Forex reserves plunged 7% in 2 weeks

Our foreign exchange reserves plunged by or RM26.2bn in the last two weeks of October. This was a 7% fall in just a fortnight, taking our reserves down to RM345.6bn as at 31 Oct 2008.

Given that we are still running a trade surplus, the reserves must have fallen due to capital flows.

Foreign investors had been leaving Malaysia. Data on the equity market is impossible to find, but debt market data shows foreign investors sold RM19.1bn of debt papers in Aug, accelerating from RM4.2bn in July. I’m sure the outflow continues, not helped by inflation at a 26-year high, the government saying the 2008 deficit will be worse at 4.8% (from 3.1% initially forecast) despite record high oil revenues and raising the 2009 budget deficit forecast to what many consider an optimistic 4.8% (previously 3.6%). Foreigners now hold just RM81.5bn of debt paper as at end Aug, down from RM100.6bn in July and the peak of RM126.5bn in April.

Perhaps locals too joined in the exodus. You would be worried if you could be arrested "for your own protection." The ringgit continued to plunge against the US$, down another 2.7% in Oct, after falling 7.3% in the 6 months ended Sept. Yes, it’s true investors have been exiting emerging markets generally, and the dollar is finding unexpected strength, but we are doing poorly even when compared to Thailand. Last month, a bank offered me 8.7 baht to the ringgit. I was shocked. Last year I got 10 baht. I had expected 11 or 12 baht this time because quite literally there was blood on the streets in Thailand.

What does this say for confidence in the ability of the Barisan Nasional government?

RM7bn stimulus plan – effective only if execution is transparent

I am among those who still don’t understand Budget 2009 as presented by the BN government; and I certainly believe its forecasts and base assumptions are way too optimistic. However, the BN is the federal government with a comfortable majority in parliament, so the Budget will be passed. And I may, happily, be proven wrong and the world and Malaysian economy will rebound sharply next year.

So let’s focus on the Budget, and specifically, the RM7bn stimulus plan announced last week by Finance Minister Datuk Seri Najib Razak. A leading investment research house put it succinctly: “.. based on past experience … economic packages introduced by the government have not been effective in preventing the economy from rapidly slowing.”

Let’s look at the plan again, starting with the bits I like.

1) RM1.6bn is allocated to various small scale projects – village roads and community halls, repairing schools …. Excellent. This is the type of spending I advocate – locally oriented with maximum immediate impact to the community and local economy.

2) RM1.0bn goes to education and skills training programmes. Another excellent move. Now is a good time to retrain and improve local employee productivity.

3) RM1.0bn towards bolstering public transport and better facilities for our men-in-uniform. Again, wonderful

So that’s RM3.6bn (about half the package) going to projects that should directly help Malaysians. I say should because I fear for the implementation. Take public transport for example. There have been huge allocations already in the past few years, but the system is still atrocious. Some might say it’s gotten worse, what with LRT accidents!

Taking another case, who decides which private institutions get to run the training programmes? Forgive me for being cynical, but I see many “consultants” and “advisers” already counting their fees. To maximise the impact of these programmes, I call on the BN government to make public the specific project awards and the contractors. Better yet, put the projects out on open tender. Make it easy for anyone to apply. Let’s cut out the middle-men and the “consultants” and “advisors”.

Moving on the bits I am ambivalent about, RM1.5bn is going to building low and medium-cost houses, reviving abandoned projects and increasing the number of business premises in small towns. I fully support decent, affordable housing for all. But there is also a huge overhang of unsold properties. Instead of building more and adding to the supply, how about finding a way to utilise the existing stocks? And what is this about increasing the number of business premises? Commercial property development is best led by the private sector, not government.

Finally, RM1.9bn (a quarter of the RM7.0bn) is earmarked for an investment fund to attract strategic industries and high speed broadband. Government should get out of the business of funding businesses. It’s investment record isn’t particularly good, and entrepreneurs with good ideas should be able to find capital on their own. Government’s role should be to facilitate setting-up businesses – streamline the bureaucracy and cut out the red tape. As for broadband, I would love to have broadband, but I think the cost is over-stated and Telekom, with its atrocious service record, should not be leading this.

So there you have it, only half the package has direct impact on Malaysians, if properly executed; and I would appreciate a report next year on the performance of the investment fund.

Tenaga runs on gas and coal, not oil

Electricity tariffs were raised 24% in June. Oil prices have since fallen dramatically and people are now demanding Tenaga reduce power tariffs. But our electricity is generated using gas and coal, for which prices are still high.

In fact, the main beneficiary of the 24% electricity tariff hike is Petronas, which more than doubled its gas price to Tenaga – to RM14.31/mmBTU, from RM6.50/mmBTU! Besides higher gas prices, Tenaga is also incurring higher coal prices, which at about US$95 today are still 25% higher than the average US$76/MT Tenaga incurred in its last financial year ended Aug 08. The pain will be made even worse by the depreciating ringgit.

Some numbers will illustrate this. That 24% tariff hike will add about RM5.5bn pa to Tenaga’s revenue. Of that, RM5.3bn goes to third parties, leaving Tenaga with just a measly RM200m of the RM5.5bn additional revenue:

1. RM4.2bn (76%) goes to Petronas to cover the increased price of gas;
2. RM1.0bn to cover higher coal prices:
   a. RM0.3bn because of the the US$ increase in price to US$95; and b. An additional RM0.7bn due to the weaker ringgit, assuming an average RM3.70:US$1 instead of RM3.30
3. RM135m for capacity payments to new IPP Jimah.

In fact, by next year, Tenaga will be in a negative situation again because capacity payments to Jimah will rise to RM 700m! If you want lower power tariffs, the appropriate targets are the IPPs which have earned exorbitant returns and Petronas, not Tenaga.

Tenaga is under-appreciated. Its services have improved tremendously in recent years. So tremendously that we don’t appreciate how much effort goes into delivering that stable and reliable power supply. If Telekom were running the power sector, we would still be suffering frequent brownouts (noisy fixed lines is the telecoms equivalent), blackouts (unstable Streamyx connections) and some areas without power at all (sorry, tak cukup kapasiti di sana untuk talian baru).

And yet Telekom gets a RM2.4bn handout of taxpayers’ money to do high-speed broadband while Tenaga is pilloried for high power tariffs which are not its fault in the first place.

If there’s one GLC to target for inefficiency, it’s Telekom. Why do we still have to pay Telekom RM25/month for fixed line ‘rental’? My housing estate was built in the 1970s. Surely after over 30 years Telekom has already more than covered its capital cost of laying down the telephone lines. And then there are the huge issues with Streamyx ….

A road by any other name …

Hot on the heels of DBKL’s controversial renaming of Jalan Alor to Jalan Kejora comes news that my DAP colleagues are proposing that four roads in Ipoh, Tapah and Petaling Jaya be renamed to honour four party stalwarts “who have contributed greatly towards the party and the people.”

More form over substance. A road name is just a road name, a marker for a location, unless the observer has some sort of personal connection with the honoured. I drive along Jalan Yap Kwan Seng, Jalan Raja Abdullah and Jalan Tun Sambanthan everyday, roads undoubtedly named for historic personalities. But they could very well be named Jalan Satu, Dua and Tiga and I would not notice nor care for the names do not carry any significance to me.

When I was in India earlier this year and asking for directions, I was told to go down MG road. My first thought was. “Wow, (actor) MGR actually has a major road named after him!” Fortunately, before I embarrassed myself, someone said it was Mahatma Gandhi road.

I am not proud that an actor, albeit a very well-known one, took precedence in my thinking over the great Gandhi. Nor am I proud of my lack of knowledge of Malaysian history. But the fact is posters and publicity of actor MGR are part of my vivid childhood memories, whereas Gandhi was a dry entry in a text book.

Naming a road after a historical personality will have a meaningful impact only if the public feels some connection to the person. So let’s focus on the substance. Let’s teach history better for a start. I barely passed my SPM history. It was such a boring collection of facts. My memory of Melaka history, as taught in school, was having to memorise a list of Sultans from 1400-1511; the Emergency and struggle for independence were dry academic treatises.

It was only long after I left school that I came across an Economist feature that brought to life the intrigues of the spice trade and why Melaka was so keenly fought over by the European powers. Most recently, Five Arts Centre’s Emergency Festival! offered entertaining and thought-provoking perspectives on that period.

There have been calls recently for the social contract to be taught in schools again. I fully agree – our history syllabus needs a thorough revamping in content and delivery. We should not need DBKL or politicians to rename roads. Roads should only be renamed when the people speak out and ask for their heroes to be honoured.

#9 of 51 ideas for a better Malaysia

Lulu dragged me into this initiative started by Nizam Bashir. One blogger posts one idea a week. Hopefully the chain will continue until we hit 51 ideas on how to make a better Malaysia. My favourite piece so far is by Antares, the coolest grand-dad in town.

My, idea, #9 in the series, is: Plain water in restaurants, please

Water is my favourite drink. It was hard to find out in KL while growing up. If you wanted a drink while wandering around town it had to be something sweet. Times have changed. Bottled water is now abundant.

Too abundant. Have you noticed how many eating places now insist on serving bottled water? Ask for regular water and you'll get a snooty, “We only serve mineral water,” with a tone implying it's superior. That's ridiculous. My next question then is, “How do you wash your salad vegetables? Can't you serve me that same water?”

Bottled water is an extreme waste of resources. Petrochemicals and energy are used to make those plastic bottles. Then, more petrol is burnt transporting the plastic bottles to the bottled water producer. The bottled water producer fills the bottles with water, packs them into cardboard boxes (made with trees, energy and more transport) and then ships them to the shops, burning even more petrol.

Everytime you take a plastic bottle, you're creating an heirloom. It can last for a thousand years, even in a landfill. Your great, great, great ~... grandchildren can continue to admire it long after you've finished the water and long after you're gone.

All for something that can be had by just turning on the tap.

I wonder what's wrong with restaurant economics in Malaysia. Restaurants down south in Singapore serve plain water as a matter of course. Up north in Thailand you get bottled water, but that's because the tap water there isn't potable; and in any case, you're not charged an exorbitant amount. Why do restaurants in Malaysia have to make water a profit centre?

But let's accept that over-priced water is a necessary evil when eating out here. Let's do our part by insisting the restaurant serves us plain boiled or filtered water. Pay the restaurant whatever they want to charge for bottle water, but insist you don't want the bottle. Tell them they can serve you plain, boiled or filtered water. Don't force the restaurateur to give you a bottle. That bottled water may not be pristine anyway. Wasn't there a study not long ago that found quite a few brands of bottled water were “just” tap water? And remember upmarket Perrier that did a recall when benzene was found in its bottles?

Over to boo_licious for #10 in the series. I hope she'll keep the kettle boiling :-)

Why is EPF lending my retirement money to Valuecap?

One question from my RM5bn for Valuecap post has been answered. Datuk Seri Najib Tun Razak has said that the RM5bn additional investment in Valuecap will be provided by the Employees Provident Fund (EPF). But that answer creates even more questions:

1. EPF already invests a substantial amount in the stock market and has its own team of fund managers and analysts. In fact, it held RM73bn of equities as of end June. If it thinks share prices are such good value now, it should be investing the RM5bn directly. Why lend it out to someone else?
2. EPF is actually making a competitor stronger! Valuecap is going to take the money and buy shares. EPF also buys shares. What if Valuecap wants to buy the same shares as EPF? Both will end up competing and paying a higher price than necessary. The result? A very happy seller, but less profit for EPF which means smaller dividends for all us contributors.
3. “The value of shares can go up as well as down.” The standard disclaimer in all prospectuses. Will that RM5bn sum extended to Valuecap be guaranteed? If not, EPF should be charging a very high interest rate to compensate for the risk. Which brings me to the last question:
4. What interest rate will Valuecap be charged and how long will the loan be for?

Protect Malaysian Wildlife - please sign this petition

Malaysia's Protection of Wild Life Act 1972 is a 35-year-old law that is severely outdated and riddled with loopholes. The Malaysian Nature Society, TRAFFIC Southeast Asia, Wildlife Conservation Society and WWF-Malaysia are jointly calling for better law for wildlife in Peninsular Malaysia. Please support their petition.