MH370: Breakthrough?

MH370 went missing on March 8 2014 en route from Kuala Lumpur to Beijing with 239 people on board. The disappearance nearly eight years ago kicked off one of the most extensive aviation searches in history. It has generated a range of theories as to where it ended up, and what happened on board.

Using software based on ‘weak signal propagation report’ (“WSPR”), Richard Godfrey’s new report says the craft should be resting about 4km under the sea in a mountainous region of the southern Indian Ocean that had been missed by previous search attempts.

(Source: https://en.wikipedia.org)

Taken together with satellite, weather, ocean current, and aeroplane performance data, Godfrey says the new technology should trigger a fresh search. The proposed search area is defined by a circle with a radius of 40 nautical miles centred on the prime crash location.

Godfrey says the plane is located about 1,200 miles west of Perth, Australia lying at the base of what is known as the Broken Ridge - an underwater plateau with a volcano and ravines in the south-eastern Indian Ocean.

Since 2014, 33 pieces of debris have been found in six countries - including South Africa and Madagascar - which experts believe proves the plane plunged into the Indian Ocean.

The last full-scale search for MH370 in 2018 was by US robotics company Ocean Infinity - using unmanned underwater vehicles - covered nearly 50,000 square miles and yet nothing was found.

WSPR is now being used to accurately calculate the final location of the MH370 before it disappeared. Extensive trials of new technology tracking historical data of radio signals bumping off planes have led experts to believe it could hone in on a more specific search area.

In a recent statement, the Malaysian Transport Ministry remains sympathetic to the family members of the victims and is also of the view that careful consideration and study should be given to any new credible evidence which may be put forth to identify the location of the aircraft.  Meanwhile, ATSB Chief Commissioner Angus Mitchell said the agency has requested Geoscience Australia to review past data and re-validate if any items of interest were detected in the search zone recommended by Godfrey.

Eight years on, some investigators believe the plane's captain made a series of zig-zagging movements to throw off air traffic teams and evade radar systems. Only with the recovery of the flight data recorder will we have a better picture of what happened to flight MH370. Otherwise, there will always be new hypothesis and speculative theories on hijack, terrorist activity or an alien abduction?

References:

MH370 breakthrough as expert ‘pinpoints’ precise location, Alex Druce, (https://www.news.com.au)

MH370 breakthrough as hunt for jet is restarted after bombshell tech pinpoints “exact” location eight years on, Imogen Braddick  (https://www.thesun.co.uk)

New data might lead to a breakthrough on the MH370 tragedy, Hesper Anak Buckland, 

21 Feb 2021 (https://tvstv.my)

Is Malaysia’ GDP Growth on a Downtrend?

At the moment, Malaysia has a “very low” share of high-skilled jobs compared to Singapore and other advanced economies, according to Socio-Economic Research Centre (SERC) executive director Lee Heng Guie (Starbiz, Wednesday, 5 Nov 2021).

The share of high-skilled jobs for Malaysia is only 24.7% while 62% are semi-skilled and 13.1% are low skilled. This is as of second quarter of 2021. Other countries have high-skilled job percentages of over (or close to) 60% mark. Singapore has about 54.7%, Switzerland 51.3% and the United States 42.2%. That’s according to SERC.

Lee warned that Malaysia’s potential economic output growth has hit a speed bump, with the rate moderating to 3.3% in 2020 and perhaps 3.4% for 2021. In comparison, the average potential output growth rate between 2011 and 2019 was 4.9%.

Potential output is the maximum amount of goods and services an economy can turn out when it is most efficient – that is, at full capacity.

Apart from the lack of skilled jobs domestically, slowing labour productivity growth is another factor.

Labour productivity in Malaysia has only grown by 1.1% between 2016 and 2020, as a result of lower utilisation of productive capital stock and ineffective mobilisation of resources.

High-quality investments in technology-intensive industries are required to increase our productive capital stock. We also need to encourage more companies to adopt technology and digitalisation, especially among the SMEs.

On the economic performance for 2022, Lee expects a stronger growth for Malaysia compared to last year, although his projection is below the government’s official guidance.

The country’s GDP is set to grow by 5.2% in 2022, from MOF’s projected growth of 5.5%-6.5%.  Malaysia’s recovery path is contingent on sustained revival in domestic demand, uninterrupted transition towards reopening, no major drag from exports and timely implementation of fiscal measures.

Lee highlighted that the Malaysian economy faces five major risks in 2022 – the Covid-19 mutations, the US Federal Reserve policy headwinds, China’s economic slowdown, price pressure and the winding down of domestic relief measures and policy changes headwinds. Others not mentioned may include political stability, flip-flop Government policies and the incentives for FDIs.

For 2022, the real issue is inflation – projected officially at 3%. But prices of essentials are already above 10%. This is mainly a cost-push phenomenon with consumers bearing the brunt of supply disruptions, price increase of commodities and imported goods, transportation cost increases and tariffs. To mitigate, the Government needs to raise minimum/living wages, improve bottlenecks, reduce bureaucracy, subsidise/control tariffs and transport costs. Beyond that, we need to re-look at up-skilling workers, focussing on R&D and taking steps on productivity improvements, to reverse the downward growth pattern of GDP.

Will the present Government do that?

Reference:

In need of more high-skilled jobs, Ganeshwaran Kana, The Star, 5 Jan 2022

Socso: An Unutilised or Underutilised “Insurance Scheme”?

While most people are aware of what EPF is, SOCSO seems to be less popular in terms of awareness and familiarity. A portion of a person’s monthly income is allocated for SOCSO from both employers and employees but what are you paying for?

SOCSO was incorporated to provide assistance both medically and financially to employees that have had their abilities reduced or incapacitated due to accidents or diseases. They also provide assistance through pensions to the dependents of employees if they die.

Source: https://www.thestar.com.my

Employment Injury Scheme Benefits

This scheme provides coverage and protection for employees who suffer from employment injury.

• Medical benefits

• Temporary disablement benefit

• Permanent disablement benefits

• Constant-attendance allowance

• Rehabilitation benefit

• Return to work programme

• Dependent benefit

• Funeral benefits

• Education benefits.

Also important to note that employees that have stopped contributing to SOCSO might still be covered if they fulfil certain conditions. A fact that has gone unnoticed by many.

 

Invalidity Pension Scheme

This scheme covers employees who experience invalidity and death due to any causes not related to their employment. Invalidity implies the inability of an employee to achieve one-third of the customary earnings of a sound insured person. This inability may take the form of permanency or it’s very unlikely to recover.

The benefits that could be attained are:

• Invalidity pension

• Invalidity grant

• Survivors' pension

• Funeral benefit

• Facilities for Physical Rehabilitation and Dialysis

• Education Benefits

The survivors' pension is also an important piece of information for those who assume that the pension will stop once the employee has passed away. Through the survivors' pension scheme, dependent family members can apply to have it transferred to them.

 

SOCSO has issued health checks vouchers to 2.2 million Malaysians. However, results have shown that a staggering 1.7 million (77.3% of the eligible candidates) eligible for the free medical health check have declined the said initiative.

 

SOCSO contribution is compulsory for all Malaysian employees with monthly salaries lower than RM3,000. However, it is optional for those with starting salaries above RM3,000. Owing to the "once in always in" principle, a SOCSO member who has contributed to SOCSO will continue to be a member even when salaries have increased to over RM3,000.

 

First Category: Employment Injury And Invalidity Schemes

• All employees below 60 years old are required to participate in this category.

• Only 0.5% of employee’s monthly wages is to be extracted for the contribution.

 

Second Category: Employment Injury Scheme Only

• Employees who 60 years old and above and still working

• Employees above 55 years old who have made their first SOCSO contribution

• Insured Person receiving Invalidity Pension and still working and receiving less than 1/3 of the average monthly wages before the invalidity

• Employer to bear the contribution costs to SOCSO at 1.25% of monthly wages

Recently, SOCSO made a statement that it paid out RM1.3 million compensation to 764 delivery riders who were involved in accidents. The payments covered temporary and permanent disability benefits, medical expenses, dependent benefits, as well as funeral expenses. On average, the payment was just RM1,700 per person. For Covid, payout was RM11.2 million for 15,036 people or RM745 per person. And it took 2-3 months to process and payout. Imagine a funeral will have to wait for 2-3 months? And the payout sum per person is pathetic! How can dependents survive?

And when it comes to withdrawal, there is no such thing. This is one insurance scheme with no surrender value! If you have paid all your working life and not claimed, too bad, your bad luck? There is need for reform of this scheme and incentives for employers and employees to contribute, not the “big” stick approach. Meanwhile, it remains underutilised or unutilised till there is a serious campaign to raise awareness and/or change its workings!

References:

5 things you should know about SOCSO (https://loanstreet.com.my)

Awang: RM1.3 mil in SOCSO compensation given to over 700 delivery riders, Focus Malaysia, 16 Jan 2022

Socso paid RM11.19 million in compensation to those infected with Covid-19 at workplaces, The Star, 26 Sept 2021

 

Covid and Asia’s Inequalities

Since 1990s, neoliberal economic policies, decreases in taxes and rising profits were channelled into the elite few, be it the Ambanis, Kuoks or the mainland Chinese billionaires.

With Covid-19 more than a million lives were lost in Asia. Sharp differences in wealth and income only got amplified.

Between March and December 2020, 147 million full time jobs were lost in the Asia-Pacific region. The World Bank estimates that 140 million people dropped into poverty while in 2021 another 8 million people became poor. The impact was most severe on women, minorities and migrant workers.

Source: https://www.globalcitizen.org / Rajanish Kakade/AP

For the billionaires, their numbers grew from 803 in March 2020 to 1,087 in November 2021. And their wealth? That grew by 74%. Asia’s richest 1% owned more wealth than the poorest 90%.

In 2020, UNESCO estimated that 10.45 million children would drop out of school or university forever due to the pandemic. This will have far reaching impact on equal opportunity.

Oxfam’s report shows that wealth tax of 2-5% on Asia’s multi-millionaires and billionaires could raise an additional US$780 billion a year. That would be enough to support increased public health and enhance opportunities in education.

Time is now to discard neoliberals policies of the rich and build on recovery measures. We need a green recovery, inclusive business model, less inequality and better human rights. This could only mean higher taxes on the super-rich individuals and corporations – and better management of costs and resources. Crisis creates opportunities and it is time to build back better whether it is Malaysia, Japan, China or India.

Reference:

Covid-19 worsens Asia’s staggering inequalities, Amitabh Behar, Sunday Star, 23 January 2022

Is The Ringgit Undervalued?

The Malaysian ringgit should be worth 58.9% more against the US dollar, or RM1.72 per dollar, instead of its current level of around RM4.19, according to the latest Big Mac Index released by The Economist (Feb 6, 2022).

Since 1986, the Big Mac Index has been comparing purchasing powers around the world using the price of the world’s most recognisable burger as its benchmark. The index is based on the theory of purchasing-power-parity (PPP), or the notion that in the long run, exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services in any two countries. The index, which the Economist says is never not to be taken as a precise gauge of “currency misalignment”, has now been globally accepted. In its latest edition, the ringgit emerges as the fourth most undervalued of 55 currencies tracked, each measured by GDP per capita and after taking into account differences in the standard of living.

“A Big Mac costs RM9.99 in Malaysia and US$5.81 in the US,” the survey report said.

“The implied exchange rate is 1.72. The difference between this and the actual exchange rate, 4.19, suggests the ringgit is 58.9% undervalued,” it added in reference to the ringgit’s market value earlier this week. What this means is that anyone who earns in ringgit will be able to buy fewer things in the US or any other country because the currency is undervalued.

Source: Focus Malaysia

Among the world’s other most undervalued currencies on the Big Mac index are the Turkish lira, undervalued by 67.9%, the Indonesian rupiah (undervalued by 59.3%) and the Russian ruble (undervalued by 70%).

Meanwhile, the index finds the Swiss franc and the Norwegian krone as the world’s most overvalued currencies.

Due to PPP, the cost to produce a Big Mac is cheaper in poorer countries. To address this, The Economist said it has factored in another important indicator – GDP-adjusted index – to reach a more accurate conclusion. At market exchange rates, a Big Mac costs US$2.39 in Malaysia, 58.9% less than in the US (US$5.81). But based on differences in GDP per person, a Big Mac should cost 37.2% less. This suggests that the ringgit is actually 34.6% undervalued.

On the adjusted index too, Malaysia’s currency remains heavily undervalued at sixth place, but less so than when dealing with straight conversion data. Using this measure, the Russian ruble is the most undervalued currency relative to the US dollar, by as much as 52.1%. Adjusted for GDP per capita, Uruguay has the most overvalued currency at 39.8%.

An index is an index. It is a gauge if perceptions, sentiments and speculation are not accounted for. The ringgit (like some others) is impacted because of interest rate differences, balance of trade/payments, desirability of the currency, policy flip-flops, political instabilities, corruption “tax” and low GDP growth. But together speculators move the exchange rate downward/upward as they deem fit. It is only when reserves of a country are significantly high like China, that speculators withhold any “attack”. Otherwise we could face the fate of Sri Lanka or Pakistan. But capital controls are not a solution if we believe in an open economy and practice the free market regime.

Reference:

Ringgit is fourth most undervalued currency, says latest global purchasing power index, MalaysiaNow, Feb 6, 2022 (https://www.malaysianow.com) 

“Ghost” Ships for a “Real” Navy?

The Littoral Combat Ships (LCS) is one the largest defence procurement in Malaysia’s history. Under the programme, 6 vessels were to be built by Boustead Naval Shipyard Sdn Bhd (“BNS”) for approximately RM9 billion. Of which, RM6 billion has been spent so far with no ships in sight.

The Royal Malaysian Navy or TLDM had initially agreed to use the Sigma design proposed by Damen Schelde Naval Shipbuilding. The first delivery of the 6 LCS’ was supposed to have taken place in April 2019. In December 2020 it was revealed that the first ship was only 59.79 percent complete despite some RM6 billion been paid out. A previous deputy defence minister said that RM1 billion paid out for the warships could not be traced.

https://www.freemalaysiatoday.com

Indonesia ordered four Sigma-class ships in 2010. This was the original request by TLDM. For Indonesia, the first ship was commissioned in 2017 while the second was commissioned in 2018.

BNS continued the project despite its alleged poor track record, including the New Generational Patrol Vessel (NGPV), which was reportedly impacted by delivery delays and large unforeseen additional costs. The matter was investigated by the 11th Parliament’s Public Accounts Committee in 2007.

The problem with defence procurement is that it is supposedly to be done in “secret”, so that others may not have information on details of our assets. But in Malaysia, we are an “open” book, most of our so-called secrets are known to others.

The LCS saga is for all to see and yet we may not have a closure. It is like buying two submarines that initially could not dive! We will talk of best practices, proper safeguards, transparency and commitment but in reality none of these matter when there are no ships and two thirds of the allocated sum is spent. Is there someone who will take the fall? None for now! Meanwhile, will the Government issue a White Paper on the saga without blaming other political parties? I suppose that is too much to ask especially if the former defence minister is the current chief of the ruling political party.

Reference:

MP Speaks: Government must be transparent on LCS saga, Nik Nazmi Nik Ahmad, Malaysiakini, Jan 30, 2022 (https://www.malaysiakini.com)

Fiscal Rules: Does Credibility Matter?

On December 14, 2021, Lee Heng Guie of SERC wrote an interesting treatise on the above subject.

A credible set of fiscal rules is needed to reduce fiscal deficits and debt-to-gross domestic product (GDP) ratios to sustainable level, promote inclusive economic growth, mitigate room for fiscal manipulation and encourage politicians to prioritise among the many demands on the annual budget.

Source:https://www.propelnonprofits.org

The government’s massive fiscal support that has salvaged the Malaysian economy and businesses by saving lives and jobs has worsened both the budget deficit and public debt since 2020. The statutory debt ceiling was raised twice from 55% of GDP in 2019 to 60% in 2020 and further to 65% in 2021. Malaysia’s budget deficit has widened from 3.4% of GDP in 2019 to 6.2% in 2020 and 6.5% in 2021. This is targeted to reduce to 6.0% of GDP in 2022. Public debt to GDP has reached RM969.3bil or 64% of GDP at end-September 2021 (end-2020: RM880bil or 62.1% of GDP; end-2019: RM793bil or 52.4% of GDP).

While it is expected that the budget deficit will improve and debt will decrease marginally in the next few years as the economy recovers, these developments raise questions about how deficit can be lowered and high debt can go without being disruptive.

Any loosening of fiscal discipline and unsustainable debt could bode ill for the country’s credit ratings. Malaysia needs to fix its tight fiscal space to build economic resilience for buffering against future adverse shocks.

In the Medium-Term Fiscal Framework, the average fiscal deficit is expected to reach around 5% of GDP in 2022-2024, and in the 12th Malaysia Plan (2021-2025), the fiscal deficit will reduce to between 3% and 3.5% of GDP in 2025.

A robust set of budgetary rules and fiscal institution is needed to achieve goals of ensuring fiscal stability and debt sustainability. Fiscal rules must be made simple, flexible and enforceable in the face of changing economic circumstances.

Lee Heng Guie argues that the government will enact the Fiscal Responsibility Act (FRA) in 2022, which aims at improving governance, accountability and transparency in fiscal management.

The government’s commitment and credibility to well-managed public finances can reassure financial markets and investors that our country’s sovereign credit rating is in good shape and lower the risk of credit default.

As he sees it, the following principles are needed to enhance the effectiveness of fiscal rules:

Fiscal structure

Revenue strategy that strengthens revenue collection and efficiency, including the predictability and stability of tax rates. Broadening of the narrow tax base and plugging tax leakages.

There must also be expenditure rationalisation and optimisation, which is outcome-based and meets expenditure efficiency rule to minimise wastage.

Fiscal discipline

Fiscal policy is only used for counter-cyclical or to mitigate adverse shocks-induced economic recession. The government should save money in good economic times and prevent large expenditure increases, which can absorb all revenue windfalls.

Achieve and maintain prudent public debt levels

Ceilings on public debt are a common feature of rule-based fiscal frameworks. Higher debt increases vulnerability to shocks and can undermine market confidence and lead to fiscal distress.

Contingent liabilities

Fiscal surveillance framework requires risk awareness and close monitoring of contingent liabilities. The government’s contingent liabilities have increased by 13.3% per annum to RM375.3bil at end-June 2021 (end-Dec 2015: RM177.7bil).

Escape clause to accommodate unexpected shocks/events

Precise exceptions are allowed under a well-defined fiscal surveillance framework. A limited and clearly defined set of events can trigger the exception.

Good communication, timely and regular fiscal updates

The International Monetary Fund research shows that a country’s commitment to budget discipline and clear communication of policy priorities, backed by transparency on government spending and revenues, will pay off.

All of the above are good principles to follow. But it is in the execution or implementation that we are sorely lacking. Accountability, transparency and authority are three pillars that are weak in Malaysia. No one wants to be accountable and no heads will roll for failures! No one will take responsibility as committees are the mode for execution. Even if one has authority, it is seldom exercised because that’s how the civil service is set-up.

Amidst all the above, if the bi-partisan Public Accounts Committee takes a more central role then it may force some movement to a more responsible implementation of the fiscal framework. Otherwise, we will have good pronouncements with no accountability.

Reference:

Fiscal rules: Credibility matters, Lee Heng Guie, Starbiz, December 14, 2021

Has Unemployment Really Dropped?

According to the Department of Statistics Malaysia (DOSM), the number of unemployed persons fell below 700,000 in November 2021, the first time since March 2020.

This was a decrease of 1.5% month-on-month (m-o-m) to 694,400 persons, compared with 705,000 in October 2021, said chief statistician Datuk Seri Dr Mohd Uzir Mahidin. 

The labour force situation in November 2021 held steady with continuing employment growth reducing the number of unemployed persons as the revival of more economic and social activities stimulated a positive vibe for the labour market. 

November also saw another five states moving into Phase 4 of the National Recovery Plan except for Kelantan and Sarawak, which were still in Phase 3. 

By economic sector, the upward trend of employment in the services sector persisted mainly in wholesale and retail trade, food and beverage services, as well as transport and storage activities.  A similar trend was observed in the manufacturing and construction sectors, while employment in the agriculture and mining and quarrying sectors continued to decrease. 

By the duration of unemployment, 55.7% were unemployed for less than three months, while 7.8% were those in long-term unemployment of more than a year. For those who believed that there were no jobs available or were inactively unemployed, the number dropped 2.5% to 112,600 persons (October 2021: 115,400 persons). 

Youth unemployment rate for age 15 to 24 years reduced by 0.2 percentage point to record 13.7% after registering 13.9% since August 2021. But unemployment rate of youth aged 15 to 30 years recorded an increase of 0.1 percentage point m-o-m to register 8.2% (October: 8.1%).

The key point above is youth (age -15-24) unemployment is close to 14%! And that is a social cost. Those who have completed secondary or tertiary education may face unemployment. Why? Mismatch of skill sets, language (oral/written) fluency especially English is poor, and many have a laidback attitude to work. So, some end-up as Grab drivers or food delivery riders. Jobs that they had not envisaged when they started their tertiary programme. There is nothing wrong being a Grab driver or a food delivery rider, but some are over-qualified for sure. 

To live in an urban setting, you need a living wage of RM2,700. That’s according to BNM.  And starting salaries of graduates in some places are below RM2,500. How could they survive even if they do get a proper job?

Reference:

DOSM: Number of unemployed persons below 700,000 for first time since March 2020

Syafiqah Salim, TheEdgeMarkets, 11 Jan 2022

U.S. Student Loans: The Origin of a Racket

Before he even took office, President Joe Biden faced calls from student loan debtors and political colleagues alike to cancel – in full or in part – U.S. $1.7 trillion in student loan debt. This pressure is the culmination of years of effort. Almost a decade ago, the Occupy Student Debt Campaign, a student debt abolition movement, an offshoot of the Occupy Wall Street protests, announced as one of its goals the elimination of current student debt through a single act of relief. It sounded amazing at the time. 

Source: https://www.fairobserver.com

But less than a decade later, the ever-growing student loan bill became an issue in the 2020 Democratic presidential primary. While Sen. Bernie Sanders argued the entire sum should be forgiven, the Biden campaign ultimately floated the idea of making four-year public institutions free for any family earning under $125,000 annually, as well as forgiving up to $10,000 in federal student loan debt. In the last session of Congress, now Senate Majority Leader Chuck Schumer, Senator Elizabeth Warren, and Representative Ayanna Pressley introduced a resolution to forgive up to $50,000 in federal student loan debt. They reintroduced it once again within weeks of Biden’s inauguration.  

Originally, government and private banking made student loans available to increase enrollment and access to education. But over time, the ballooning cost of university and vocational training took on a life of its own. For the people who owe money, it impacts everything from career choices to marriage rates. People with student debt have fewer retirement savings at the age of 30 and are less likely to own a home by their mid-30s. 

Students, it turned out, were not price-sensitive when it came to using borrowed funds. Colleges quickly realised they could raise prices without affecting their enrolment. For example, in 1976, the average cost among all U.S. institutions when including room and board was $2,275, but that price more than doubled a decade later to $5,206. This price accounts for inflation. Many turned to loans to paper over the gap. Over time, students began to face higher debt loads and a harder time paying off the loans.

In Malaysia, PTPTN is sitting on a RM40 billion of government-guaranteed debt, which is expected to almost double to RM76 billion in 20 years. For perspective, this is more than the amount involved in the 1MDB scandal. The emphasis on the repayment problem has detracted attention from the more serious issue of the sustainability of the fund. The current model is not sustainable, as it borrows at 5% and lends at only 1%, with the difference being subsidised by the government. This is why it is now time for an overhaul of the fund’s operating model. The scale of the repayment problem is huge, with more than half of borrowers defaulting. The current loan repayment percentage ratio is 49:51, with 49% actively paying back their debt while 51% are not.

From RM56 billion that PTPTN has disbursed to date, only 32.5% has been repaid in full. The gap between the cumulative amount of loans disbursed and that have been repaid continues to widen every year.

Against that backdrop, the number of students requiring loans from PTPTN is also on an upward trend and is expected to grow from 180,000 to 250,000 by 2040, in line with the enrolment growth projected in the Higher Education Blueprint.

The only way this can work is if the loan sum to be repaid is paid partially by Government coffers from a new tax on financial transactions (This is not a new idea but something Elizabeth Warren suggested for the U.S. case). A financial transaction tax (FTT) is on buying/selling stock, bond, derivatives or options. Something like 2 sen for every RM1,000 traded. Will the Finance Minister be brave enough to do this?

References:

Student loans: the origins of a racket, Devan Lindey, Feb 18, 2021 (https://publicseminar.org)

Special Report: PTPTN in search of a sustainable model, Syahirah Syed Jaafar, The Edge Malaysia, Dec 7, 2019

Are SMEs “Forced” To Raise Prices?

Small and medium enterprises (SMEs) are struggling after being hit by the Covid-19 pandemic, and the 11-18.4% hike in electricity rates from February which will surely hamper recovery.

A hike of up to 18.4% in utility bills could mean a reduction of between 20% to 40% in profits (as reported by FMT, January 30, 2022). According to the Energy Commission, the increase will affect more than 1.6 million commercial and industrial users. Commercial and industrial users, besides losing the 2 sen/kWHh rebate given previously, would be imposed a surcharge of 3.70 sen/kWh in their electricity bills.

Source: https://www.malaysiatrend.com

How is TNB doing? Tenaga Nasional Bhd (TNB) posted higher net profit at RM1 billion for the third financial quarter ended Sept 30, 2021 (3QFY21), up 22% from RM821.5 million in the immediate preceding quarter (The EdgeMarkets, Nov 25, 2021). 

Revenue grew 4.3% to RM12.97 billion in the quarter under review against RM12.44 billion in 2QFY21. The utility group did not declare any dividend for the quarter.

The higher quarterly earnings against the preceding quarter were mainly due to lower net loss on impairment of financial instruments and current taxation in 3QFY21. On a yearly basis, TNB’s net profit was flat compared with RM1.01 billion recorded in 3QFY20. However, its revenue was 16.8% higher versus RM11.11 billion a year ago. 

For the cumulative nine-month period ended Sept 30, TNB’s net profit expanded nearly 17% to RM2.78 billion from RM2.38 billion a year ago, while revenue increased 9.64% to RM36.89 billion from RM33.65 billion. On an annualised basis, it may close with a net profit of RM3.6 billion, better than in 2020.

TNB’s profit was RM3.4 billion in December 2020, a drop from RM4.5 billion in 2019. This drop was mainly due to lower revenue, arising from Covid-19 – lower tempo in commercial activities.

With over RM3 billion annual net profit (over last 3 years), is there a need to raise tariffs? What is TNB trying to prove? Higher profit for analysts or bonuses? Meanwhile, if this increase is passed through by SMEs and others, the rakyat will face a higher CPI, and the measure to defer residential tariff increase comes to naught! Why? The price increase by SMEs maybe equivalent to the original tariff increase by TNB for residential users. Anyway, why increase when recovery is tepid and TNB already reports decent profits which translated to dividends goes to Khazanah Nasional, amongst others. And if the PM thinks SMEs should absorb the new tariffs, why can’t TNB do the same and not burden the rakyat or the SMEs?

References:

We’ll be forced to raise prices due to steep hike in power rates, warn SMEs, FMT Reporters, January 30, 2022 (https://www.freemalaysiatoday.com)

TNB sees RM1b net profit for 3QFY21 as electricity demand recovers, Shazi Ong, TheEdgeMarkets, November 25, 2021

The Ukraine Crisis: Who is Right?

Prof. John J. Mearsheimer of the University of Chicago thinks the West is to be blamed for what’s happening in Ukraine. But the prevailing wisdom in the West suggests the Ukraine crisis can be blamed almost entirely on Russian aggression. Russian President Vladimir Putin, the argument goes, annexed Crimea to resuscitate the Soviet empire, and he may eventually go after the rest of Ukraine, as well as other countries in Eastern Europe. In this view, the ouster of Ukrainian President Viktor Yanukovych in February 2014 merely provided a pretext for Putin’s decision to order Russian forces to seize part of Ukraine. 

Source: https://www.economist.com

Prof. Mearsheimer thinks this account is wrong: the United States and its European allies share most of the responsibility for the crisis. The taproot of the trouble is NATO enlargement. The central element of a larger strategy to move Ukraine out of Russia’s orbit and integrate it into the West. Since the mid-1990s, Russian leaders have adamantly opposed NATO enlargement. In recent years, they have made it clear that they would not stand by while their strategically important neighbour turned into a Western bastion. For Putin, the illegal overthrow of Ukraine’s democratically elected and pro-Russian president -- which he rightly labeled a “coup” - was the final straw. He responded by taking Crimea, a peninsula he feared would host a NATO naval base. 

As Prof. Mearsheimer sees it, Putin’s pushback should have come as no surprise. After all, the West had been moving into Russia’s backyard and threatening its core strategic interests. Elites in the United States and Europe have been blindsided by events only because they subscribe to a flawed view of international politics. They tend to believe that the logic of realism holds little relevance in the twenty-first century and that Europe can be kept whole and free on the basis of such liberal principles as the rule of law, economic interdependence, and democracy. 

But this grand scheme went awry in Ukraine. The crisis there shows that realpolitik remains relevant. The U.S. and European leaders blundered in attempting to turn Ukraine into a Western stronghold. The consequences are now laid bare. It would be an even greater mistake to continue this “silly” policy.

Just as the carefully balanced relationship between Taiwan and mainland China has been in place for years, with alternating periods of calm and tension. The same is true in Ukraine. Russia has regularly placed troops on its border with Ukraine, and vice versa. 

In 1989 and 1990, Europe went through a massive political earthquake, with the fall of the Berlin Wall and numerous related events. The Western powers and the Soviet Union held a series of meetings to reassure the other that they would not take advantage of the shake-up for purposes of aggressive expansionism.

The buzz phrase that emerged from those discussions was just three words long: “Not one inch.” It came, originally, from the mouth of the US Secretary of State James Baker, on February 9, 1990. NATO, he told Gorbachev, would move “not one inch eastward”.

Fast forward to the present day: NATO has spent years declaring itself a “defensive” rather than “expansionist” force, while its actions show itself doing precisely the opposite, year after year.

The “not one inch” promised has been disregarded, with Western diplomats saying that it was never intended to be lasting, and was never put down on paper, anyway.

Coming back to the present day, what is Russia asking for?

• It is calling on NATO to halt its program of building missile bases in countries bordering or close to Russia’s territory.
• It is asking NATO to withdraw troops in Poland, Estonia, Lithuania and Latvia.
• It is urging NATO to make it clear that Ukraine is not being groomed to join, thus further damaging the 1990 agreement.

Like China, Russia will be painted as the aggressor whatever it does. The western powers will be portrayed as the defenders, whatever they do. But while the press is taking a sharply pro-western angle, academics and the public have a much wider range of views. Russia’s response “is relatively moderate when compared with the American reaction to Moscow’s effort to establish a military presence in Cuba during the 1960s,” he added. Then it was the Monroe doctrine.

What’s the way out? Make Ukraine a neutral state between NATO and Russia (a view expressed by Prof. Mearsheimer). The goal is for a sovereign Ukraine to be “independent” of Russia and the Western camp. That’s like Cuba not being in the Soviet bloc. And will the U.S. allow for that in the first place? Well, the Cuban missile crisis was a testimony to that.

Economic sanctions will not impact Russia, as it is no longer dependent on the West. Russia’s reserves (USD630 billion) are largely in gold and other currencies, not the U.S. dollar. The West, however, needs Russia’s gas – 40% of EU’s natural gas imports are from Russia. So the West maybe inflicting self pain if it goes on with the idea of further economic sanctions.

It is a “no win” situation. Can the U.S. afford to lose another war after Afghanistan, Iraq, Libya, Syria and Vietnam? But then again, U.S. military-industrial complex sees war as big business. Throughout the U.S. history, its military-industrial complex has repeatedly manipulated the country’s political decision-making and seen wars as a shortcut to profits, causing one catastrophe after another in the world!

Hopefully, this Valentine’s Day there is more love than aggression.

References:

Why the Ukraine crisis is the west’s fault, John J. Mearsheimer, http://www.foreignaffairs.com

Press stunned as Ukraine leader points finger at west, Seth Mallicks 

(https://www.fridayeveryday.com)

U.S. military-industrial complex sees war as shortcut to profits, Zhong Sheng (People's Daily) December 22, 2021

Jeremy Grantham’s Prediction of the S&P Crash!

 Jeremy Grantham, the legendary investor who has predicted the last three market bubbles, foresees the S&P 500 crashing almost 50%. 

The market historian said the benchmark index may slip to around 2,500 - a downside of roughly 48% from January's peak. This was in a recent Bloomberg interview.

In roughly 4,000 words, Grantham laid out the reasons why he is confident the latest "super bubble" will pop, just as its predecessors did in 1929, 2000, and 2008. For example, he noted the bull market's acceleration in 2020 up until February 2021, when the Nasdaq rose an astonishing 58% from 2019. He also touched on an occurrence that happened in 1929 and 2000 that is replaying today: the underperformance of speculative stocks as the blue chips rise. 

And the "touchy-feely characteristic of crazy investor behaviour" is indicative of a late-stage bubble, the 83-year-old added. Last year saw the rapid ascent of meme stocks such as GameStop and AMC in addition to crypto currencies like dogecoin as well as non-fungible tokens.

He compared this bubble to Japan in the 1980s, which saw two asset bubbles — real estate and stocks — together. The US, in contrast, has three and a half major asset classes — stocks, bonds, real estate, and commodities — bubbling simultaneously for the first time. And if valuations across all of these asset classes return even two-thirds of the way back to historical norms, total wealth losses will be on the order of $35 trillion in the US alone.

His advice to investors? 

Avoid US equities, invest in value stocks of emerging markets and several cheaper developed countries such as Japan. Plus, have some cash for flexibility, as well as a little gold and silver.

And as for crypto, that asset class leaves him "increasingly feeling like the boy watching the naked emperor passing in procession”.

What about Malaysia?

Jeremy Grantham did not speak about Malaysia, except to suggest emerging markets are safer than U.S. equities. But there will be an impact on the Bursa if U.S. markets crash. How much, is a good guess! In addition, when OPR rises to ameliorate inflation, markets are impacted. Value stocks will always be superior to growth stocks in such an environment.

Good luck in investing in the Year of the Tiger!

References:

Legendary investor Jeremy Grantham predicts S&P 500 will crash 50% after 4th US “superbubble” in the past century pops (https://markets.businessinsider.com)

Jeremy Grantham doubles down on crash call, says selloff has started, Erik Schatzker, January 21, 2022 (https://bloomberg.com)

Inflation: Is it a Monetary Phenomenon? (Part 2)

This is the second part of an article on inflation (Part 1 was posted on 9 Feb 2022).

In 2021, inflation (sustained increase in general price level of goods and services) rose by 2.5% according to the Department of Statistics Malaysia. The consumer price index (CPI), which measures changes in prices of consumer goods and services, is used to gauge the level of inflation. The CPI typically calculates the cost of a ‘basket’ of goods and services purchased by consumers. As can be seen in Table below, the main components of Malaysia’s CPI comprise food and non-alcoholic beverages, housing and utilities, transportation and other items.

However, for a consumer, depending on his or her consumption pattern, the actual rate of inflation that he or she experiences may be different from the official inflation rate as measured by the CPI. For example, as prices of groceries and dining-out expenses have been rising at a faster pace than the headline inflation rate over the years, an individual who dines out more often would find these meals more expensive due to the higher inflation, compared to others who rarely dine out.

For December alone, it (inflation) was 3.2%. Prices of chicken and eggs rose by 13.6% and 13.5% respectively. Meat rose by 8.3%, vegetables by 5% and fish and seafood by 4.2%.

The impact is severe for households earning below RM3,000 per month. Inflation by states also varied with highest for Terengganu (3.9%) and lowest for Sabah/Labuan (2.0%).

The above is compounded further by TNB’s “master stroke” of increasing tariffs in February 2022 on commercial and industrial sectors. That will effect through the economy in the coming months.

Meanwhile, what can the Government do? On monetary policy, BNM could act by raising Overnight Policy Rate (OPR) from 1.75% to 2% (or above) in March which may dampen demand, while businesses try to re-configure margins and costs.

On the supply side, it is to relook at food items that could be produced locally instead of being imported from Thailand (or other places). This will reduce risk of imported inflation. In 2020, Malaysia imported around RM55.5 billion in food items. And these items suffered from price hikes. In addition, the ringgit has depreciated from 3.27 in 2014 to 4.25 in 2020.

For January 2022, the Malaysian ringgit slid below other major currencies and will continue to do so unless capital outflows are mitigated, and the yields advantage is maintained with the U.S. dollar. Otherwise, we may see the ringgit hovering at 4.30 (or more) against the greenback with imported inflation rising further.

So, is inflation purely a monetary phenomenon? No, although monetarists like to think so. Modern Monetary Theory (MMT) flies against accepted wisdom – i.e. that printing money has no consequences since it is not backed by gold and is purely fiat. Can you believe this?

In summary, inflation in an economy can be grouped under:

(i) Demand-pull

This includes surge in money supply –“too much money chasing too few goods”

(ii) Cost-push

Increase in cost of production, i.e. input items including oil price rise.

(iii) Imported

Weaker exchange rate increases cost of imported goods, especially food items.

(iv) Structures

Cartels, monopolies, middlemen who may manipulate prices for their own benefit.

Can’t Governments do anything? Yes, they can set monetary policy, fiscal policy, moral suasion (jawboning) and market intervention to ease-up inflationary pressures. What specific tools to use? Well, that’s for another time!

References:

Inflation: merely a monetary phenomenon? Ariadna Vidal Martinez, Macroeconomics Unit, Strategic Planning and Research Department, CaixaBank

Statistics Dept: floods caused higher food prices, Malaysiakini, Jan 21, 2022

Understanding the factors that impact inflation (https://www. publicmutual.com.my)

Depreciation ringgit, role of middlemen likely reason for price hikes, accelerated inflation, say economists (https://malaysianow.net)

Prices aren’t going up, the ringgit is going down, K. Kathirgugan, FreeMalaysiaToday, January 20, 2022

Inflation: Is it a Monetary Phenomenon? (Part 1)

“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output” (Milton Friedman).

This claim that inflation is a monetary phenomenon is based on the quantity theory of money, according to which prices vary in proportion to the money supply. This relationship is based on a mathematical identity.

M x V = P x Y or dM + dV = dP + dY. Where M is money supply (dM are the variations in this variable), V is the velocity of money circulation, P are prices and Y is GDP in real terms.

According to which the value of transactions carried out in an economy (understood as nominal GDP) is equivalent to the amount of money circulating in that economy (understood as the amount of money in an economy multiplied by the number of times this changes hands; i.e. the velocity of money). If we assume that the velocity of money is constant, in an economy without economic growth the inflation rate equals the rate of growth in money. Therefore, if money supply increases, there will be more money chasing the same goods, so prices will go up. Similarly, if the rate of growth for economic activity and the quantity of money is the same, prices should remain constant.

Friedman's statement has been backed by empirical evidence (especially in the U.S.), showing a positive relationship between inflation and growth in excess money supply (growth in money supply above the real growth in GDP) for a large number of countries. This relationship is strong and robust in the long term but, the relationship between both variables may weaken temporarily in the short term due to factors such as price rigidity and the velocity of money not being constant. For example, a reduction in the velocity of money in circulation would be compatible with an increase in the money supply without putting pressure on prices.

Based on the above, both the theory and empirical evidence suggest that, if growth in the money supply is greater than the actual growth in GDP, this should push up inflation in the medium term. However, in the U.S., since the start of 2012, the relationship between both variables seems to have weakened to the point of almost disappearing. On the one hand, growth in money supply has accelerated more than GDP growth while, on the other, core inflation has continued to fall. 

An analysis of the effectiveness of monetary policy and specifically how it affects monetary aggregates is essential. In general terms, when a central bank offers liquidity to the banking system, either by offering long-term credit or by directly purchasing some of its assets, the monetary base increases. Monetary base is understood as the amount of liquidity provided by central banks, either in the form of currency in circulation or bank reserves deposited with the central bank.

There is no automatic rise in the money supply, however. Traditionally banks would use the liquidity provided by central banks to increase the supply of credit (Money supply is understood as the currency in circulation plus currency in its most liquid form; i.e. bank deposits.) and movements in money supply were therefore in line with those in the monetary base, ultimately leading to an increase in consumption and investment and thereby pushing up prices.

In the U.S. (and many other places) a highly uncertain environment encouraged savings and postponement of consumption and investment. On the supply side, the adjustments banks have had to carry out in order to comply with the new banking regulations (Basel III), both in terms of solvency with higher capital ratios and also in terms of liquidity, have encouraged them to be very cautious when granting loans and to hold onto a considerable buffer of liquidity.

Given this scenario, many banks have opted to use the liquidity they have received to increase their reserves with the central bank. That helps to maintain some room to manoeuvre to handle any upswings in financial tension or further regulatory requirements. With the remaining liquidity, investors looked for a more attractive return-risk combination, either in other financial assets or in other economies that were growing. A lot of the liquidity provided by central banks has therefore ended up in the main emerging economies.

In short, although the relationship between prices and monetary aggregates seems to have dwindled this is partly due to temporary factors such as those related to the supply and demand for credit. Therefore, when economic recovery takes hold, both are likely to synchronise again. It is more difficult to determine the role played by the greater integration of global financial markets, although that needs to be borne in mind when looking at effectiveness of measures.

Having said all that, there are events that disrupt supply and hence increase demand of goods/commodities. These may include: floods, storms, strikes, transit or transport disruptions or new non-tariff barriers. Some may call this as cost-push factors as opposed to demand-pull. 

In Malaysia, various stimulus packages were targeted to raise domestic consumption, but its effect may not work through if people have postponed their expenditures due to uncertainty. This was in addition to monetary policy becoming more accommodative with the Overnight Policy Rate at 1.75% and a sharp increase of money supply by 4 times in 15 years (RM0.5 trillion to RM2.1 trillion – or 21% p.a. on average). That is well above GDP growth of -5.6% p.a. (2020) to 7.4% p.a. (2010) – the lowest and highest growth, respectively in the last 15 years.  So, does that mean it is purely a monetary phenomenon? (Please see tomorrow’s posting).

References:

Inflation: merely a monetary phenomenon? Ariadna Vidal Martinez, Macroeconomics Unit, Strategic Planning and Research Department, CaixaBank

Statistics Dept: floods caused higher food prices, Malaysiakini, Jan 21, 2022

Understanding the factors that impact inflation (https://www. publicmutual.com.my)

Depreciation ringgit, role of middlemen likely reason for price hikes, accelerated inflation, say economists (https://malaysianow.net)

Prices aren’t going up, the ringgit is going down, K. Kathirgugan, FreeMalaysiaToday, January 20, 2022

Have Rich Countries Drained the Global South?

Recent research demonstrates that rich countries continue to rely on a large net appropriation from the global South. This flow of net appropriation occurs because prices are systematically lower in the South than in the North. For instance, wages paid to Southern workers are on average one-fifth the level of Northern wages. This means that for every unit of embodied labour and resources that the South imports from the North, they have to export many more units to pay for it.

Source: https://vesabarileva.medium.com

Economists Samir Amin and Arghiri Emmanuel described this as a “hidden transfer of value” from the South, which sustains high levels of income and consumption in the North. The drain takes place subtly and almost invisibly, without the overt violence of colonial occupation and therefore without provoking protest and moral outrage.

In a recent paper published in the journal New Political Economy, the work of Amin and others to quantify the scale of drain through unequal exchange in the post-colonial era was established. The drain increased dramatically during the 1980s and 1990s, as neoliberal structural adjustment programmes were imposed across the global South. Today, the global North drains from the South commodities worth $2.2 trillion per year, in Northern prices. For perspective, that amount of money would be enough to end extreme poverty, globally, fifteen times over.

Over the whole period from 1960 to today, the drain totalled $62 trillion in real terms. If this value had been retained by the South and contributed to Southern growth, tracking with the South’s growth rates over this period, it would be worth $152 trillion today.

These are extraordinary sums. For the global North (and these are the US, Canada, Australia, New Zealand, Israel, Japan, Korea, and the rich economies of Europe), the gains are so large that, for the past couple of decades, they have outstripped the rate of economic growth. In other words, net growth in the North relies on appropriation from the rest of the world.

For the South, the losses outstrip foreign aid transfers by a wide margin. For every dollar of aid the South receives, they lose $14 in drain through unequal exchange alone. This is not counting other kinds of losses like illicit financial outflows and profit repatriation. Of course, the ratio varies by country – higher for some than others – but in all cases, the discourse of aid obscures a darker reality of plunder. Poor countries are developing rich countries, not the other way around.

Neoclassical economists tend to see low wages in the South as “natural” – a kind of neutral market outcome. But Amin and other economists from the global South argue that wage inequalities are artefacts of political power.

Rich countries have a monopoly on decision-making in the World Bank and IMF, they hold most of the bargaining power in the World Trade Organization, they use their power as creditors to dictate economic policy in debtor nations, and they control 97 percent of the world’s patents. Northern states and corporations leverage this power to cheapen the prices of labour and resources in the global South, which allows them to achieve a net appropriation through trade.

During the 1980s and 1990s, IMF structural adjustment programmes cut public sector wages and employment, while rolling back labour rights and other protective regulations, all of which cheapened labour and resources. Today, poor countries are structurally dependent on foreign investment and have no choice but to compete with one another to offer cheap labour and resources in order to please the barons of international finance. This ensures a steady flow of disposable gadgets and fast fashion to affluent Northern consumers, but at extraordinary cost to human lives and ecosystems in the South.

There are several ways to fix this problem. One would be to democratise the institutions of global economic governance. Poor countries will then have a fairer say in setting the terms of trade and finance. Another step would be to ensure that poor countries have the right to use tariffs, subsidies and other industrial policies to build sovereign economic capacity. A global living wage system and an international framework for environmental regulations, and this would put a floor on labour and resource prices.

All of this would enable the South to capture a fairer share of income from international trade and free its countries to mobilise their resources. But achieving these goals will not be easy; it will require an organised front among social movements toward a fairer world, against those who profit so prodigiously from the status quo.

Reference:

Rich countries drained $152tn from the global south since 1960, Jason Hickel, Dylan Sullivan, Huzaifa Zoomkawala, 6 May 2021 (https://www.aljazeera.com) 

Has Our Higher Education System “Gone to the Dogs”?

Malaysia’s tertiary education was the envy of many countries in the 60s and 70s. With Mahathir as Education Minister and then Prime Minister, quality has been turned into quantity. That policy also stems from affirmative action. Mediocrity overrules meritocracy.

It was with pride that a son or daughter was able to make it to University Malaya (in the 60s and 70s). Those who couldn’t had to go to the U.K., U.S., Singapore, Taiwan or India. Today it is the other way around. An overseas degree is more valuable than the local one.

Source: https://unsplash.com

Ranjit Singh Malhi, an educationist wrote a good article on the state of our higher education. The quality of lecturers, professors and students are low. An investment of RM14.5 billion (higher education budget for 2022) is simply chasing “good money after bad education”. Graduates are produced in the container loads, PhDs graduating from one university in one year is in three digits and articles published reflect the low quality of teaching. We lag behind Taiwan, South Korea, Singapore by 2-4 times in the number of articles published in the arts and humanities area. A handful of scholars in the sciences are in cutting-edge research. That’s the view of an academic, namely Sharifah Munirah Alatas.

Many of the articles and thesis are bordering on comedy as far as expression is concerned. And it is this “tidak apa” attitude that encourages it. How will these degrees (or graduates) be recognised overseas?

There was a time when we wanted to be an education hub. There was great fanfare and many students from African states turned up under Mahathir’s South-South initiatives. Today they have gone, because they too have realised that this (the degree) is just “form over substance”.

Many university students don’t have the critical thinking or writing skills in English or Malay. So, we get civil servants who utter nonsense about tigers will breed more with deforestation! Sloppy thinking, sloppy writing end up with sloppy policies.

Are the private universities in Malaysia any better? No! They suffer from commercialism. Students will tell lecturers their salaries are paid by them and they need the pass mark or a distinction because it is their fees that sustain the university. Many lecturers are pressured by their Deans or Heads of School to compromise. And these students come to the marketplace expecting similar handouts or “spoon-feeding” to move up the corporate ladder. In one seminar I did, the participants wanted only the “model” answers to the problems they faced at work. Why? Because that was how they passed SPM, STPM and the degree programme!

God help Malaysia!

Reference:

Has our higher education been mutilated? Ranjit Singh Malhi, Malaysiakini.com, 27 Jan 2022

The 3 Largest Private Military Companies (PMCs) in the World

Mercenaries are not a new phenomenon. They were available from ancient Rome, Ottoman Empire and to more recent times.

One of the most famous PMCs is the American security firm Blackwater. It was founded in 1997 by former commando Eric Prince, along with the shooting trainer El Clark. A few years later, another company was created, which was essentially its new branch, Blackwater Security Consulting, whose fighters took part in military operations in Afghanistan. However, there is practically no information on its activities during this period.

At the disposal of the company are many training bases not only in the United States, but also in other countries, where more than 40,000 people train annually. Currently Blackwater (Xe Services LLC, Academi as it is recently called) is the largest organization of its kind in the world. The company has a headquarters located in North Carolina.

Source: https://thepavlovictoday.com

The main income of Academi (Blackwater renamed) fighters is derived from participation in various armed conflicts, about 90 percent of the profits the firm receives from contracts with the US government. Statistically, the picture is as follows: if in 2001 the company received about $ 735,000 from the US budget, then in 2005 this amount increased to $25 million, and a year later it reached $ 600 million. Every day, one mercenary from Academi costs the US 

$1200 (for comparison: a soldier of the regular army — only 150–190 dollars).

The company Academi has great opportunities and resources and enjoys the patronage of the US government, so even after the massacres with civilians during armed conflicts, no mercenary was held accountable or even dismissed.

The second largest private security company in the world is the G4S. The number of its employees is over 650,000. It is a multinational firm that provides security services, its headquarters is in the United Kingdom.

Representative offices of the company exist in 125 countries. G4S was founded in 2004 after the merger of the Danish company Group 4 Falck and British Securicor PLC. 

The main activity of the company is focused on the provision of security services, the provision of money security services (transportation of valuables and money), the integration of security services. In addition, the company’s employees ensure the detention of the perpetrators on behalf of the police, provide security services at airports. The company is working on the introduction of security systems, provides logistical services to banks and provides money management, participates in consulting, risk management and security support in areas with limited security infrastructure. In addition, G4S personnel are engaged in ground clearance of munitions, train personnel, and provide a revenue protection service for British railway companies.

Among the clients of the corporation there are both the governments of many sovereign states, corporations, financial institutions and utilities, and airports and seaports, logistics and transport providers and private individuals.

Another American military private company — the so-called “Group R” (Fort Defense Group Corporation, FDG Corp.) — was founded in 1996 by Marines A. Rodriguez. A few years later his partner was Russian officer D. Smirnov. Its headquarters is in Jacksonville. The company has concentrated its main activities in virtually all hot spots in the world — Somalia, the Gulf of Aden, Iraq, Guinea-Bissau, Israel, Palestine, Gaza and Afghanistan. The company is engaged in the provision of services such as the protection of ships and cargo, military logistics, maritime and land transportation, the training of special units and security teams for operations in high-risk areas, military counseling. 

The company worked in the Gulf of Aden, assisting the Government of Somalia, in Guinea-Bissau, its staff assisted in the clearance and disposal of military waste and the organization of the Coast Guard.

PMCs provide operational advantages over regular military forces, such as:

• Being rapidly deployable;
• Lessening public concerns about the utilization of force;
• Counterweight to the local military in states with weak political institutions.

Whether or not these represent real advantages, most analysts hold that PMCs have a variety of operational disadvantages relative to regular military forces:

• motivated by profit instead of duty, their commitment is generally considered to be more limited than that of normal military personnel;
• employees outside the military chain of command;
• contracts cannot cover every possible contingency beforehand

Do they destabilise or stabilise regions of the world? It depends on who pays. It is normally the outsourced arm of the CIA or governments who require outside forces to remain in power! They (PMCs) make mistakes but there is no penalty/(ies) for that – e.g. Blackwater in Iraq. So long as America funds them and uses them, they are above local and international law. That’s where the danger lies.

References:

War for money, leading private military companies or the world, Alex Kemeroff, 16/2/2018

(https://medium.com) 

Private military companies: empowerment of state or privates? Parth Raman/Maria Diandra Opre, 23/8/2021 (https://thedailyguardian.com)

Will Cash Be Obsolete By 2030?

Eswar Prasad’s book, The Future of Money: How the Digital Revolution is Transforming Currencies and Finance, is a sweeping survey of fintech, crypto assets, and central bank digital currencies (CBDCs). Prasad, who has also written books about the Chinese renminbi and the US dollar, says the research that went into writing it has made him an optimist about the digital future.

The former head of the International Monetary Fund’s China division thinks innovation will bring many more people into the formal financial system. Prasad acknowledges there are hazards, such as the loss of privacy when everything we buy has a digital footprint, and the potential for some to be disenfranchised as physical cash is replaced with digital payments. But, overall, he’s betting the digital financial future will be better than the one we have known.

Source: https://www.toppr.com

Not only are there credit and debit cards, but there are also bank transfers, direct deposit, and online payments. It’s simply too convenient to make payments electronically, particularly with the Internet.

There is little doubt the elimination of cash would enable banks, credit unions, and other financial institutions to reduce staff. After all, it takes more people to handle the business of cash transactions. Though many believe a cashless society is inevitable, there are a few significant reasons why that may not be the case.

Despite the popularity of electronic payment methods among middle income and wealthy households, the poor remain disproportionately dependent on cash. The problem for many of the poor is bank fees. This can be compounded by low or unsteady income and deposits, resulting in non-sufficient funds (NSF) fees and even account closures by banks.

A study by the Pew Research Center found 11% of Americans don’t use the Internet. The percentage is even higher among the elderly and those who live in rural areas. Eliminating cash could potentially exclude this segment of the population from participating fully in the economy.

A recent study also indicated that 6.64% of consumers were victims of identity theft in 2017. That’s about one in every 16 people. Identity theft is one of the fastest growing crimes in America. Naturally, it’s closely connected with the increasing use of electronic payment methods, as well as the storage of financial data online. In certain financial transactions, the best protection against identity theft is to pay cash. The need or desire for privacy is a variable depending on individual preference. But there’s no doubt cash affords more privacy than electronic payment methods.

Ultimately, cash may in fact disappear. But it’s mostly a question of where and when. While it may disappear in some countries, it might remain in others. And if it ultimately happens in 50 or 100 or more years, it won’t matter much to anyone who’s alive today. In the meantime, take advantage of the best that cash and electronic payment methods have to offer. For my money, having both options is the best of all worlds, especially if there is any ang pow.

In Malaysia, BNM has been trying to reduce cash and cheque transactions with electronic payments. Many have it on their mobile devices. An area of concern is data breaches by hackers. Unless payment systems are foolproof, you may become a fool!

References:

Why cash will be obsolete within a decade, John Detrixhe, Sept 24, 2021 (https://qz.com)

The future of cash-will it disappear or become obsolete? Kevin Mercadante, Nov 3, 2020 (https://www.moneyunder30.com/what-is-the-future-of-cash