A “Rules-Based International Order”: The “New” U.S. Foreign Policy Thrust?

The phrase “rules-based international order” seems to have become a job requirement for a top position in the U.S. foreign-policy apparatus. The U.S. Secretary of State Antony Blinken’s opening statement during his recent meeting with top Chinese officials was about “rules-based international order”. The alternative is a world in which might makes right and winners take all. The suggestion is that China, is not only out to dismantle the U.S.-led order but also out to bring back the days of “might makes right.”

But the distinction between the United States’ supposed commitment to a system of rules and China’s alleged lack thereof is misleading. First, it overlooks the United States’ own willingness to ignore, evade, or rewrite the rules whenever they seem inconvenient. Washington sometimes thinks it is perfectly okay for might to make right and for winners to take all. The collapse of the Soviet Union, when the United States took full advantage of a weakened post-Soviet Russia, is a perfect example. Then it was Syria, Afghanistan, Libya, Iraq and many more, where might takes all – and then withdraws?

Source: https://en.wikipedia.org

But China accepts and even defends many principles of the existing order, although of course not all of them. That situation may change in the future, of course, but even a vastly more

powerful China would undoubtedly seek to retain whatever features of the present order serve its interests.

Statements such as Blinken’s imply that abandoning today’s rules-based order would leave us in a lawless, rule-free world of naked power politics, unregulated by any norms or principles whatsoever. This is simply not the case. All international orders—global, regional, liberal, realist, or whatever—require a set of rules to manage the various interactions that inevitably arise between different polities.

In short, the issue is not the United States’ preference for a “rules-based” order and China’s alleged lack of interest in it; rather, the issue is who will determine which rules pertain where. 

The differences between the American and Chinese conceptions are relatively  straightforward. The United States (generally) prefers a multilateral system (albeit one with special privileges for some states, especially itself) that is at least somewhat mindful of individual rights and certain core liberal values (democratic rule, individual freedom, rule of law, market-based economies, and so on). By contrast, China favors a more Westphalian conception of order, one where state sovereignty and non-interference are paramount and liberal notions of individual rights are downplayed if not entirely dismissed. 

In the short term, U.S. efforts to promote its preferred set of rules will benefit from commitment to active and constructive diplomacy, in sharp contrast to the bullying of the Trump and Secretary of State Mike Pompeo. Merely showing up at major global forums, treating other participants with respect, and showing a degree of empathy for others’ concerns are going to play well. If Beijing remains committed to its self-defeating “wolf warrior diplomacy,” a U.S. charm offensive will be even more effective. In fact, it’s best for the U.S. to retrace the era of Theodore Roosevelt – “speak softly and carry a big stick”?

Reference:

China wants a “rules-based international order,” too, Stephen M. Walt, Foreign Policy, 31 March 2021

Truly Semangat Keluarga Malaysia!

 THE actions of a group of Malay motorcycle riders who risked their lives to rescue a Chinese man who was kidnapped in Ampang, Selangor, have earned the praise of the Royal Malaysian Police Force (PDRM).

In a viral 2-minute-11-second video, a group of five men were seen forcing a shirtless man into a white Toyota Vellfire against his will.  The video, which captured the kidnapping attempt on a busy street, was recorded from a bystander’s point of view. The scene changes halfway through the video, with the person who recorded the video is now on a motorcycle in pursuit of the Vellfire.

The rider joins a group of motorcyclists whisking in and out of traffic to chase the vehicle to try and get it to stop.

Source: https://www.kkmm.gov.my

In the caption of the video posted on Facebook by one “Najib Razak Must Go”, the user wrote: “This is the real semangat #KeluargaMalaysia where Malaysians help one another without seeing skin colour.” The video amassed over 45,000 views and hundreds of comments.

In a statement, Ampang Jaya district police chief said they received a call at around 5:30pm on Thursday (Sept 29) about the incident, which took place outside a restaurant on Jalan Pandan Indah 1/23D.

Investigations revealed that the victim, a 38-year-old businessman, was eating alone at the restaurant when a group, suspected to be locals, turned up and started dragging him to their car.  Despite screaming and trying to escape their clutches, his efforts were in vain and he was taken in their Vellfire. At around 10:45pm, the victim showed up at the Ampang Jaya district police headquarters after being let go, believed to be in Klang, Selangor.

The scuffle is believed to have taken place as a result of the victim’s debts to his employers.

The case is being investigated under Section 365 of the Penal Code for kidnapping or abduction with intent to wrongfully confine someone, which provides for a maximum seven-year jail term and fine upon conviction. The suspects are yet to be apprehended.

This one act brings warmth to one’s heart. And there are many more that are not told. This is what Semangat Keluarga Malaysia is about, caring for each other without issues of race, religion or class. Hope we will have more (of this) and the Government could use some (of these stories) to promote national unity, if that is the object of a harmonious Malaysia!

Reference: 

Cops praise Malay riders who risked their lives to rescue Chinese kidnap victim, Vinodh Pillai, Focus Malaysia, 1 October 2022

Are We in a Currency Crisis?

 A currency crisis can be broadly defined as any situation in the foreign exchange markets where a currency suddenly and/or unexpectedly loses substantial value relative to other currencies. In most cases, a currency crisis is not an isolated event. It usually follows a financial or socio-political crisis.

Although modern currency crises are associated with rapid hyperinflation and sustained degradation of political and financial institutions, hyperinflation and currency crises are separate phenomena. Historical instances of currency crises include Germany after the First World War, Zimbabwe in the 2000s, Argentina in 2018, and Turkey in 2018.

A fall in domestic currency exchange rates occurs for several reasons, including:

• Speculative attack. The main targets are countries that adopt a fixed exchange rate and have weak economic fundamentals. Targets are usually countries with little foreign exchange reserves or running twin deficits for years. (twin deficits are when a country runs both a fiscal deficit and a current account deficit).

• Increase in inflation expectations leading to hyperinflation as explained earlier. Currency crises are typically preceded by periods of rising inflation and high inflation expectations. 

Turkish lira against USD

• Banking crisis or default. Currency crises usually start with the failure of financial institutions to pay off their debts.

Based on an IMF working paper, several indicators are useful for providing signals and anticipating currency crisis including:

• International reserves – The credibility of the central bank’s intervention in the foreign exchange market depends on foreign reserves’ position. High foreign exchange reserves make the central bank more credible.

• Real exchange rate – Exchange rate overvaluation plays a vital role in sharp exchange rate depreciation. Overvaluation often occurs in a fixed exchange rate system, when the real exchange rate does not reflect supply and demand. That, in turn, encourages speculators to sell the domestic currency, causing acute depreciation.

• Domestic inflation – High inflation, as in hyperinflation, reduces confidence in the domestic currency. Many people switch to foreign currency and sell domestic currency. Such panic can lead to a currency crisis.

• Trade balance – Chronic trade deficits leave a country vulnerable to bouts of minor speculation on the forex market.

• Export performance – Exports are a major source of entry for foreign currencies. High exports increase the supply of foreign currency and foreign reserves. It is useful not only for covering import payments but also for intervention in the forex market.

• Money growth – Growth in the money supply, especially M2, helps predict episodes of sharp depreciation. When the money supply grows faster than real GDP growth, it creates high inflation pressure. It shows you more money chasing less stuff.

• Real GDP growth – Currency crises tend to occur when real GDP growth is low.

• Fiscal deficit – A high deficit increases government debt. To pay off debt, the government finances it through seigniorage (printing money). That will likely lead to uncontrolled inflation, increasing distrust of the domestic currency.

The possible solutions to the currency crisis include:

— Adopt a floating exchange rate. 

— Raise interest rates

— Fiscal policy tightening

— Control of capital outflows

— IMF bailout funds

Malaysia only needs to raise OPR by 0.75% to 1.0% to stem the outflow and halt further depreciation of the ringgit. The other measures are not applicable at this stage as we are not in a currency crisis yet (a drastic depreciation of currency).

References:

Currency Crisis, CFI Team, Corporate Finance Institute

Currency crisis: causes, signs, impacts and possible solutions, Ahmad Nasrudin (https://penpoint.com)

Robust Cyber-Security Infrastructure Needed

Global monetary losses due to cybercrime in 2021 was around US$6 trillion (RM27.4 trillion). Malaysia needs a robust cyber-security infrastructure to stave off cyber attacks from derailing its economy. This is according to US-based global cyber-security specialist Palo Alto Networks Inc.

Cyber-security is the practice of protecting critical systems and sensitive information from digital attacks.

Source: https://en.wikipedia.org

Internet adoption is directly correlated with economic development. The importance of data security was not only pertinent for information industries, but also for other manufacturing and traditional businesses. The proliferation of innovative technologies is transforming the nation’s financial ecosystem, enabling new business models such as neobanks to grow and become a mainstay in an economy.

Neobanks are online-only financial institutions that are similar to banks. It is therefore imperative the internet is given adequate protection against cyber attacks to secure the data it carries, stores and transmits.

For context, the amount of USD6 trillion loss is the equivalent to the gross domestic product or GDP value just behind the world’s third-largest economy after the United States and China. This is according to Cyber-security Ventures. 

Emails and collaboration tools have become one of the most common and overlooked cyber threat entry points today. These incidents generally start with a phishing email requesting email credentials. Business email compromise (BEC) incidents could be extremely costly and impactful to organisations. The most common motive in BEC attacks is financial fraud via wire transfers, that often results in additional spam or phishing emails sent from compromised accounts.

In Malaysia, it was reported that a total of 71,833 commercial crime cases involving losses amounting to RM5.2bil were recorded from 2020 to May 2022. Cyber fraud is on the rise in Malaysia. A total of 13,703 cases with losses amounting to RM539 million were reported in 2019, and the number increased to 17,227 in 2020 with losses of RM511.2 million. In 2021, 20,701 cases were recorded with losses of RM560.8 million. This is according to the IGP. For January-July 2022, online fraud cases amounted to RM414 million.

There are 10 different types of scammers from their encounters on social media. These include porn chat scams, mysterious love scams, Nigerian inheritance scams, KLIA pick-up scams, forex, gambling, fake investment guru, Ah Long, job scams and various online sales.

Two ways commonly adopted by scammers to syphon off money – using an Android Package Kit (APK) file to “hijack” mobile phones and steal the transaction activation code (TAC) number and enticing someone by using emotions. This is according to LGMS Bhd, a company involved in forensic audit.

Personally, I am rather cautious on online transactions. The dangers of scammers/security breaches restrain many from using only payment systems. Banks are vulnerable and generally deny any security breaches. Consumers are usually left on their own. BNM generally favours the bank than the consumer. So how could one safely do internet banking?

References:

Robust cybersecurity infrastructure needed to prevent attacks, Daljit Dhesi, The Star, 26 Sept 2022

We’re losing the battle, warns expert, Aliza Shah and Iylia Marsya Iskandar, The Star, 26 Sept 2022

IGP: RM414mil lost from 12,092 online fraud cases in Jan-July, Bernama, TheEdge CEO Morning Brief, 27 Sept 2022

Are We Sick to the Stomach?

Malaysia suffered losses close to RM1 trillion over the last 25 years due to corruption as well as leakages in the country's management. Emir Research President and Chief Executive Officer said the total represented almost four per cent of the Gross Domestic Product (GDP) since 1997. Data over the last 25 years showed that on average two to four per cent of the money that was lost from the country's GDP was due to corruption.

Does corruption make you sick to the stomach? You may only throw-up once the bacteria of corruption is well-entrenched, and you are personally impacted.

A research paper published in the Asia-Pacific Journal on Public Administration and Policy by David Seth Jones (July 2022) suggests that the perceived degree of corruption in Malaysia remains rampant because of the ineffective implementation of anti-corruption measures. The culture of money politics based on cronyism between political operators and business leaders have left our grandiose anti-corruption slogans ineffective.

https://moneycompass.com.my

This, together with political interference to frustrate enforcement, especially against prominent personalities, and the clearly limited impact of such preventive measures, have made Malaysia’s fight against graft impotent. The research concludes that with our political and business culture, and the style of governance practised, the ‘political will’ to battle large scale corruption in Malaysia does not exist. Another TI study suggests 61% of companies in Malaysia do not have adequate procedures to combat corruption.

Malaysia is now ranked 62 out of 180 in the latest global corruption perception index, when just a few years ago, in 2019, we were ranked 51. Perhaps, we can borrow from other countries how to change things.

Uruguay, once an epicentre for corruption, now ranks 18 out of 180 countries in the latest global corruption perception index, and is the least corrupt in South America. This country is a rare modern phenomenon, where their society has succeeded in curbing corruption. They have successfully pushed a virtuous cycle of institutional change toward better governance. Progressive action on the part of Uruguay’s citizens and their non-deferential behaviour with the ‘elites’, when it came to public policies, were essential in transforming the country from one of the worst governed and corrupt nations, to its current position.

In 1985, civilian rule was re-established in this country (Uruguay), and with that came the creation of political parties that were formed from old alliances. But social and civil society groups made huge efforts to build coalitions with others who shared similar aspirations.

For instance, the urban sector, which was badly hit by economic crises, started channelling their demands through a new coalition called Frente Amplio (Broad Front). This partnership of social and civil society groups became a real political option for the citizens against the traditional ‘elites’ in power.

Fresh demands for fair access to public resources, accountability, and better-quality public services changed things. Eventually, successive Uruguayan general elections saw only those politicians who delivered on and were credibly committed to their announced reforms were actually elected. And, this started changing the incentives of ‘elites’ to act in certain ways, and it made it extremely difficult for cronyism to prevail.

The people of Uruguay have shown us the way. Ordinary citizens can influence the national landscape by changing the narrative. We are the only ones who can ensure that we have a safe, stable and fair country.

We must also be engaged in social and civil organisations and get involved by direct participation and by actively joining public hearings and deliberations. Each of these expressions of collective action complements each other. So, the Uruguay example shows us that if we stick together and demand change collectively, using various modes of engagement, eventually the elites will succumb. 

Beyond the above, we need the following:

(i) Corruption Eradication and Recovery Commission – this is either a revamped MACC or a separate entity placed under a Bipartisan Oversight Committee of our Parliament. We need more than the “kleptocrats” in jail. There must be a culture-change and a recovery of moneys stolen from the Rakyat. (We may not recover all the moneys but strenuous efforts to recover the same must be done by an independent party);

(ii) Special Court on Corrupt Practices – this is to speed-up our corrupt cases which otherwise will be abused frivolously with endless delays through the court process; and

(iii) Office of Budget Responsibility (“OBR”) modelled on U.K.’s OBR, we need an independent think-tank that evaluates Government’s fiscal measures, especially the Budget. Otherwise, the Government’s fiscal policy and management are controlled largely by the executive branch with little oversight.

Now with the impending GE15, we have an opportunity to re-set the course for our nation. Then with proper antibiotics the bacteria of corruption could be removed.

References:

Malaysia loses RM1 trillion within 25 years due to corruption, Diana Aziz, Sinar Daily, 22 September 2022

Sick to the stomach? What are you doing about corruption? Shankar R. Santhiram, FMT, 18 August 2022

Singapore: Asia’s New Financial Centre

Hong Kong has lost its premier finance centre status to Singapore in a global ranking list. New York and London maintained their number one and two spots.

Singapore jumped three places to third in the twice-a-year Global Financial Centres Index (GFCI) which assesses 119 cities around the world.

Hong Kong has adhered to a version of China’s strict zero-Covid rules throughout the pandemic, battering the economy and deepening a brain drain as rival business hubs reopened. The city still mandates three days of hotel quarantine for all international arrivals while its border with the Chinese mainland is mostly closed.

Source: https://en.wikipedia.org/wiki/Singapore

In contrast, Singapore successfully shifted to endemicity earlier this year and has reopened without restrictions. The city-state is hosting a slew of financial and business conferences in the coming months as well as a Formula 1 night race soon. 

San Francisco came in at number five in the survey, up two spots. Shanghai, which was shut down earlier this year under China’s coronavirus controls, was number six followed by Los Angeles, Beijing and Shenzhen. Paris took 10th spot, replacing Tokyo which fell to 16th place. Kuala Lumpur dropped to 56th spot (down from 48th position previously).

There is a desire to create Kuala Lumpur as a financial centre regionally and perhaps globally. Then there is our Labuan Offshore Financial Centre (LOFC). So there is a little bit of confusion – which is it? Besides that a financial centre is not the building or an area like TRX, it is the people and the institutions that participate for various reasons.  Singapore didn’t become a top centre by chance, default or sheer providence. It has been working on this for over 40 years. It takes plan, people, and providence to turn your mission into reality. Ask Dubai or Qatar, both working their way up the ladder (GFCI).

In Malaysia, we have too many issues to become a regional centre. The Government and BNM would say we are a global powerhouse in Islamic finance. That’s partly true. The Middle-East, however, does not accept our Shariah principles and hence any comparison or ranking is not fully accepted or supported. So, what do we want to be? If we get our goals right then maybe we could create a Financial Free Zone (FFZ) where local issues are not applicable and a separate authority runs the FFZ, not BNM or the LOFC.

References:

Asia’s new financial centre, The Star, 24 September 2022

Global Financial Centres Index 32, September 2022

Will Rising Obesity Impact Economies?

Rising levels of obesity are set to cost the world economy 3.3% of GDP by 2060, slowing development in lower-income countries. This also makes it hard for people to lead healthy lives.

Globally, nearly two in three adults are now living with overweight and obesity. An AMJ Global Health report projects that this will be three in four adults by 2060.  

Source: https://en.wikipedia.org

Currently it costs 2.2% of global GDP, and the biggest increases are expected to be seen in lower-resourced countries. China, the US and India are projected to experience the highest impact in absolute terms – costing the countries US$10 trillion, US$2.5 trillion and US$850 billion, respectively. As a proportion of the economy, the worst impacted countries are set to include the UAE, where obesity would account for 11% of GDP, and Trinidad and Tobago at 10.2%.

Population and economic growth are the primary drivers of obesity prevalence – as countries increase their incomes, they experience changes in diet to highly processed foods. In rich nations, ageing populations are also a major factor as older people find it harder to lose weight.

The report stressed the economic costs of high weight and obesity “are not attributable to individual behaviour” but rather a consequence of social and commercial priorities shaping environments. As such, responsibility for tackling the issues lies with those in power. Better labelling, counselling, drug treatment and taxing processed foods high or higher will help.

Reference:

Rising obesity projected to hamper developing economies, AFP/FMT, 21 September 2021