4.5% Growth? What About Our 25% Drop In Reserves?

ARCHIVES 2010

By admin-s On Feb 27, 2010

By Eyes Wide Open

The government announced a 4.5% economic growth for the last quarter. This is immediately hailed in all the MSM as a recovery for Malaysia due to the success of the government’s pump priming.

Really?

Consider this analysis published in the Asian Sentinel:

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Malaysia’s Disastrous Capital Flight

Written by Our Correspondent
Monday, 11 January 2010

Money leaves the country on an unprecedented scale

Churches are not the only thing to have been going up in flames in Malaysia. Take a look at the nation’s foreign exchange reserves. They fell by close to 25 percent during 2009 according to investment bank UBS even though the country continued to run a huge surplus on the current account of its balance of payments.

Says UBS: “Question: which Asian country had the biggest FX losses in 2009?” The answer is Malaysia and by a very large margin; we estimate that official reserves fell by well more than one quarter on a valuation-adjusted basis”. It describes the situation as “bizarre” and contrasts Malaysia with other countries with large current account surpluses – Thailand, China, Taiwan, Singapore, and Hong Kong – which have seen their reserves increase – as should be expected.

In short there has been an exodus of money from Malaysia on a scale which surpasses that which occurred during the Asian crisis. Nor is this just a mirage. The decline is also reflected in a sudden decline in base money supply – even while, thanks to Bank Negara, broader M2 has continued to grow modestly.

Who is responsible for this massive outflow? And where has it gone?

(Read the rest of this article here.)

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Now, any fool knows that more money going out than coming in as a BAAAD thing. But why is the MSM not informing the nation about the whole truth about our economy? The much-trumpeted 4.5% growth is just one small positive sign in a whole sea of negative signs.

Yes, we could be optimistic that one small spark is all that’s needed to start a fire. But a spark is not a guarantee of a fire, there is also a whole set of prerequisite conditions involved – the firewood must be dry, it must not be exposed to water, people must know how to build a fire, there must be enough firewood to sustain it, etc.

In the context of the Malaysian economy, the prerequisite conditions would be – economic environment must be fair, political environment must be stable, security environment must make people feel safe, etc. All these factors would go a long way to restoring investor confidence.

Furthermore, to sustain long term growth and continue to attract high-value long-term investment, the Malaysian human capital must be developed – education must be improved, civil society must be active, etc.

It’s pretty obvious that Malaysia is faring badly in all these points, with very little sign of the govt’s political will improve on them. In fact, things seem to be going downhill in all aspects of Malaysian life – from political antics, to racialist screamings, to attacks on holy places, to rising prices, etc.

This is where the MSM should do their job – to speak out and make sure that the govt does their job.

Any responsible person would warn others when there are signs of danger so that people can make preparations. But not our dear MSM. They seem to see that their duty is to keep the rakyat gila-gila happy while the Malaysian economic bus veers dangerously with people at the wheel who have no idea how to drive.

But as if that is not bad enough, where is the analysis about the real effects of the 4.5% growth by our MSM?

Aiya…so difficult meh? Let me do a simple one…don’t even need statistics, just need to ask the right questions.

Najib admitted that the 4.5% growth was due to the govt pump priming, funded by taxpayer money and borrowings.

What will happen when the pump priming stops? Will the economy continue to grow? The govt cannot spend indefinitely to prop up growth statistics! Thus the smart thing to do with pump priming should be to help viable companies weather the storm so that people don’t lose their jobs. (see Singapore’s example of pump priming here.)