Monday, January 7, 2008

A GATHERING GLOOM

Hantu Laut

The Malaysian government is probably the biggest control freak in this region. From ban on peaceful demonstration to importation of cars and to price control on what it termed as controlled items, rice, sugar, flour, cooking oil and many more that fall into the category of essential items, the government has imposed restriction either in the form of quota, price control or monopoly.It defies economic logic and the law of supply and demand.

Market can only be at economic equilibrium when supply can meet demand and prices are favourable for both sellers and buyers.When demand outstripped supply an ugly situation called dearth of supply or shortage occurs.

In view of the shortage of cooking oil, Domestic Trade and Consumer Affairs Minister, DatukShafie Apdal announced that starting from next week each customer will only be able to purchase a maximum of 5 kg of oil at any one time. He blames smuggling to neighbouring countries as the cause of the shortage. Was that a fact or just another attempt to hoodwink the people from the real problem. How come there is a sudden surge in smuggling activities of cooking oil? To which country are the oil smuggled to ?

From talking to a few retailers, I was told the shortage was due to government refusal to allow oil producers to increase prices, resulting in them cutting down on production to cut losses as the cost of raw palm oil they purchase to process into edible oil has gone up. Is it fair to force private manufacturers to subsidise instead of the government taking the responsibility.If government is not prepared to subsidise than it should be left to market forces to find its own price level. The story from the retailers seem more plausible than the one given by the minister.

It's absurd and impractical to impose a limit on purchase per costumer when you don't have the mechanism to police and control the effectiveness of the ruling.Can you stop a consumer from going to 10 shops in a day to buy the minimum 5 kg he is allowed to purchase? It's simple logic that the exercise is abhorrent and downright impractical but yet the minister made the announcement in spite of knowing the futility of such an ill-conceived idea.

A number of popular and better grade cooking oil have disappeared from the shelves of supermarkets and grocery shops.The situation is going to get worse before it gets better.

So, brace yourself for another price hike, not only for fuel oil but also edible oil and a whole spectrum of your daily necessities.

The government claimed a growth rate of 6% in 2007. With prices of crude snowballing and the consequential price escalation in all sectors of the economy, the year 2008 maybe a gathering gloom.

Also read:
Malaysia Will Not Face Economic Hardhsip - Kuan Yew

10 comments:

Mat Salo said...

H-L: Sir, I too share your sentiments. Contrary to popular feng shui wisdom, as you suggested 2008 might turn out to be doom and gloom. And this is even BEFORE the GE and proposed petrol price hike.

My feat is we lack the visionaries and expertise to lead the nation in these trying times (unlike leaders of a small 'neighboring' country).

As usual, H-L, a prescient and well-written article. I also think you hit the nail on the head with the CSL story. Excellent, Sir!

Hantu Laut said...

Mat Salo,
Nice to hear from you again.With hike in oil prices, slowing down of the US economy and weakening of the US dollars, there are strong indicators propounding slackening of the global economy.Major exporting countries like Malaysia going to suffer decline in its export trade.The weak greenback and strong ringgit means we get less ringgit from our export proceeds including crude oil export.

The government paints a rosy picture because of the coming election.The truth is, it's not going to be easy sailing for everyone.

SM said...

HL,
Well said bro!

Mat Salo,
Unlike leaders of a small "neighbouring" country? Haha! No money for guessing that you are talking about Singapore!
I have always said that India & Pakistan are like Singapore & Malaysia (except size-wise)!

However, there is one point I disagree with you guys! All is not doom & gloom...if the "GE" is this year, we have the chance to change IT for the better!

Hantu Laut said...

SM,
The gloom I am talking about will be due to external forces.There is a popular saying among economists that says 'when America sneezes, the rest of the world catches the flu'.The slowing down of the US economy will affect us substantially.The US is our top trading partner in export.

With crude at USD100 and rising and gold at USD850, a global recession is in the offing.

whispering9 said...

Hi...just dropping in a comment to let u know I was here. Saw your links to diving sites. U know what...I am involved in commercial diving.

Back to your tropic. Many did not realise that the 'gloom' and 'doom' will not be as bad as they were. In fact, it will be shorter and less drastic. For example, during the 50th Depression, many people literary jumped off buildings. But, during the Asian crisis, there were hardly any suicide except stories of pawning golds and jewelry. Guess if recession hits, the visual and effect will not be as grave as the Asian Financial crisis. The biggest problem is not economy but political corruption which can destroy any country. So if economical slowdown hits Malaysia, we will have a very bad double wallop. Bye.

Hantu Laut said...

whispering9,
Haven't dive almost a year now.It's a different world down there, no politics and no corruption, just serenity.Even the sharks ignore you.

You could be right, the recession would be a short one but some businesses will suffer declining sales and there will be some big default on bank loans.

Lee Kuan Yew has given Malaysia a good bill of health for 2008,whether it's lip service or out of sincerity, we have yet to see.

Cheng Yoon said...
This comment has been removed by the author.
whispering9 said...

Hi hantu laut,

Sori about the above...my system inadvertently used my identity instead of the nick. So I had to delete the comment. If u have seen it...hahaha, let it be our secret.

Yes, there are indications that loan defaulters are very troubling to say the least. That is why banks and credit card issuers are encouraging 1 month NPL. Also yes, many retail businesses have sufered declining sales. Electronic manufacturers and exporters of finished goods are definitely reeling from possible recession and the strengthening of RM in the fourth quarter of 2007. Civil construction is also stressing under poor sales and escalating raw material. But commodities and O&G are doing exceedingly well. So is engineering works. Since, government to government only deal on a macro level, it is true for LKY to express confidence in our economy. But there is a definite shifting of business HQ from here to places like Vietnam, Thailand, Indonesia and China. Mostly 'cos of unfavourable terms & conditions here. The tax regime and crude enforcement of legistrative laws did not help much too.

Economy is rather complex. To me...the rich will get richer and the middle class steadily disminish because salaries and incentives will not increased significantly if the government continue with the present agrarian policy.

Hantu Laut said...

Whispering9,
No. I didn't see.

You are right about declining sales in the domestic market.People have less money in their pockets due to increasing costs of almost every thing.The only thing on the decline is the purchasing power.

The rich will not be affected, only the middle and lower income will feel the pinch.

The agrarian policy, maybe, good in the long term but will not contribute greatly to the economy in the short term.Other than palm oil,not other major crops are available for export.

If the riggit goes below 3.00 to the greenback, there will major reduction in our export receipts, though it will be cheaper for imports.

I still believe there would be a downturn, how severe it would be ,I am not sure.

whispering9 said...

Yes...a downturn affecting only the middle class and the poor is definitely on the table. And it will stay indefinitely...sadly, majority will resign to such fate. But I really doubt it will collapse Malaysia financially in the next 3-4 fiscal years. Simply, many are aware of it and are taking the necessary precautions...which account for the reduction in consumer spending. But the gman might be going for a rough ride if they keep issuing free economical tickets without taking steps to stop corruption and smuggling.

Do you like economy? Economy is also about the shifting of capital/trade equilibrium. If you spot a crisis...you can also find an opportunity. Many consider such 'gloom' period as godsend opportunity. Anyway, emo aside, we are still into TDM legacy. I do not share much enthusiasm in the coming years when that legacy runs dry and AAB agrarian policy sets in. On the positive side, AAB seems to be abandoning it for more of the old formulae (for the lack of better idea) but many in the administration are quite reluctant to let go because agrarian policy of land giving actually makes bureaucrat powerful. Gotta go...might not converse so soon. Have a nice weekend.