The IMF Article IV Report and Social Change

The IMF apparently argues that a strengthening of the ringgit will result in “greater capital deepening, faster productivity gains, and demand shifts in favor of services”. This is text book theory. I counter by saying that this is all very well for advanced countries but not a country like Malaysia even if Malaysia is standing somewhere in between advanced and under-developed. 

By batsman

I am grateful to Observer for commenting on the IMF Article IV Report for Malaysia and summarizing it for us. Normally such reports are heavy reading and I am too much of a Type B laid-back person to really bother. Observer has made it simple enough to reply to his comments. 

I must caution again about IMF Reports. They are normally full of text book theory and assumptions that do not apply to us, in the same manner that Observer advises us on how to read IMF reports to cut out all the politeness or cover ups of disagreements and get to the real point. 

I am particularly keen about how policies affect people, so this is what I will be talking about, not so much on the financial or economic technicalities of IMF recommendations. I am particularly opposed to the strengthening of the ringgit at this time. 

The IMF apparently argues that a strengthening of the ringgit will result in “greater capital deepening, faster productivity gains, and demand shifts in favor of services”. This is text book theory. I counter by saying that this is all very well for advanced countries but not a country like Malaysia even if Malaysia is standing somewhere in between advanced and under-developed. 

“Capital deepening, productivity gains and demand for services” sound like a mouth full, but essentially it is how money makes people feel better and more self confident which impacts on how they use such money. 

The advanced countries have a much higher capacity to absorb such “capital deepening” because of their developed industries and deep pool of skilled and talented people. In under-developed countries, this is just a formula for spending on imported goods because the capacity to absorb “capital deepening” is minimal. In poor countries, when people feel rich, they will just buy more foreign imported goods. I believe this is the real result that the IMF is trying to achieve. 

In Japan for example, a period of “cheap” money after the war attracted a huge market for its industrial goods. This was followed by gradual “capital deepening” and “expensive” money. But because Japan was able to absorb “capital deepening” its industries grew both in quantity and quality. It has reached a stage now where further “capital deepening” will start to diminish its industries because their goods will become too expensive to compete. 

In Malaysia, although we are a middle income country, our institutions are rotting away. We are going downhill. Malaysians have lost pride in Malaysian institutions and Malaysian made goods. As a result our capacity for “capital deepening” is much reduced. If the ordinary Malaysian feels rich, he will buy imported foreign goods and hire more Indonesian or Bangladeshi helpers (“greater demand for services”) – apparently Malaysians as employers don’t even have faith in Malaysian labour anymore, to the extent that we have tens of thousands of university graduates who are unemployed, so “capital deepening” will just benefit foreigners. 

In fact some Malaysians are just itching to be rich enough so that they can emigrate and take their money with them – they don’t even have faith in Malaysia anymore. Is this what the IMF is trying to achieve – that Malaysians help bail out other countries including some very rich ones which are in the throes of economic crisis? 

On the other hand, the recommendation of the IMF that Malaysia abandons its Ketuanan Melayu policies comes as much needed advice. Unfortunately the IMF feels this need not as urgently as Malaysians do, so it compromises and is only weakly pushing this. What I suspect is that the IMF feels Malaysia’s Bumiputra policies are just a form of trade barrier which affects foreign companies trying to tender for Malaysian contracts or restricts foreign banks from marching in to sweep up everything in sight. Similar trade barriers are employed by other countries in all sorts of forms and variations, so what Malaysia is doing is felt as a normal nuisance but something which can be negotiated over the long term. 

Unfortunately Ketuanan Melayu policies are affecting every small and major aspect of life in Malaysia in addition to screwing up the economy. For Malaysians, reform is crucial to stay as a viable state. Ketuanan Melayu policies are the main reason why Malaysia is going downhill and it affects Malaysian society as uncaring, “tidak apa”, corrupt and sinful. 

It has come to a point where nobody can open their mouths anymore without treading on someone else’s sensitivities, so that “tidak apa deepening” is much more of a critical issue to Malaysia than “capital deepening”. Even the Bar Council justifies its toothlessness by saying it bites judiciously. This completely “tidak apa” attitude in the face of judicial and police abuses that horrify even the lowly worker in advanced countries is symptomatic of Malaysia’s malaise. 

Malaysians are suspicious of each other to the point of hatred and unreason. It is clear that the 30% Bumiputra equity target affects only those who can afford to buy shares and have property. As it is most of those Malaysians who do trade in shares treat the stock market as a glorified casino. It is only a few who own shares in a serious manner. 

I have no idea what all the 13 points are in the resolutions of the Chinese Economic Congress. This testifies to the poor quality of reporting in this country as well as to in lack of transparency of important congresses. But I am sure all of them will be mainly economic in nature.  

The few that ARE reported point to contests for board positions in GLCs, opening up of tenders and procurements of GLC’s, fairer contests for contracts in the oil and gas industries, etc. Even the 30% Bumiputra equity thingy is really an economic issue affecting people rich enough to own equity. All these demands are economic in nature and they reflect one set of tycoons competing for riches with another set of tycoons. 

Unfortunately these tycoons try and drag ordinary Malaysians who have no means to enjoy wealth ownership in Malaysia in a major way in spite of any IMF recommended “capital deepening” exercises into their quarrels. So they call their congresses by such names as Chinese Economic Congress as if they represent all Chinese. 

Even the Malaysian CHINESE Association pledges to take up these economic demands into their political platform and fight with all their might to defend the CHINESE. This just shows that the MCA will only touch on economic issues and leave the political issues to UMNO. This means that the MCA continues to pay homage to UMNO’s political hegemony, unlike the PR which is serious about replacing UMNO as government. 

Unfortunately for the Malaysian people, MCA’s economic demands are not even tolerated by UMNO and it is the Malaysian public which is threatened with another May 13. So UMNO is using the MCA as an excuse to threaten all Malaysians. 

Unfortunately again, owing to chauvinism and racism, quite a few Cina kui and Melayu get heated up and emotional whenever the words Chinese and Malay are used. Many even get heated up over the 30% issue even when they have no hope in a bad place to enjoy wealth ownership in a serious way. 

These sensitivities take the form of ignorant silly pride and are used by cynical rich Malaysians to heat or rile up ordinary Malaysians so that ordinary poor people can be used as thugs, cannon fodder and soldiers in the quarrels of the rich. 

All this emotion and sensitivities breed all sorts of corruption and cover up all sorts of abuses. This is what is making Malaysia go downhill. All Malaysian institutions are rotting and turning putrid. This is what is screwing up the economy and everything else in the process. Malaysia is being turned into a giant drug addict unable to escape from the corruption and sin or like a piece of computer software with a malicious virus inside it. 

It is also causing the reform movement a great deal of problems and impeding the serious attempts to replace a government which depends on playing the racial card to rule with a reformist government. So the MCA is true to its role as a member of the BN after all in spite of its claim to defend the CHINESE and the reports of some journalists suggesting that a “war” between MCA and UMNO is brewing. 

What do you think? Am I right or am I right?