Thursday, November 13, 2008

Down,Down, Down !

Hantu Laut

We have one of the highest wastage of public funds through corruptions and incompetence.It wouldn't be an over-statement to say that at least 30% of taxpayers money are lost to these two evils in government.

We are also blessed by exploitable natural resources that gave us a sound economy that allow us to survive the pilferage,incompetency and inefficiency in the system.The biggest source of government funding comes from taxes and oil revenue.With falling global price of crude oil a big chunk of this revenue would be wiped out requiring the government to look for alternative source of financing for its budget.

If the world markets for crude oil and palm oil do not improve in the near future and with the decline in exports of manufactured goods the government would have a serious budget deficit.The liquidity problem is much more serious than those in government have anticipated.A near negative growth in the following year is not a far-fetched scenario.

China, now the second largest economy after the US, which have had double-digit growth the past few years will face a downturn in its economy soon.With two of the world largest economy slowing down there would be huge decline in demand of commodities including demand for crude oil.How long the recession would last is difficult to guess.Bail-outs in the US have not picked up momentum or showed any improvement to the economy.

Finance Minister and Prime Minister in waiting Najib Tun Razak would have to crack his head to find a solution to the problem.

A recent proposal to sell government assets to raise funds sounds impractical and would be easier said than done.Unless the government is prepared to sell these assets at very low prices there would be few takers.Those with money to buy would look for real bargain.Chances are it would go to cronies even at more depressed price.It would lose future income if income-generating assets are sold.Only loss-making corporations and non-income generating assets should be considered for sale.

Selling government controlled blue chips would be killing the goose that lay the golden eggs.The PM and Finance Minister should not agree to the sales of any of these golden assets in a depressed market.

Worst case scenario, the government may have to trim its development expenditure to reduce the budget deficit.

In October I predicted that the price of crude would fall to around US$50 per barrel before the end of the year in my post "Where Crude Oil Heading For" .The price had tumbled to US$55 in spite of OPEC cut in productions.This means that demand had gone down faster and bigger in volume than OPEC cut in production.

Prolonged period of depressed crude market would spell trouble for Petronas and the Malaysian government spending.

On a lighter note, I find Malaysian generally more interested in politics than the state of the economy.

The good news is prices of consumer goods would go down as well and consumers should be smart to avoid those businesses that are profiteering by not adjusting prices.

8 comments:

kittykat46 said...

So far I've not seen evidence of any reduction in consumer prices.
Well, no businessman "voluntarily" cuts the price of his products or services.

Economic theory holds that in a competitive market, if the cost of key inputs falls, eventually, one or more of the players will cut their price to try to win more business. Other sellers will have to have to make their own decisions, but generally, the whole market will move downwards.

But Malaysia is not really a competitive market. Raw Material Prices are often fixed by middlemen, who control the price , and are most averse to reducing it (very happy to increase it when necessary).
I'm afraid the after effects of the earlier price rise shocks are going to be with us for some time more.

Alex said...

Hi Hantu,

Been following your blog for a while now and find it most objective. However, i do not quite agree that just because oil prices are down, prices of goods must fall automatically or that people are profitering from it.

Case in point, while pump prices are down, the US Dollar have been defying gravity. Being involved in international trade, overseas goods quoted (typically quoted in USD) are much more expensive now. Also, there has not been any reduction in bunker charges too?

BTW, do you know that its actually cheaper fo me to bring in a 20' from any port in china than to bring the same from Port Klang? (taxes aside)

Busineses exists to maximise shareholder wealth and not on charity basis. (not mine anyway) Who do you think have to bear the increase in costs?

Fellow Sabahan

Anonymous said...

With due respect to all pundits who said malaysia is facing a severe terrible economic crisis, the following observations seem to buck the trend:
By all visible criteria everyone in the Klang Valley is enjoying life.
For one ,none of the 3.2 million foregners non citizens working in the country have been retrenched.
MOHA Syed reported that there are 1,000,000 plus (some number) illegal immigrants .
None have been deported by the federal Government.
The banks and insurance cos are not getting long lines of customers wanting withdrawals.
The airports and wantan and dimsum shops are full.
Curry and mamak shops are serving spicy stuff cooked by Chefs imported from India.
300,000 people from the middle east set up home in Klang Valley.
1,100 Singapore registered vehicles were detained in JB to pay up traffic offences(dat mean singapore money in ma).
Hypermarkets are going like gangbusters advertising slashed prices.
Plenty of CPO and cooking oil available.
Pictures of unending open houses splash the media.
Highways in KL are chockerblock jampacked burning cheaper and cheaper petrol.
Jalan Alor and Bukit Bintang are full of people savouring food and other chinese delicasies of the nite.
70 assorted races men are practicing MTM sex in Butterworth.
New cars, new models are being sold and registerd.
Petaling Street is no longer Chinatown but Bangla and Nepal Towns.
The government has not announced any spending cuts nor cost reduction programmes.
No private sector entity announced freeze in hiring.
In fact sarawak state government is legitimizing 54,000 Indonesians.

The Minister of human resources is more concerned about protecting the 75,000 indonesian construction
workers in the Johor Bahru.

None of the 300,000 malaysians working in singapore lost their jobs.
30,000 malaysians illegally overstaying in GBritain are not returning yet.

Financial anylists and heads of research in the Stock broking firms have stated that the KLSE has already bottomed.
Bulls are going out to boost the bourse.

In my opinion (RPK said every one has one) there is a black market parrallel economy that supports 18billion RM annual remittances to foreign countries from the 3.2 million foregners.
This black economy was and is what is holding up our country for the ‘86,’97,’08 cycles downturn.
A crisis activates only when people stopped eating at economy mixed rice wantan dimsum bakuteh kai fan char siew pau stalls.

In conclusion there is ,
today,no economic crisis in malaysia.
arjun.

Hantu Laut said...

kittykat46,
Supply and demand dictates the market price of any commodity.In a recession when people have less money to spend demand would decline and so would prices.

The bad times are not here yet, not bite in yet.

Malaysian are generally very slow in changing their lifestyle,they only do when they find their pockets empty.You will feel the pinch 1st Quarter next year.

Hantu Laut said...

alex,
Costs of bringing containers to Sabah have always been a sore point for Sabah shippers.That's not a reflection of economic theory.It is monopoly allowed by the federal government to make sure all shipping activities goes through the ports in Peninsula Malaysia.

It has nothing to do with economics,it's the bloody government stupid protectionist policy.

Most hypermarkets and some supermarkets in the country have already adjusted prices downward for certain products.More will come.

It is the small traders that are slow or refused to adjust prices.

The USD have strengtened due to demand.Most people still think it is the safest currency and those who had no confident in their own currency switched to USD.

Hantu Laut said...

anonymous,
Your observations may be right.Wait a few more months when the recession bites in the scenario would be different.

SM said...

HL,

How can anyone say we will be going into a Recession?!
Jeeeze don't you trust the BN Government (that has been lovingly guiding & nuturing us for the last 51 years)?
And now, with Rosmah (er, sorry Najib) ready to take over, man we are ready to take on the world (anyone try to stop us, we will C4 them!)!
I just read that Germany has offically said they are in a Recession! Man, these Europeans are hopeless. They should follow our style of Government & Fiscal Policies! Even Singapore is saying it's heading into a Recession. Hopeless Racist Government that Singapore has! Look at Malaysia, all is nice & rosy. Racial Harmobny & tolerance & if anyone dares to sing the Negaraku in an "open field" our fearless "boys in blue" (who are only scared to have Stations in CHow Kit Road) will man handle & arrest them.
Then we have UMNO who are still debating about its "restructuring" (look at channel 501 Awani on Astro...almost everyday they interview some UMNO expert on UMNO). Surely there is no worry about the Economy right?
Sure lah Malaysians are only interested in Politics, since we are soooooo trustful of our Government's Fiscal Policies.

Alex said...

Hi Hantu,

'The USD have strengtened due to demand.Most people still think it is the safest currency and those who had no confident in their own currency switched to USD.'

My point exactly. Most traders do not have a choice becuase goods are transacted in USD. As a result, imported goods are actually more expensive (no fault of theirs mind u). Importers who are unable to raise prices possibly due to competitive reasons are in fact experiencing further margin squeeze. A double whammy!! How are traders to reduce prices??

Times are bad...... very bad indeed......

BTW, any suggestions on what can be done abt the freight charges between East and West. Perhaps u could write a piece on it to bring awareness to the public? Instead of the govt pumping money chasing after bad, improvements could definitely be made on the supply side. Real savings can be passed on to consumers if such a 'monopoly' could be dismantled.

Peace!