Part 1: Selangor's ills need urgent intervention

COMMENT The first concern is the effect of the US Federal Reserve tapering of quantitative easing.

The United Nations Conference of Trade and Development (Unctad) in its report on the ‘World Economic Situation and Prospects 2014' released on Dec 18, 2013 warned that there are a number of uncertainties and risks in 2014.

One of them is the risk associated with the unwinding of the unconventional monetary policies of the central banks of major developed countries or “quantitative easing” over the course of 2014-2015.

Since the global financial crisis of 2007-2008, the United States, United Kingdom and the Eurozone carried out the unconventional monetary policies or so-called quantitative easing (QE) by purchasing bonds and other assets from financial institutions to stimulate their respective economies.

The US Federal Reserve in late November 2008 started to buy US$600 billion mortgaged backed securities reaching US$2.1 billion by June 2010.

In November 2010, the US Federal Reserve announced a second round of quantitative easing, buying US$600 billion of treasury securities by the end of the second quarter of 2011.

A third round of quantitative easing was announced on Sept 13, 2012 that the US Federal Reserve launched a new US$40 billion per month bond purchasing programme.

The US Federal Reserve purchases and assets have since gone beyond US$3 trillion.

As a result of this quantitative easing in the developed markets, a significant amount of capital flows, in search for higher yields, were driven to markets of primary commodities and markets of equities and bonds in emerging economies in 2009-2012.

The Asian Development Bank (ADB) in its ADB Economics Working Paper Series ‘Effects of Quantitative Easing on Asia: Capital Flows and Financial Markets’ reports that the capital inflows in these emerging economies besides going into commodities markets, bonds and equities also increased housing and property prices in these countries.

ADB reported that housing prices nearly doubled in Hong Kong, China and India during the four year period from 2008 to 2012 and steadily rose to 57 percent and 27 percent in Taipei and Malaysia.

This drove property prices beyond the means of many ordinary Malaysians in need of a home and a plunge in prices will hurt many.

The QE also caused volatility in commodity and equity prices as well as currency values in the emerging economies.

As risks abated and economic recovery in the United States and Japan improved, Ben Bernanke announced on June 19, 2013, a “tapering” of this quantitative easing.

The US Federal Reserve would scale back the purchases and completely unwind by mid-2014.

Bernanke’s announcement sparked a mini-crisis as international capital flows started to move away from emerging markets back to developed markets.

This has led to waves of decline in capital flows in emerging markets and outward capital flows.

The other aspect of the tapering of the quantitative easing is that the currencies of the developing economies depreciated against the United States Dollar as capital flows went back to the developed market.

This tapering of the quantitative easing and unwinding of the unconventional policies have created a new risk to the stability of the world economy.

Unctad warned of the vulnerability of emerging economies to these external shocks.

The financial turbulence encountered by many emerging economies in 2013 has reminded the world of the Asian Financial Crisis of 1997-1998.

The volatility of capital flows, increased current account deficits and high ratio of foreign debt to GDP of several emerging economies are similar to those during the Asian Financial Crisis.

It is a reminder that emerging economies are bound to face more external shocks as the major central banks start to unwind their massive QE programmes.

Malaysia will not be spared.

Foreigners now hold 45.1 percent of Malaysian government bonds and 23.6 percent of Malaysian equities.

A sudden sell-off will affect us negatively.

Bloomberg reports that RM1.26 billion of foreign funds had exited Malaysia in the first three weeks of 2014.

This was not an isolated event as markets across Asia felt the effects of the reversal of the US Federal Reserve quantitative easing programme.

The Stock Exchange of Thailand declined by 2.88 percent while the Straits Times Index slid by 4.7 percent since the beginning of the year.

MIDF Amanah Investment Banker Bhd’s research division noted that in the last 16 weeks, a total of RM8.48 billion of foreign money exited Malaysia.

Foreign funds were aggressive sellers every single day in the last week of January 2014.

Economist Nouriel Roubini described it as a “mini perfect storm”.

Currencies and capital outflows are again giving rise to crisis and contagion. Leadership is needed in these challenging times.

In the midst of this our prime minister was only able to speak about kangkung!

Rising costs of living and deteriorating standards of living

The second immediate concern is the rising costs of living, deteriorating standards of living, rising economic costs and welfare losses from rising unemployment, tightening credit conditions and slowing down of real economic activity in Malaysia.

The Malaysian Institute of Economic Research (MIER) in releasing its Malaysian Economic Outlook on Jan 28, 2014 said that although the long delayed fiscal deficit corrective measures are undeniably necessary, their implementation one after another is akin to shock therapy.

This has resulted in overshooting of consumer prices and rising costs of living.

Inflation at a level Malaysians are not accustomed is raising its ugly head.

This inflation is mostly BN policy-driven.

It arises from fiscal structural adjustment measures through subsidy rationalisation and broadening of the tax base by implementing the Goods and Services Tax (GST) by April 1, 2015.

Minimum wage implementation and currency depreciation aimed at boosting exports and avoiding a shrinking current account surplus provide additional sparks for rising prices and cost of living in the country.

The federal government in implementing the fiscal structural adjustment programme has reneged on its promise to adopt a gradual approach and staggered implementation.

The shock therapy will in all probability result in a situation where the operation is successful but the patient is dead.

A strong Selangor government is needed to carry out programmes to mitigate the increased costs of living.

Such programmes are crucial because usually a period of rising inflation will be followed by a period of rising unemployment.

There is therefore an urgent need for a strong Selangor government to take measures to address these challenges.

Increased tensions and the shadow of another Ops Lalang

The third immediate concern is the increased tensions arising from racial and religious issues that Anwar described as being at May 13 levels in his call to work towards a national consensus on Jan 26, 2014.

He said that in the past few months there have been a series of circumstances and developments that collectively are fast eroding the national cohesiveness that is so crucial to our identity.

Anwar said: “In fact, we have not seen this building up of tensions since the events leading up to our national tragedy of May 13, 1969.

“The voices of hate and animosity, the voices of prejudice and suspicion, and the voices of wreck and ruin are attempting to drown out the harmony, cooperation and understanding that we have managed to build on the ruins of this tragedy.”

The people of Selangor and Malaysians need a leader like Anwar Ibrahim.

A leader who can reach out to all Malaysians to turn the corner from the path of increasing polarisation to the path of greater integration.

Malaysians have to stop race-baiting, put an end to the disease of incitement of religious intolerance and hatred.

What are the intentions of these voices of hate and animosity? Let us not forget that the weapons for detention without trial remain in existence.

They may have taken on new forms and new names but the power to detain without trial is very much alive.

The Internal Security Act has been replaced by the Security Offences (Special Measures) Act.

Detention without trial has been brought back by amendments to the Prevention of Crime Act 1959.

Requirements for police permits to hold demonstrations have been tightened by the Peaceful Assembly Act.

A blogger, Hartalmsm, reminded that recent events and developments are similar to those when Operation Lalang was carried out on Oct 27, 1987.

In 1987, Umno was in a political crisis with the party bitterly split between Dr Mahathir Mohamad and Tengku Razaleigh Hamzah.

On Jan 29, 2014, Prime Minister Najib Abdul Razak held a meeting with division chiefs, opinion makers in his party and supporters to address criticism against his leadership by Dr Mahathir, Daim Zainuddin and other party veterans.

In 1987, Umno/BN political influence was declining.

In the 13th general election, BN only obtained 47 percent of the popular vote and the lowest number of parliamentarians in the coalition’s history.

In 1987 the economy was in trouble.

In 2014 the economy is facing strong headwinds as prices of goods and costs of living rises.

In 1987, five mosques in Pahang were burnt.

In 2010 several churches, a mosque, a surau and a gurdwara were attacked following the ‘Allah’ controversy.

On Jan 27, 2014, two Molotov cocktails were thrown into the Church of Assumption compound in Lebuh Faquhar, Penang.                

There is a critical need for a strong Selangor government that can impress on those who contemplate another Operation Lalang that Malaysians will not stand for this form of abuse.

Need for a courageous leader

Benazir Bhutto once said that: “Throughout the ages, leadership and courage have been synonymous.“Ultimately, leadership requires action; daring to take steps that are necessary but unpopular, challenging the status quo in order to reach a brighter future.”

Anwar Ibrahim is painfully aware that the Kajang by-election is a necessary step for a brighter future for all Malaysians.

It is regretted that the voters of Kajang are burdened to come out to vote again.

He is prepared to stand up in the times of crisis, the people of Kajang are asked to stand with him.

The dream of a better Malaysia of all races living in real harmony and in equity lies in their hands.

We pray that the people of Kajang will come out and vote for a better tomorrow where our children can fulfill their fullest potential without regard to race or religion.

WILLIAM JK LEONG is MP for Selayang, and treasurer-general of PKR.