settlement of goods and services. Residents may enter a forward
foreign-exchange contract with an onshore licensed bank to sell
foreign-currency export proceeds for ringgit if the maturity of the forward
contract is less than six months after the intended date of export.

Bank Negara Malaysia (BNM; the central bank) signed a three-year currency-swap
agreement on February 8th 2009 with its Chinese counterpart, the People’s Bank
of China, amounting to Rmb80bn and M$40bn. The swap permits BNM to sell
renminbi to Malaysian importers who want to buy Chinese goods. Conversely,
Chinese importers can more easily obtain ringgit to finance their imports from
Malaysia. The facility is aimed particularly at importers struggling to obtain
trade finance as a result of the global financial crisis.

The limits on the amount of foreign currency that exporters may maintain
overnight were abolished as from April 1st 2005. Only exporters with annual
gross exports exceeding M$50m need to submit quarterly export reports.

Malaysia does not impose restrictions on import leads and lags, or on export
leads. But payments for exports must be received within six months of the
shipment date.

Investments abroad. Since April 1st 2005 residents without domestic credit
facilities can invest abroad in a foreign currency, funded either from their
own foreign-currency holdings or from conversion of ringgit funds. Since
April 1st 2007 corporations with domestic credit facilities may use their
foreign-currency funds or convert ringgit, up to M$50m per year, for
investment in foreign-currency assets (up from M$10m). To qualify, such
companies must have shareholders funds of at least M$100,000 and must have
been operating for at least one year. Individuals with domestic credit
facilities may invest abroad any amount of their foreign-currency funds or
convert up to M$100,000 per year for such purposes.

Resident unit-trust management companies may invest abroad up to the full
amount of their net asset value (NAV) subscribed by non-residents and up to
50% of their NAV per fund subscribed by residents (up from 30% prior to
April 1st 2007); since October 1st 2007 they may also invest the total amount
of Islamic funds under their management in foreign-currency assets. Resident
insurance companies may invest abroad up to 5% of their margin of solvency.
Takaful (insurance based on Islamic principles) companies may invest abroad up
to 5% of their total assets. Both resident insurance companies and takaful
companies may also invest abroad up to 50% of the NAV of investment-linked
funds that they market (up from 30% prior to April 1st 2007). Fund and asset
managers may invest abroad up to the full amount of their investments by
non-resident clients, and up to 50% of their investments by resident clients
with domestic credit facilities (up from 30% prior to April 1st 2007).

Since April 1st 2007 resident and non-resident corporations listing shares
through initial public offerings on the Main Board of Bursa Malaysia (the
national bourse) may use any amount of the proceeds abroad.

-0- Jun/04/2010 22:16 GMT

Key political risk to watch in Malaysia

Mon May 31, 2010 3:21am EDT

By Razak Ahmad

KUALA LUMPUR, May 31 (Reuters) - Malaysian Prime Minister Najib Razak has reached a critical point after just over a year in office -- will he enact economic reforms and cut subsidies and risk alienating his voter base, or will he back off?

Poorer Malays could be hit initially by Najib's pledge to reduce subsidies and roll back a controversial racial affirmative action policy. Many analysts believe the promised economic reforms, aimed at winning back foreign investment, will be delayed, watered down or abandoned to avoid losing votes.

Malaysian bonds have rallied this year, returning 4.99 percent for dollar-based investors in the past three months, according to the industry benchmark JPMorgan Government Bond Index-Emerging Markets, outperforming the wider Asia index which rose 2.67 percent. Malaysia's outperformance is largely due to rate hikes and the ringgit's proxy as a China revaluation play.

By contrast, Thailand is up 4.77 percent and high-flying Indonesia scored a 6.81 percent return in U.S. dollars, although all markets are off their highs, roiled by global risk aversion.

Following is a summary of key Malaysia risks to watch:

* POLITICAL CONFLICT

Political tensions spiked after the 2008 general election when unprecedented opposition gains transformed the political landscape. The National Front coalition's dominance through 52 years in power was dented as it lost control in five states and its once iron-clad two-thirds control of parliament.

The ruling coalition has since lost in several by-elections including one last month in its own bastion state of Sarawak.

The political uncertainty has weighed on foreign investment with net portfolio and direct investment outflows MYFLO=ECI reaching $61 billion in 2008 and 2009 according to official data. While money has flowed into the bond market recently, according to central bank statistics, little has flowed into equities.

What to watch:

-- Opposition leader Anwar Ibrahim's sodomy trial, which ends in late August. Anwar says the case is a political conspiracy, and a contentious verdict would anger his supporters. Any marked increase in political tensions could see more foreign money pulled from stocks .KLSE, bonds and the ringgit MYR=. But with limited foreign portfolio investment still in the country, the impact will be muted. [ID:nSGE60I0BQ]

-- Elections in Sarawak which expected by the end of this year. The Front's shock defeat last month at a parliamentary by-election in Sarawak has raised doubts whether it can maintain its support levels in the state. A further weakening of Najib's coalition in the coming Sarawak elections could spell more losses for the National Front in the next general election which analysts say could be held as early as next year.

* ECONOMIC REFORM

The government's commitment to economic reform is being put to the test with a plan to cut subsidies presented to the public last month, with a decision expected in the coming months.

Malaysia spent 15.3 percent of total federal government operating spending on subsidies in its 2009 budget when its deficit surged to a 20-year high of 7 percent of GDP.

Key to investor confidence will be whether the government has the courage to significantly unwind the crippling subsidies amid a potential voter backlash. Najib's political will to reform will also be tested by the "New Economic Model" (NEM), a blueprint to replace a four-decades-old Malay affirmative policy known as the New Economic Policy (NEP).

The controversial NEP was adopted after 1969 race riots and gave a wide array of economic benefits to ethnic Malays who make up 55 percent of the population. Investors complain that abuse of the policy spawned a patronage-ridden economy, causing foreign investors to favour Indonesia and Thailand. [ID:nSGE62E002]

Najib has rolled back elements of the NEP, and axed the rule that companies must offer stakes to indigenous ethnic Malays. But his plans face growing opposition from conservative Malay rights groups who want the NEP preserved, including Perkasa (Strength) which is backed by a significant number of people within Najib's own United Malays National Organisation (UMNO) party.

What to watch:

-- The phased rollout of the NEM and how far Najib will accommodate conservative Malay pressure groups. The NEM's broad outline was released on March 30 and public reaction will be sought before the final measures are announced. Markets barely shifted when it was announced, reflecting scepticism over implementation after some key reforms were put on hold.

-- Moves to reduce crippling fuel and food subsidies. Past fuel price hikes have drawn an intense public backlash which Najib appears wary of attracting. Malaysia was supposed to cut its fuel subsidy bill from May this year as part of the 2010 budget to tackle its budget deficit which hit a more than 20-year high of 7 percent of GDP in 2009, but the measure was withdrawn.

(For a graphic on Malaysia's subsidy bill, click here)

-- The 10th Malaysia Plan, a five-year economic masterplan. Set to be tabled in parliament on June 10, the plan will contain Malaysia's revised growth and budget deficit forecasts.

* RACE AND RELIGION

Race and religion have always been explosive issues in Malaysian politics. Najib took power pledging a more inclusive approach to ethnic Chinese and Indian minorities, but his UMNO party is beginning to cast this approach aside in a bid to woo conservative Malays. The caning of three women under strict Islamic laws in February for having illicit sex signalled the government's increasing adoption of a stronger Islamic agenda, and this has worried some investors. [ID:nSGE61I07S]

A heated row over the use of the word "Allah" by Catholics, which sparked attacks on religious establishments, is also threatening to prolong minority unhappiness with the government.

What to watch:

-- Efforts to resolve religious disputes. The government has set up an interfaith committee to promote religious harmony and is trying to reach an out of court settlement with the Borneo Evangelical Church, which went to court over the "Allah" dispute.

-- If the government tries to woo Muslim voters with more conservative policies based on Islam, investors may be spooked.

-- A severe worsening of tensions could raise the spectre of sectarian unrest, but this is not regarded as likely for now.

* CORRUPTION

Malaysia used to be regarded as one of the region's more reliable countries, but worsening corruption and a perceived lack of judicial independence have damaged investment.

What to watch:

-- Government efforts to deal with a scandal over a port trade zone close to Kuala Lumpur that exposed links between politics and business. False government guarantees given when the bonds were sold have triggered concerns among holders of $1 billion of bonds that they might not be repaid.

(Editing by Andrew Marshall)

To make money, go Indonesia

There is a kind of theory which says a country's destiny can be read from the countenance of its head of state or government.

President Hu Jintao's auspicious look reflects China's continued prosperity; Barack Obama's bony cheeks signify the tortuous path America's economy takes; Gordon Brown's weathered look indicates that Britain is heading downhill, while Nicolas Sarkozy's sophistry is the manifestation of France's dwindling significance in this world.

I took special note of Indonesian President Susilo Bambang Yudhoyono when visited Kuala Lumpur lately.
Susilo sports a well built figure, a broad face with a straight nose, an energetic look that hardly reminds us any of the countless Indonesian workers walking around our streets.

When he stepped out of the aircraft, his eyes were fixed to the far front. He walked in steady gaits with his head lifted up, fully confident of himself and his country.

He, too, did not resemble his predecessors in whatever way.

Such a posture reflected the destiny of Indonesia.

It appeared to me that it was no easy task if we tried to take advantage of him, who came to KL to talk about bilateral issues.

Forget about RM350 monthly pay, Indon maids have to work 365 days a year.

Forget about getting locked in a tussle with our neighbour over the sovereignty of some unknown islet.
Susilo is no Habibie nor Megawati, and Indonesia is no longer the Indonesia we used to know.
A US military school graduate, Susilo is resting on a powerful support base in his country, which is the Big Brother in ASEAN, a G20 member, and an emerging BRIIC powerhouse.

The 1997 regional financial meltdown, the 1998 riot, 2002 Bali bombing, 2004 Indian Ocean tsunami made many think that Indonesia had gone to the dogs.

But having experienced the damned fate, this country is staging a decisive comeback.

Susilo has drafted a series of major strategies upon taking office as the vast archipelago's president: To liberate the country's immense economic potentials, to batter corruption and beef up national security.

While these objectives are simple, few have achieved them.

He has shown the results, especially in lifting the Indonesian economy.

A friend in oil palm industry told me Indonesia had long overtaken Malaysia as the world's top palm oil exporter. If we were thinking of making big money from the industry, Indonesia was where we should head to.
A friend from IT industry told me customers at Jakarta's electronic stores demanded nothing but the latest computer and handphone models, whatever the prices.

Malaysia is no longer the prime regional market for automobiles. Automakers from around the world have zeroed in their focus on setting up plants in Indonesia, which boasts massive potentials, for both domestic consumption or export.

Thanks to the regional crisis, Indonesia was on the brink of bankruptcy during the final says of Suharto. They took the loans from IMF, and became the laughing stock of our Dr Mahathir.

Today, Indonesia has settled all its debts with IMF, and its economy has emerged healthier hence. Malaysia, which swore not to kowtow to IMF, is still struggling with the restructuring of its economic structure and a sluggish growth, with its debt ratio far outpacing the giant neighbour.

Notably, Indonesia's racial reconciliation, along with its equitable policies has not only liberated its vast economic potentials, but also energised the society.

This is a critical lesson Malaysia can pick up from Indonesia. (By TAY TIAN YAN)

When can we create a miracle?

There was a miracle in the 2010 Uber Cup. It was not Malaysia, but South Korea has created the miracle.


The Malaysian team, which is backed by the country, has failed to repeat the miracle 18 years ago and was defeated in semi-finals. Meanwhile, the South Korean team has created history when it defeated China and won its first ever Uber Cup title. It was definitely not an accident.


In the 1970s, the Malaysian national soccer team used to be ranked among the highest in Aisa. But today, it is ranked 147 in the world. And the South Korean team, which was the first Asian team to reach a semi-final, is now ranked 47.


In 1980, the GDP for South Koreans was US$1,645, which was even lower than the Malaysian GDP of US$2022. In 1991, former Prime Minister Tun Dr Mahathir Mohamad introduced the Vision 2020. In the end of year 1997, South Korea asked for a loan from the International Monetary Fund (IMF) while Malaysian took the "closed door" capital control policy.


After the Asian financial crisis, South Korea started to actively reform and within a decade, the per capita income of South Korea has grown by 104.3% while Malaysia only achieved an increase of 68.4%. Malaysia has been remaining as a middle class country for 15 years.


Today, the per capita annual income of South Korea is US$20,000 and Prime Minister Datuk Seri Najib Tun Razak set a target under the New Economic Model (NEM) to increase the per capita annual income of Malaysia to US$15,340 in 2020.


Our target for 10 years later is even far less then the current amount achieved by South Korea.


Both the countries have experienced rises and falls over all these years, but there is nothing by chance. There are a few factors that have made the current different statuses of South Korea and Malaysia. These factors include the soft power, quality and mental outlook of the people, management of the government and education.


The South Korean badminton team has a strong "never-say-die" spirit while the Malaysian team has no will to fight. These have portrayed the spirits of most South Koreans and Malaysians.


Malaysia is very lucky to be abundant in natural resources. However, it is also a misfortune as when the country is rich, the government does not step up to develop human resources and strengthen national education. As a results, Malaysians have developed a value and work culture of overly dependent on the government. It is an underlying cause.


The country is now facing all sorts of problems but as the authority is worried of losing votes and support of the people, it continues adopting a liberal policy. For example, when the rankings of national universities is dropping, the Education Ministry still wants to reduce the workload of teachers and offer cash incentives.


How can we have a reform for education then?


In addition, we wonder whether the government will take firm action to collect more than 15 million of traffic summon fines. The National Higher Education Fund Corporation (PTPTN) loans in arrears serve as the best example.


The government, as well as the people need to change in order to achieve the vision of transforming the country into a high-income economy.


If the government is afraid of removing the safety net, how can the people move forward? How can the people have a sense of crisis if we do not step up the reform?


Politicians should also set aside "racial privileges". Instead of keep talking about "the rise of Malays", it is better to focus on improving the people's fighting spirit and ability to bear hardships, in order to improve the quality of the people in terms of mentality.


Political leaders are having a lot of scruples and their primary task is to fight for regime. Improving the people's quality will never be their first consideration. In this case, when can the country create a miracle? (By Lim Sue Goan)

A real estate bubble

 By Lim Sue Goan

 

MAY 14 — Economic data are usually released by Bank Negara. Prime Minister Datuk Seri Najib Razak rushed all the way from Sibu to Putrajaya yesterday (May 14) to announce that the Malaysian economy has recorded a robust growth of 10.1 per cent in the first quarter of 2010.

He was trying to tell the people that, under his governance, the country has walked out from the impact brought by the financial tsunami, ended the negative growth and started to recover.

Similar to other Asian countries, the main factor for the strong economic rebound is because of the country’s fund injection and huge stimulus plans. But when the market confidence is restored, hot money will flood into Asia, giving birth to assets bubbles.

There are also bubbles in Malaysia, particularly because of high-priced housing.

From newspaper advertisements, we can find that housing prices around Klang Valley have been rapidly surging. A terrace house was sold at about RM400,000 two years ago but today, it costs over RM700,000 per unit. And it is common to find semi-detached and detached houses to be sold at more than RM2 million.

When being asked to comment on the soaring prices, those in the industry will always say: It is still cheap compared to foreign countries, the prices are reasonable.

But please do not forget that only 20 per cent of the people in this country are high income earners, while 40 per cent are middle income earners and the remaining 40 per cent are earning less than RM1,500 per household. Some of them even earn only a few hundred ringgit per month. They can never afford a million-ringgit-house even if they starve themselves.

I believe those who buy expensive houses are rich people, permanent residents and foreign citizens. Would these people be able to accept and digest all the houses that have been continuously introduced to the market? Many developers are competing to build high-priced houses as they bring high profit margins. But once the market collapses, who is going to clear up the mess?

High-priced housing speculation will also bring up the prices of other houses and eventually lead to inflation.

Middle- and low-income earners will be the victims of the plight.

It is worrying that the government’s economic development strategy is actually stimulating the bubble. For example, the government and the Employee Provident Fund (EPF) will form a joint-venture to develop a 3,000-acre tract of land in Sungai Buloh into a new hub for the Klang Valley.

In addition, the government has been partnering Naza TTDI KL Metropolis Bhd to build a RM628-million premier convention centre, the country’s largest exhibition and convention centre, in Jalan Duta, Kuala Lumpur.

The prime minister’s New Economic Model (NEM) should be heading towards a knowledge-based, high value-added and high-tech development. It is not the government’s responsibility to take part in the real-estate industry. And real-estate is also a non-productive economic activity.

China, Hong Kong and Singapore are in the implementation of control measures to cool down the housing market frenzy. After the outburst of the European sovereign debt crisis, the world economy may face another decline. If we do not address the issue of assets inflation now, once there is another financial crisis and the bubble bursts, the consequences will be more severe.

Starting from end of last year, China has raised minimum down payment for second homes while Hong Kong has increased stamp duty for luxury houses, cancelled internal pre-sale and provided that first released units can only be sold to individual buyers.

The government should uphold the principle of “people first” and control housing prices as the people will be the one who suffers when housing prices keep soaring.

Too much of international spare and hot money will create a crisis while the real estate bubble will bring the biggest calamity. — mysinchew.com

Nuclear power plant

 

The government wants to build a nuclear power plant. But, do we really need this thing?

What's going to happen if this thing is to be built near my house?

There are two kinds of reactions in response to the building of a nuclear plant.

Some say it is a good thing, a high-tech and efficient energy source.

In addition, it will not emit waste gases that will pollute our air and is therefore a whole lot more environment-friendly than coal or petroleum.

Others call it a devil. Other than exorbitant cost, it will also produce radioactive waste which if leaked will mean an environmental catastrophe.

While many can forget the numerous earthquakes and volcano eruptions that have taken place on this planet, few will not shudder at the thought of the Chernobyl meltdown in Ukraine 24 years back.

Good thing or bad, we will leave the scientists to argue about it, but having debated over this issue for over half a century, 11 answers could come out from ten top-notched scientists--none a standard one.

Let's put aside safety concerns now and concentrate the its economic implications.

Lim Guan Eng said the country's electrical energy reserves have reached a high of 40%, double the rational level of 20%, and this coupled with the massive amount of power to be supplied in the future by Bakun and Murum dams in Sarawak, will easily make Malaysia a country with an enormous power surplus, and therefore construction of a nuclear plant is redundant.

Of course, it is also logical that the government intends to cut down the use of coal and petroleum as fuels for power generation, and substitute part of them with nuclear power.

Having said that, any potentially polluting activity will have to face a mountain of problems before it can come to Malaysia.

What's going to happen if this thing is to be built near your house?

Let's put aside nuclear plants. Even much lower grade garbage incinerators have met with bumpy fates in this country.

The government wanted to build a few garbage incinerators here more than ten years ago, but do we see any of them today?

Controversies and protests have risen over the tendering procedures right up to the choice of location. In the end, the project died a premature death.

At a time when neighbouring Singapore is already having four incinerators, we are still scrambling to find new dump sites!

This is, as a matter of fact, an issue of public sector efficiency.

This efficiency is reflected not on the size of police force we could mobilise, but whether the government's actions could gain the recognition and support of the public.

Public recognition and support are derived from their trust towards the government, as well as their satisfaction towards public policies.

If the tenders are awarded in a transparent and equitable manner, social backlash will be minimised.

If the government could communicate with local residents on the choice of location, offering safety assurances, then the public's fears and suspicion will be allayed (By TAY TIAN YAN/Translated by DOMINIC LOH/Sin Chew Daily)