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Archive for June 9th, 2011

A New Political Front: DAP’s Christian Morality in Economics

After Islam activities (Quran readings, mosque visits) and after Christian proselytizing, the DAP (& Pakatan) has opened a new attack front in its political campaign. It is Apocalypse Economics of biblical proportions. … Petra Kamarudin went along for the pony ride.

Tony Pua: Pray tell, why are DAP fellas – you, Hannah, Ah Ching – so full of ego?

Is that how you actually see yourself, Tony? Gucci tie fluttering in your Gucci suit under a steaming Malaysian noon sun? Like Pastor Rony Tan? Next thing you want to do is buy yourself a scarf, then sit on a horse. Ride into parliament. Make sure the wind’s blowing when you are photographed.

Was that how you got through economics? Faking it? That video was your inspiration? No? Small wonder your little Singapore business nearly flipped over. Don’t ride a horse if you don’t know how, Tony. Use a pony.

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P.Y. Wong posted and presumably also wrote the passage, below. Petra Kamarudin, the 10 million ringgit patriot-in-UK, was persuaded enough, and impressed as well, to have it posted in Malaysia Today. The persuading is easy, directed to a man such as Petra without any formal intellectual training and with only a taximan’s idea of economics.

Wong’s short passage comes with a video clip (above) which has all the hallmarks of a DAP production: kiddy quality, Sing-Bangsar-style bourgeoisie, English, Anglophile, Manglish voice over, singsong girl calling her parents ‘mummy and daddy‘ (sic) – after the fashion of the Jesus Ah Hoes calling LKS Uncle Kit and Hannah Yeoh calling her kid not Sayonara but… Adora! Anyway, P.Y. Wong:

Since our first appeal went out last year through the videos Malaysians4Change, things have got much worse in Malaysia. On 13th Jan 2011, Thompson Reuters Eikon released an alarming report which detailed the bonds sold by Malaysia amounting to USD 179.8 Billion! That has pushed us beyond the 80% Debt/GDP mark. Add in another USD 19.6 Billion for some of the GLC liabilities and the RM 6.5Billion that the Govt undertook to pay on behalf of the Selangor Water Concessionaires, we have almost reached 100% of Debt/GDP.

Because the online post, i.e. passage and video, is intended as propaganda it doesn’t care for veracity and factual accuracy. Shoddiness was the intended consequence. But there is something else to it: an elementary, reportorial, and juvenile quality in the economics presentation as if it came from an economics sophomore or from a senior year student in a third-rate university. Note the following:

Debt: Neither the passage nor the video say if the debt is private or public (esp. federal gov) or both. It also doesn’t say external or domestic debt or both. Any of those two sets of permutations will produce greatly different numbers. Is it outstanding debt net of repayments?

GDP: GDP is the yearly sum total of national output, goods and services, typically quantified in one or more currencies. That is, GDP is a moving annual number set, so that last year’s GDP won’t be known until months after December 2010. What year was the GDP? What year the debt? Nothing said.

Unit measurement: Two currencies, ringgit and USD, are used. Depending on the conversion rate at a given point in time, the USD-to-ringgit or vice versa valuation can vary up to 20, 30 pct. And that’s just in the past two years. Partly for that reason, GDP is reported in different valuations, technically called ‘nominal’ GDP (using current year exchange rate), ‘real’ GDP (discounted for inflation) and PPP, purchasing power parity. In USD, what was the exchange rate? Was GDP nominal or real? Or calculated in another form? Nothing.

Fractioning: Without specifics and accuracy, and by treating data airily, Wong’s computation method isn’t just alarmist, it was clearly calculated to be dubious and to be fallacious. To fraction ‘debt’ as a percent of GDP, cited by Wong as ‘debt/GDP’, is to mislead the thinking that every cent of individual incomes will in future go into repaying debt and that every cent earned today had come out of debt, the former point repeatedly emphasized in the video. This is neither true in economics theory nor does it work in reality; there are dozens of caveats, stacked on top of even more assumptions, to ‘debt/GDP’ which is an attempt to answer the question, how much do Malaysians owe in every given dollar of national income or output yearly?

Debt/GDP: This takes the cake. To an ignorant, illiterate person such as Petra, it suggests Malaysia is bankrupt. Wong is betting nobody will ask: What’s to be bankrupt? True enough, Petra doesn’t ask. Worse, because every dollar of output, i.e. GDP, will soon go to pay debt, there’s nothing left to eat. That’s the inference which the video repeats over and over. We’ll die starving. Here, Wong drives morality into doomsday economics, so that if you don’t like Umno or Barisan, it must be true. Or, if you are with BN, it’s also true – only, Wong says, don’t lie to yourself because here are the economic facts (that he had distorted into propaganda).

This interplay of morality and economics suggests an insidious and sinister political campaign at work, in the way DAP evangelical leaders Teresa Kok and Lim Guan Eng used Christianity to drive electoral issues. While Christian campaigning is pivoted on attacking its opponents as ‘anti-Christ’, campaigning with economics employs the morality of death by starvation. But there is a difference. Economics has an empirical and philosophical quality that is the exact opposite to voodoo Christianity. This is because science resists fudging and manipulation, especially one carried out by third-rate minds.

The Science of Data Fudging

For the DAP (or PKR) to say that debt is 100pct of GDP is a concept of relative scale: every dollar owed equals every dollar generated within the Malaysian economy, the GDP. In another phrasing, every dollar income would eventually go as payment to a chettiar somewhere, at home or abroad.

Malaysia, in Wong’s presentation, is therefore an usurious economy, with the identical, moral inferences that Christians and DAP’s evangelist-politicians attach to lending and borrowing. Petra frequently brands the same activity as immoral, an activity he repeatedly calls ‘Ah Long‘ in order to suggest a Chinese origin and quality both as evil and usurious although an Ah Long loan is essentially unlicensed debt on very high interests and no collateral. Name one bank in Malaysia that will lend you 3,000 ringgit on nothing else but your word?

In Wong’s case, two questions arise: (a) Debt owed by whom? (b) Is debt a bad thing?

The first question would have been settled if the kind of debt, whether public, private or both was specified. But Wong was either ignorant or wanted to be deliberately ambiguous in order to be deceptive.

If public, then is the USD180 billion he had cited the sum in new debt issues or is it the aggregate owed by the federal government and all related bodies? Nobody can tell.

For all imaginable kinds of debt, repayment with goods instead of cash, leasing, short or long term loans, foreign currency denominated or domestic, and so on, Bank Negara records total outstanding liabilities as at end-March 2011 at 430 billion ringgit or USD143 billion (at the current 1-to-3 exchange rate; here, Bank Negara’s statistical summary.)

Bank Negara’s number is USD60 bn or 30 pct short of Wong’s assertion, backdated three months earlier and totalling USD203 bn (180bn+20bn+3bn).

Return to Bank Negara’s USD143 bn and break it down again. Of that number, USD5 bn (or 15+ bn ringgit) is external debt, i.e. repayable in foreign currencies or in gold. This is about 3 pct of total public debt or 2 percent of USD220 in nominal GDP. GDP size isn’t given in the Wong passage but since ‘debt’ is cited as 100pct GDP then GDP, in Wong’s reckoning, is USD203 bn. This is false.

Whether debt is local or foreign is the critical from a number of perspectives, including: (a) the currency to be repaid, (b) whether such money is available in store, and (c) the liquidity of government operations because it is so much harder to earn USD or gold than the ringgit which, if bad comes to worse, can be had by selling property, land, buildings, the LRT and so on. Even the jungles. A problem with the ringgit is this: few people outside Malaysia wants it. To pay for submarines, you must have either euro or USD.

As at March 2011, Malaysia – meaning, government, local companies, banks, individuals, everybody – owes the rest of the world, in their currencies, the equivalent USD88 bn, including USD3 bn in government-issued bonds – the actual term is, sovereign bonds – that Wong talked about. (News says that the government wants to raise a further USD1 bn in foreign currency denominated bonds). Less the government external debt portion of USD5 bn, the remaining USD82 bn is owed in almost equal portions by the banks and the private companies. Even to call half the banks and companies ‘government’, the total outstanding public external debt at USD46 bn (5 bn+41 bn) is 21 pct of GDP.

Now to overall debt. Here’s a quick glance at gross government (public) debt-to-GDP ratio, in percentages sourced from the IMF:

2007 – 2008 – 2009 – 2010 – 2011
42.7 – 42.8 – 55.4 – 55.1 – 56.6

The ADB table below is dated, but it illustrates the point above, that is, other measurements, and not Wong’s airy and specious ‘debt/GDP’ ratio, are more relevant in determining Malaysia’s economic standing:

Central to Wong’s morality claim is that the Malaysian government, the economy by extension, are both usurious. Debt having ballooned, is it necessarily a bad thing?

Wong is saying it is because, says his video, future generations will have to settle the debt. This is by the implicit assumption that the entire debt load (Wong’s figures) of USD203 bn or 609 bn ringgit is public (recall Bank Negara states overall debt at 430 bn ringgit, 97 pct of it domestic and repayable in ringgit). Since it is public, the video therefore argues, Malaysia is fast approaching the situation faced by Iceland, Greece and Portugal.

But the comparison is entirely fallacious. Those European countries caved in on mountains of debts denominated not in its domestic currency; they no longer have a local currency. Once Greece, for e.g., converted to the euro, there was no longer any difference between its domestic and external debts, given that both kinds are denominated and repayable in the same Europe-wide currency called euro. Greece’s savings previously held in different currency accounts collapsed into a single passbook with profound ramifications.

That single savings account, if left with, say, 1 million euro, must be drawn down either to pay dividends on its sovereign bonds or to pay local teacher salaries. And guess who has the first right of claim on that money? This loss of economic independence – technically, the loss of domestic monetary and fiscal control – is characterized by its own inability to print euro in order to pay the teachers. Greece had to borrow even more, turning to the Europe central bank.

Its default raises other questions: for example, what has it been doing with its past debts? Or, had it borrowed too much? When is debt too much?


In the chart above note that Japan has public debt/GDP at 180 pct versus Greece’s 120 pct. More interestingly, consider the graph of the US. America’s gross debt/GDP in the 1940s is Greece today; and the accursed country is still around 60 years later in spite of its constant public spending binge. Did anybody starve meanwhile? Plotted over the time, also note how the fractions fluctuate., meaning public debt/GDP measures are not fixed but are moving number sets.

What the fluctuations say is that the survival or the prosperity of an economy is related to debt but not contingent on it. It is an exactly like a business: if you could borrow to expand production or services, the company could grow fast quickly or collapse from hyperventilating on a load of new investments with no customers and no orders. If debt is zero, then the business coast along day-to-day routinely and nothing much happens. Money, hence debt, becomes a matter of management.

Several factors enter this problem of debt management, such as (a) debt servicing, which is the ability to pay and how fast debts are settled, and (b) the size of national income, that is, GDP.

Influencing either factors or both depends on what debt is for. Naturally. If Anwar Ibrahim raises money to spend it on a prostitute, that is not productive use – he won’t even have a child from the energy spent on sex. The prostitute is better off instead because she might use the proceeds to pay tuition fees for her own child. That tuition fee is capital investment but the payoff comes only years later. This is what happens by investing in the MTR or in a GLC. GDP expands consequently. If the money raised is used efficiently and judiciously, public debt/GDP ratio falls over time if no additional debt is incurred. Getting rid of the subsidies, which the Pakatan opposes, is one way of lowering Wong’s debt/GDP ratios.

To reiterate the point about what is done to debt….

In this government financial page for Jan-Mar 2011, some ideas are contained in how the debt load is influenced by, for e.g., the current account. Note especially the parts reporting FDI and portfolio investments which add up to 25 bn ringgit.

Most individual companies don’t have that kind of money to throw around. They may have some for the start-up, but the rest have to be borrowed from banks. Take the rule of thumb at 50pct money borrowed, USD4 bn of the USD8 bn in FDI would have to be raised in that quarter alone. Each time private investment goes up, debt goes up. But where and how debt is incurred depends on which country and which currency have funds in store and are available for lending. That’s money deposited by bank customers. It also depends on who will lend cheaper (that is, on lower interest rates).

In this investment-savings-debt cycle, reverse the process by contracting debt. This happens when a local corporate defaults on a USD denominated bond. In an isolated case, there’s no problem. Not however when this happens simultaneously to a dozen large loans because the lenders will seize the company’s assets, sell it off, and ship out the money after converting it to USD through Bank Negara, which it must honour. But to honour the demand, it must have the foreign currency in store.

(That was the situation in 1997-98 when Southeast Asia’s external debt default was triggered by the private sector, spreading to the governments holding low stocks of international reserves. In contrast, Greece and Iceland today are primarily public debt defaults.)

All this says there is such a thing as the ‘health of debt’ which depends on external factors like export earnings and international reserves.

Place external debt-to-GDP ratios in world context, again a different picture emerges. Below some data is also dated, but note the relativeness of the issues:

  • External debt: USD

Malaysia: 72.6bn Dec 2010 (44 of 206)
Singapore: 21.7
Thailand: 82.5
Taiwan: 91.4
Indonesia:196.1
Top 5: US (14 trillion), UK, Germany, France, Japan (2.4trillion)

  • External debt per capita

Malaysia 69 times
Singapore 45x
Taiwan 51x

  • External debt per $ GDP

Malaysia, rank 115 – $339 per $1000
Singapore 157 – $184
Indonesia 111 – $357
Taiwan 170 – $101

  • Debt service, i.e. repayments in foreign currency as percentage of exports

Rank 98 of 128 countries
5.97 pct in weighted average of 15.3

For Wong to conclude that ‘debt’ is 100 pct of GDP and then draw inferences from it that Malaysia is doomed isn’t just alarmist. It also shows malice: this Putrajaya at any price is truly, truly wicked.

榄…快速回家 Leave quickly; this country, its Malaysian First, has little hope…

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我军歼20战机第10次试飞完成

6月1日和6月3日,歼-20战斗机在成都某机场连续三天进行了两次试飞,这表明歼-20战斗机的试飞强度在逐渐增大。此前,歼20已经进行了9次试飞。

China’s tenth trial of F-20 fighter jet. Source: QQ News

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