EIU - Outlook on Malaysia 2011- 2015 Country Report Malaysia - Main report: January 1st 2011

EIU - Outlook on Malaysia 2011- 2015

Country Report Malaysia - Main report: January 1st 2011

Highlights

Outlook for 2011-15

• The ruling Barisan Nasional (BN) coalition is expected to maintain its hold on power in the coming five years, securing a victory at the next election.
• The Economist Intelligence Unit expects the BN, which is controlled by its largest component party, the United Malays National Organisation (UMNO), to call an election as early as 2011, two years before its current term ends.
• Fiscal policy will be tightened gradually during the forecast period (2011-15) as the government strives to balance its budget by 2020. Monetary policy will also be tightened as domestic demand strengthens.
• The economy is expected to resume a fairly stable growth path in 2011-15, following a mild recession in 2009 and a strong rebound in 2010. Real GDP growth will average 5% a year in 2011-15.
• The annual rate of inflation is expected to average 3.4% in 2011-15. Government efforts to rationalise the country's extensive subsidy schemes will exert an upward influence on prices.
• Despite the relatively rapid pace of growth in merchandise imports compared with that in exports, Malaysia will continue to run substantial trade and current-account surpluses in 2011-15.

Monthly review

• UMNO announced in November that it had postponed internal party elections for 18 months. The decision intensified speculation that a snap general election could be called in 2011.
• In December federal legislators voted to suspend from parliament Anwar Ibrahim, the de facto head of the opposition Pakatan Rakyat alliance, for six months for misleading the House of Representatives (the lower house).
• The government trimmed sugar and fuel price subsidies further in December. The reduction is part of the government's rationalisation programme, which aims at a gradual reduction of subsidies on a range of goods and services.
• In December the government unveiled the second part of an Economic Transformation Programme that it hopes will transform the country into a high-income nation by 2020.
• The successful initial public offering of a stake in a subsidiary of the state-owned energy company, Petronas, in November has triggered speculation that Petronas itself could be brought to the market in the near future.
• Industrial production growth has remained weak, standing at just 3% year on year in October. The slow rate of expansion has been mainly the result of a decline in mining output.

Outlook for 2011-15: Political stability

Political stability in Malaysia will come under moderate threat during the next five years as the Barisan Nasional (BN) coalition, which is tightly controlled by its largest component party, the United Malays National Organisation (UMNO), faces greater challenges to its grip on power. The March 2008 general election revealed that UMNO could no longer count on the strong support of the majority of Malays. However, the main opposition Pakatan Rakyat (PR) alliance will not be able to offer a sufficiently credible, stable alternative to the BN. Political intrigues within UMNO itself therefore constitute the biggest threat to political stability in Malaysia.

Since March 2008 the ability to make or break the BN has been in the hands of political parties from Sabah and Sarawak. BN legislators from the two states, which are located on the island of Borneo, number 52, thus making up over one-third of the BN's total of 137 members of parliament (MPs). The BN’s Borneo power base is likely to be severely tested at the Sarawak state elections, which must be held by July 2011. Unresolved issues, such as illegal foreign immigration to Sabah, may cause the BN parties based in Borneo, or individual MPs from the island, to defect to the opposition or use the threat to do so to secure greater influence within the coalition in the run-up to the next general election. Moreover, the Borneo-based parties will become even more influential if MPs from the island retain their seats at the next election and a substantial number of BN legislators based in peninsular Malaysia lose theirs.

Although voters in the rural heartland of peninsular Malaysia continue to support UMNO, a significant number of better-educated, liberal middle-class Malays have deserted the ruling party in favour of the opposition. This shift in support away from UMNO could be further encouraged by the greater availability of uncensored information on Internet news sites and blogs. Given the Malaysian government's heavy censorship of the print media and broadcast services, the Internet will continue to be the main arena for the exposure of alleged government corruption and the political intrigues of individual MPs. Some conservative Malays have also voiced concerns over the government's plan to reform policies that favour bumiputera (ethnic Malays and other indigenous peoples), believing that the special rights accorded to them in the constitution may be rescinded.

UMNO's internal leadership elections, which have been postponed until 2012, could be a source of instability, particularly if the party fails to secure a resounding victory in the snap general election that may well be called in 2011. Under such circumstances there would be even greater resistance to economic reforms, undermining the credibility of the prime minister, Najib Razak, and potentially placing his position as president of UMNO—and hence his role as head of government—at risk. The most likely contender to become UMNO's next leader is the deputy prime minister, Muhyiddin Yassin.

The leader of the PR, Anwar Ibrahim, a former deputy prime minister, is likely to be convicted on a charge of sodomy in the coming months. Mr Anwar claims that the case against him is politically motivated. Without him, the ties that unite the disparate parties making up the PR—the reformist, multicultural Parti Keadilan Rakyat (PKR), the conservative, Islamist Parti Islam se-Malaysia (PAS) and the left-of-centre, predominantly ethnic-Chinese Democratic Action Party (DAP)—are likely to fray, while the process of choosing a new PR spokesman could deepen divisions within Mr Anwar's PKR party and also between the opposition coalition's members. Yet the likely sentencing of Mr Anwar to a prison term could also facilitate a realignment of the opposition and elements of the BN, thus offering an alternative to the current political groupings.

Outlook for 2011-15: Election watch

A general election has to be held every five years, and the next one must take place before April 2013. However, the Economist Intelligence Unit believes that a poll will be held sooner. Traditionally, the BN has preferred to call elections about a year before the end of its term of office, and this makes early 2012 a possible date for the next election. However, developments in recent months, such as the postponement of internal UMNO elections, suggest that BN may consider holding a snap poll in 2011. We still believe that Mr Najib will set a general election date after the Sarawak state election, which must be held by July 2011 and is the main event on the political calendar before the next national poll. The results of the Sarawak election will provide a good indication of the level of public support for the government and its reform plans. Recent by-elections suggest that the electorate—and especially non-Malay voters—have become much more volatile. The results of two by-elections in November 2010 point to a slight shift in non-Malay sentiment in favour of the BN, suggesting that the government's plans to reform policies favouring bumiputera has increased its appeal among ethnic minorities.

Outlook for 2011-15: International relations

Under the leadership of the previous prime minister, Abdullah Badawi, and that of Mr Najib, economic links with Singapore have become closer, and we expect economic ties to strengthen further in the next five years. There is no longer constant bickering over minor issues, although a degree of racially tinged wariness persists. Solutions to outstanding disagreements—especially over water supplied to Singapore by Malaysia—are likely to be reached in the forecast period (2011-15). China will become an increasingly important trading partner in the next five years. The Malaysian government's apprehensiveness about China's rise and growing economic influence is mixed with ambivalence towards ethnic Chinese among its own population and a need to attract investment. As Malaysia's economic dependence on China grows, uneasiness in Malaysia about Chinese power in South-east Asia is expected to increase.

Outlook for 2011-15: Policy trends

The policy agenda during the forecast period will be centred on a host of initiatives aimed at raising income levels and achieving the government's goal of turning Malaysia into a high-income nation by 2020. Under the Government Transformation Programme, the BN has outlined six "national key result areas", which include tackling corruption, improving education and upgrading basic rural infrastructure. In addition, a recently unveiled Economic Transformation Programme identifies eight strategic reform initiatives, including reinvigorating private investment, and 12 national key economic areas (NKEAs) that are to be prioritised. The government considers the NKEAs, which include tourism and palm oil cultivation, to be the sectors with the greatest potential to boost overall economic growth. The Tenth Malaysia Plan (10MP), a medium-term spending plan for 2011 15, will support the implementation of these programmes. Specific issues on the reform agenda for the next few years include the phasing out of price controls and subsidies, in a process that is widely considered to be necessary to create a competitive domestic economy. The government will also push ahead with changes to the bumiputera positive-discrimination policies. It has already relaxed a requirement that obliged companies to offer minority equity stakes to bumiputera. It hopes that further reforms will attract greater inflows of foreign direct investment, as it believes that such investment has the potential to be a major engine of growth in the next five years. However, the government is unlikely to dismantle affirmative-action policies altogether for fear of alienating its Malay support base.

Outlook for 2011-15: Fiscal policy

The government will make only slow progress in bringing its finances close to balance during the next five years. In its budget plans for 2011 the government is targeting a deficit equivalent to 5.4% of GDP. This would represent only a small improvement compared with the government's estimate of a shortfall of 5.6% of GDP in 2010. We expect the government to be fairly successful in adhering to its budget plans for 2011, which feature an increase in spending of 2.8% compared with estimated total expenditure in 2010. Although it will rein in subsidies, the government will continue to spend heavily on supplies and services in 2011. Debt-servicing costs will also rise and are expected to account for around 10% of total operating expenditure in 2011. The budget is forecast to remain in deficit in 2012-15. However, assuming that the government reduces operating expenditure and has some success in increasing revenue by expanding the tax base, the deficit will shrink to an average of 4.3% of GDP during that period. A widening of the tax base is expected to be achieved through the introduction of a goods and services tax (GST), although implementation of the tax is likely to be hampered by opposition from households and businesses. Further moves to alter the subsidy structure could also prove unpopular.

Outlook for 2011-15: Monetary policy

Bank Negara Malaysia (BNM, the central bank) is expected to continue to make incremental changes to its main interest rate, the overnight policy rate (OPR), during the early part of the forecast period as it proceeds with the normalisation of monetary policy. BNM has raised the OPR three times since March 2010, by a total of 75 basis points, bringing the rate up to 2.75%, after having cut it to a record low in response to the dramatic downturn in the Malaysian economy that occurred in 2009. However, the recent sharp appreciation of the local currency, the ringgit, and signs of slower economic growth suggest that further rises in official interest rates in the next few months are unlikely. BMN does not expect inflation to rise to problematic levels, believing that it will remain moderate in 2011 as strengthening domestic demand is accompanied by only a gradual acceleration in the rate of price increases. In 2011 we do not expect the OPR to exceed the high of 3.5% at which it stood during 2007 and much of 2008. But a quickening in the pace of domestic demand growth from 2012 will prompt BNM to raise the OPR above this level during the remainder of the forecast period to contain inflationary pressures.

Outlook for 2011-15: International assumptions

	2010	2011	2012	2013	2014	2015
Economic growth (%)
US GDP	2.7	2.2	2.1	2.3	2.2	2.5
OECD GDP	2.7	1.8	2.0	2.2	2.2	2.1
World GDP	3.6	2.7	2.9	3.0	3.0	3.1
World trade	12.4	5.9	6.3	6.7	6.7	6.3
Inflation indicators (%)
US CPI	1.5	1.0	1.9	2.5	2.8	2.8
OECD CPI	1.3	1.1	1.7	2.0	2.1	2.3
Manufactures (measured in US$)	3.2	0.7	0.2	1.8	1.2	1.8
Oil (Brent; US$/b)	80.0	82.0	81.3	78.3	75.5	71.0
Non-oil commodities (measured in US$)	23.2	9.5	-4.4	-4.0	1.5	0.1
Financial variables
US$ 3-month commercial paper rate (av; %)	0.2	0.3	0.7	2.2	4.1	5.1
¥ 3-month money market rate (av; %)	0.2	0.3	0.9	1.3	1.9	2.3
Exchange rate ¥:US$ (av)	88.0	82.4	82.4	81.0	82.1	83.5
Exchange rate M$:US$ (av)	3.22	3.03	2.98	2.95	2.92	2.89

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Outlook for 2011-15: Economic growth

The Malaysian economy is expected to move on to a more stable growth path in 2011-15, when we expect real GDP growth to average 5% a year. This follows a period of instability, during which the economy contracted by 1.7% in 2009 amid the global economic downturn before rebounding to estimated growth of 6.8% in 2010. The economy expanded by an average of 9.5% year on year in the first half of 2010, but data for the third quarter point to a marked slowdown in the rate of GDP growth, and this trend is estimated to have continued in the fourth quarter. The strong economic recovery in 2010 has largely reflected a new phase in the inventory cycle, as the dramatic drawdown of stocks that occurred in 2009 amid the global recession has been followed by restocking. The impressive rebound has also been partly owing to the low year-earlier base of comparison. In 2011-15 private consumption and investment will remain the primary drivers of growth. An increase in compulsory savings on the part of employees from January 1st 2011 will eat into private disposable incomes, but growth in private consumption will continue to be underpinned by a fairly strong labour market. The positive effect of restocking on real GDP growth is expected to wane from 2011 as the process of inventory accumulation moderates. Despite the government's efforts to consolidate its finances, public spending (which will be guided by the 10MP) will continue to account for around 14% of GDP. Exports of goods and services are expected to grow by an average of 8.2% a year in 2011-15. However, the contribution of net exports to GDP growth will be marginal, owing to the fact that imports of goods and services will record similar growth rates.
In supply-side terms, the services sector will be the largest and most dynamic part of the economy, as the government channels more resources into the sector in its bid to ensure that Malaysia becomes a high-income nation by 2020. The industrial sector will continue to constitute a sizeable part of the economy, but we expect it to remain smaller than the services sector during the forecast period. Growth in the industrial sector will generally track the rate of expansion in the economy as a whole. The most dynamic services subsectors will be financial services, wholesale trade, and hotels and restaurants. Growth in financial services will be encouraged by gradual liberalisation. This will help to improve the international competitiveness of Malaysia's financial system, especially in Islamic-finance products, and will make it more responsive to the financing needs of both the private and public sectors. The contribution of agriculture, and especially palm oil production, to the overall economy will be important; agricultural growth will help to raise rural incomes and consumption during the forecast period.

Economic growth
%	2010a	2011b	2012b	2013b	2014b	2015b
GDP	6.8	4.3	4.8	5.1	5.4	5.6
Private consumption	6.8	5.6	5.8	5.7	5.9	5.5
Government consumption	-1.4	3.1	3.7	4.2	3.9	3.3
Gross fixed investment	10.1	5.6	6.1	6.8	7.0	7.2
Exports of goods & services	11.2	6.6	8.2	8.4	8.7	9.0
Imports of goods & services	15.5	6.8	9.2	9.2	9.4	9.3
Domestic demand	10.7	4.2	5.6	5.7	5.8	5.6
Agriculture	3.8	2.3	2.5	2.6	2.8	2.5
Industry	7.9	4.0	4.2	4.4	4.5	4.5
Services	6.4	4.8	5.6	5.9	6.2	6.6
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

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Outlook for 2011-15: Inflation

Annual inflation will average 3.4% in 2011-15. Government efforts to rationalise the country's extensive subsidy scheme will exert upward pressure on prices in the forecast period. An inflationary risk will also be posed by the new GST, which the government will attempt to introduce in the early part of the period. But disinflationary influences will be strong. The removal of trade barriers and greater regional economic integration will help to maintain a low-inflation environment. As a nation that is heavily dependent on international trade, Malaysia will not be able to escape the effects of growing competition and import penetration, especially in the form of a wide range of consumer goods from China. Another factor that will help to keep inflation in check will be the forecast appreciation of the ringgit against the US dollar in 2011-15: as most imports and exports are denominated in US dollars, imports will consequently become cheaper.

Outlook for 2011-15: Exchange rates

The ringgit has strengthened markedly against the US dollar in recent months, rising to M$3.12:US$1 in mid-November, and we estimate the currency's average rate of appreciation in 2010 at nearly 10%. The ringgit, like several other Asian currencies, has seen its value driven up in recent months, mainly by surging inflows of capital, although it is also being supported by large surpluses on the trade and current accounts. A positive interest-rate differential with the US will persist in the early part of the forecast period, and this will continue to provide support to the ringgit. We therefore expect the exchange rate to remain strong, standing an annual average of M$2.89:US$1 in 2015. BNM has not come under heavy pressure to impose capital controls in order to contain the ringgit's appreciation, and the central bank will maintain its current exchange-rate regime, whereby which the ringgit is subject to a managed float against a trade-weighted basket of currencies. BNM will continue to stress that it does not attempt to maintain the ringgit at a particular level and intervenes only to minimise volatility and prevent currency misalignments. Offshore trading of the ringgit is prohibited under a rule that was imposed in the wake of the 1997-98 Asian financial crisis. However, further progress towards regional economic integration makes it likely that BNM will relax this policy in the latter part of the forecast period to allow the ringgit to be traded offshore.

Outlook for 2011-15: External sector

In the next five years Malaysia will continue to post large current-account surpluses, which will be equivalent to 12.2% of GDP on average. Growth in exports will be underpinned by a recovery in external demand and stronger regional trade. An improvement in external conditions is expected to boost demand in Malaysia for imports of intermediate goods used in the manufacture of exports. Import growth will also be supported by firm domestic demand. However, as exports far exceed imports in absolute terms, the expected faster rate of growth in imports will not make a significant dent in the trade surplus.
Malaysia will broaden its export range, but the economy will remain highly sensitive to the global electronic-goods cycle. Levels of non-manufactured exports, consisting largely of agricultural commodities (notably palm oil) and minerals (particularly crude petroleum and liquefied natural gas, or LNG), will also continue to be determined by global economic conditions. In addition, there will be a shift in the balance of export destinations and import suppliers in 2011-15. China will remain the fastest-growing economy in the Asia region, creating many opportunities for Malaysia (and particularly for its ethnic-Chinese minority). As a result, China is likely to overtake Singapore to become Malaysia's largest export market during the forecast period, while trade with the US, the EU and Japan will decline in relative importance.

Outlook for 2011-15: Forecast summary

Forecast summary
(% unless otherwise indicated)
	2010a	2011b	2012b	2013b	2014b	2015b
Real GDP growth	6.8	4.3	4.8	5.1	5.4	5.6
Industrial production growth	6.9	4.3	5.2	5.0	5.7	5.5
Gross agricultural production growth	3.8	2.3	2.5	2.6	2.8	2.5
Unemployment rate (av)	3.5	3.3	3.2	3.2	3.1	2.8
Consumer price inflation (av)	1.8	2.7	3.2	3.4	3.8	3.9
Consumer price inflation (end-period)	2.0	3.2	3.7	3.7	3.4	3.8
Base lending rate	5.1	5.6	6.0	6.1	6.4	6.4
Central government balance (% of GDP)	-5.6	-5.4	-4.7	-4.6	-4.0	-3.9
Exports of goods fob (US$ bn)	189.5	213.0	229.0	251.7	280.0	304.0
Imports of goods fob (US$ bn)	-146.2	-161.9	-181.0	-200.5	-219.2	-235.9
Current-account balance (US$ bn)	29.4	36.2	32.6	35.6	45.2	53.7
Current-account balance (% of GDP)	12.5	13.3	11.0	10.9	12.5	13.2
External debt (end-period; US$ bn)	62.0	64.6	68.0	72.3	75.7	78.8
Exchange rate M$:US$ (av)	3.22	3.03	2.98	2.95	2.92	2.89
Exchange rate M$:US$ (end-period)	3.14	3.02	3.00	2.93	2.94	2.91
Exchange rate M$:¥100 (av)	3.66	3.67	3.62	3.64	3.55	3.46
Exchange rate M$:€ (end-period)	4.19	3.62	3.57	3.43	3.42	3.42
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

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The political scene: Rumours persist regarding a possible snap election in 2011

Speculation has intensified that the prime minister, Najib Razak, is planning to call a general election in the first half of 2011, nearly two years ahead of schedule. This view is based in part on the likelihood that the confidence of the ruling Barisan Nasional (BN) has been boosted by victories in two recent by-elections, one in peninsular Malaysia and the other in Sabah, which may have marked a turning point in terms of voter support for the governing coalition. Adding further fuel to the rumours about an imminent election, at the end of November the BN’s largest component party, the United Malays National Organisation (UMNO), announced that it was postponing its branch, divisional and central leadership elections by 18 months. Mr Najib, who is UMNO's president, said that the party's supreme council would focus on strengthening the organisation and did not want to run the risk that party elections might lead to damaging internal conflicts. Mr Najib has denied he is planning an early parliamentary poll, but twice in the past when UMNO has postponed its supreme council elections a general election has then been held within a year. Recent speculation has focused on a possible election in March or April.

Having witnessed the splits that have arisen in the main opposition Parti Keadilan Rakyat (PKR) as a result of its internal elections in November, UMNO is probably keen to avoid any kind of internal party contest that could harm its public profile. Election to party posts in Malaysia, and particularly to positions in the parties making up the ruling BN, can pave the way to lucrative and influential positions in government. Another possible reason behind UMNO's decision to postpone internal elections is the party's desire to minimise the risk of defections to the opposition—an option that is likely to be considered by disappointed candidates for UMNO party posts. Since the March 2008 general election, Anwar Ibrahim, the de facto leader of the opposition Pakatan Rakyat (PR) alliance, has attempted to increase the PR's representation in parliament by encouraging BN lawmakers to defect.

The political scene: The ruling coalition unveils its new charter

The ruling coalition held a conference in early December at which it launched a new BN charter and logo based on Mr Najib’s racially inclusive "1Malaysia" concept. Prior to this, the BN’s supreme council had approved changes to its constitution allowing direct membership for individuals who are not affiliated to a component party. The changes also allow non-affiliated members of parliament (MPs), such as defectors from the PKR, to join the BN. The decision appears be an attempt by Mr Najib to bypass the BN’s rigid, racially based party structure. During the conference, Mr Najib, who holds the post of BN president, launched a ferocious attack on the PR and Mr Anwar, accusing them of planning to destroy the country. He also promised that a general election would be held soon and said that the BN would rule for another 50 years.
At the conference Chua Soi Lek, the president of the BN’s second-largest party, the Malaysian Chinese Alliance (MCA), angered many UMNO members with an impassioned and frank speech in which he said that certain words and phrases, such as "immigrant", "squatter" and "Malay supremacy", should be made taboo as they are currently used in a derogatory way against the local ethnic-Chinese and Indian populations. He said that there should not be a "big brother, small brother" attitude within the BN—a reference to the unequal treatment of UMNO's allies within coalition. Mr Chua also expressed disapproval of the fact that some national policy decisions are made at UMNO supreme council meetings rather than by the cabinet. He was supported by politicians from the BN's smaller Chinese party, Gerakan. The MCA leader appeared to be more in tune with the PKR than with UMNO. His complaints were a reminder that, in spite of all the talk of 1Malaysia and a "new BN", the country's Chinese and Indian minorities continue to feel discriminated against.

The political scene: The PKR holds its conference in November

The opposition PKR held its first party conference under its newly elected leadership on November 27th. During the preceding week a contender for the position of deputy party president, a former government minister, Zaid Ibrahim, resigned from the PKR in protest against the party's failure to address the issue of vote-rigging in its internal elections. Mr Zaid had also questioned Mr Anwar’s de facto leadership, and his departure removed from the party the opposition leader's strongest critic. The PKR president, Wan Azizah Ismail, who is Mr Anwar’s wife, admitted that mistakes had been made but claimed that on balance the party elections had been a positive experience. In her conference speech, Mrs Azizah called for the abolition of the concept of Malay supremacy, which she claimed had been used by UMNO to deceive the Malay population, to enrich itself and to keep itself in power. She emphasised the PKR’s multiracial character, contrasting it with UMNO’s strong Malay focus. The PKR’s explicit rejection of Malay supremacy, and the suggestion that, should the PR gain power, an ethnic-Chinese politician could become deputy prime minister, was heavily criticised by conservative Malay politicians and the Malay press: Mrs Azizah and her husband were called traitors who rejected the federal constitution, and were accused of trying to divert attention away from the problems besetting the PKR and Mr Anwar.

Meanwhile, there are signs that Mr Anwar’s sodomy trial may be drawing to a close, with his conviction the likely outcome. In November Mr Anwar's defence lawyers applied to have the presiding judge, Mohd Zabidin, disqualified on grounds of bias. The claim related to a row between Justice Mohd and Mr Anwar's lead counsel over the defence's attempts to obtain information relating to the trial. In what appeared to be a strange arrangement, the application for the judge's disqualification was made to Justice Mohd himself, who has the authority to rule on this point. The application, the second of its kind made by the defence team, was rejected in December. Later in that month Malaysia's legislators decided to suspend Mr Anwar from parliament for six months for misleading the body. Mr Anwar has claimed that Mr Najib’s 1Malaysia concept, drafted by a US-based public-relations firm, Apco, had been copied from a concept originating in Israel—an allegation that federal lawmakers decided was untrue. It is unclear whether members of parliament objected specifically to the implication of a link to Israel–a sensitive political issue, as Malaysia does not have diplomatic relations with that country—or that they disliked the suggestion that the 1Malaysia concept was copied from a similar programme in Israel. (One Israel was the name adopted by an alliance of political parties taking part in the 1999 parliamentary election in the Middle Eastern country.)

The political scene: Democracy index: Malaysia

Public confidence in political parties has declined
The Economist Intelligence Unit's 2010 democracy index ranks Malaysia 71st out of 167 countries. This represents a slight deterioration compared with the 2008 index, in which Malaysia was ranked 68th. The deterioration partly reflects a gradual erosion of civil liberties and political culture in the past year or so. A lack of public confidence in the junior partners within the Barisan Nasional (BN) governing coalition, and especially those representing ethnic minorities, persists. Voter confidence in political parties has been further undermined by an increase in politicking by members of the opposition Pakatan Rakyat alliance as well as by figures in the BN. Such activity is expected to increase as members of parliament make preparations for a possible early general election in 2011. Malaysia continues to score fairly well in the electoral process and pluralism category. Elections are generally free, and voters are not subject to serious intimidation. The transfer of power is orderly between the leaders of the United Malays National Organisation, which continues to dominate the political scene and has been part of every coalition government since independence.

Democracy index
	Regime type	Overall score	Overall rank
2010	Flawed democracy	6.19 out of 10	71 out of 167
2008	Flawed democracy	6.36 out of 10	68 out of 167

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Restrictions on civil liberties remain a concern
Problems relating to the media persist in Malaysia, with the print and broadcast media being subject to censorship. Although the government has pledged not to interfere in electronic media, in the past year or so charges have been filed with increasing frequency against anti-government authors. Malaysia also scores relatively poorly in the civil liberties category of the index, mainly because of the Internal Security Act (ISA), which allows indefinite detention without trial and has been used against opposition politicians and journalists. The opposition has pledged to dismantle the ISA if it comes to power, but the current government appears keen to keep it intact. Malaysia continues to operate a dual judicial system whereby secular law is applied alongside sharia law; all matters pertaining to Islam are referred to the sharia courts.

Democracy index 2010 by category
(on a scale of 0-10)
Electoral process	Functioning of government	Political participation	Political culture	Civil liberties
6.50	6.79	5.56	6.25	5.88

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Democracy index 2010: Democracy in retreat, a free white paper containing the full index and detailed methodology, can be downloaded fromwww.eiu.com/DemocracyIndex2010.
Note on methodology
There is no consensus on how to measure democracy, and definitions of democracy are contested. Having free and fair competitive elections, and satisfying related aspects of political freedom, is the sine qua non of all definitions. However, our index is based on the view that measures of democracy which reflect the state of political freedom and civil liberties are not "thick" enough: they do not encompass sufficiently some crucial features that determine the quality and substance of democracy. Thus, our index also includes measures of political participation, political culture and functioning of government, which are, at best, marginalised by other measures.
Our index of democracy covers 167 countries and territories. The index, on a 0-10 scale, is based on the ratings for 60 indicators grouped in five categories: electoral process and pluralism; civil liberties; functioning of government; political participation; and political culture. The five categories are interrelated and form a coherent conceptual whole. Each category has a rating on a 0-10 scale, and the overall index of democracy is the simple average of the five category indices.
The category indices are based on the sum of the indicator scores in the category, converted to a 0-10 scale. Adjustments to the category scores are made if countries fall short in the following critical areas for democracy:

• whether national elections are free and fair;
• the security of voters;
• the influence of foreign powers on government; and
• the capability of the civil service to implement policies.

The index values are used to place countries within one of four types of regime:

• full democracies—scores of 8 to 10;
• flawed democracies—score of 6 to 7.9;
• hybrid regimes—scores of 4 to 5.9;
• authoritarian regimes—scores below 4.

Economic policy: The government presses ahead with subsidy rationalisation

On December 3rd the government announced small increases in prices for fuel and sugar. The cheaper grade of petrol, RON95, went up in price by 5 sen (1.6 US cents) to M$1.90 (59 US cents) per litre, while similar increases lifted the price of diesel to M$1.80/litre and that of liquefied petroleum gas (LPG) to M$1.90/litre. The more expensive grade of petrol, RON97, rose by 15 sen/litre to M$2.30/litre. The price of a kilogram of sugar was increased by 20 sen, to M$2.10. The increases are part of the government’s subsidy rationalisation programme, and the changes implemented so far, together with further rises planned for 2011, are expected to shave M$1.2bn (US$370m) off additional government expenditure between December 2010 and December 2011. Idris Jala, the minister who heads the government's Performance Management and Delivery Unit (Pemandu), has said that even after the increases prices for fuel in Malaysia remain lower than in neighbouring countries. Fuel prices are gradually being raised to market-determined levels in order to reduce the subsidy bill, and the latest increase was the third to have been implemented in 2010.

Economic policy: Investors snap up shares in state-owned companies

Malaysia’s programme of privatisations and initial public offerings (IPOs) is continuing at a steady pace. On November 12th the national oil producer, Petronas, raised M$12.8bn when it sold a 31% stake in a subsidiary, Petronas Chemicals. The subsidiary encompasses 22 companies that produce industrial and specialist chemicals and fertiliser. The IPO set a record for South-east Asia and made Petronas Chemicals one of the ten largest stocks by market capitalisation on Malaysia's main stock exchange, Bursa Malaysia. When trading in the shares opened two weeks later, the price jumped by nearly 10%. The success of the offering reflected the unique credentials of Petronas Chemicals, which has a firm foothold in Asia (from which it derives 97% of its revenue) and benefits from its highly rated parent company. In October another Petronas subsidiary, Malaysia Marine and Heavy Engineering, raised M$2bn in an IPO. Petronas itself is regularly mentioned as a candidate for a listing, and it is thought that an IPO by the company could raise more than M$30bn. However, there appear to be no concrete plans for such a share offering. The recent listings form part of a policy to promote a structural shift in the economy away from the public sector towards the private sector, as laid out in the Economic Transformation Programme (ETP).

The pace of privatisations and IPOs is likely to be stepped up considerably if the recommendations of the National Economic Advisory Council (NEAC, a government agency) that are included in the second part of the New Economic Model (NEM) are fully adopted. (The NEM outlines reforms and a deregulation agenda that the government believes will enable Malaysia to achieve high-income status by 2020.) The NEAC argues that the government should not hold large stakes in non-strategic companies unless they are part of a liquid trading portfolio. It has also advised the government to privatise all non-strategic government-linked companies (GLCs) and to reduce to 30% its equity stakes in strategic GLCs, such as those involved in electricity generation, telecommunications, postal services, civil aviation, airports and public transport. According to the council, the majority of GLCs have become too big, have strayed beyond their mandates and are crowding out private businesses. It is also widely believed such enterprises receive preferential treatment from the government. The activities of the GLCs are a grey area: the NEAC admitted that there were significantly more than the 445 corporations that it had identified, covering a wide spectrum of business activities. The council recommended a full audit of all such companies and the creating of a transparent GLC Oversight Authority under the auspices of the Prime Minister’s Department, which would publish annual reports and ensure that GLCs adhere to their original mandates.

The NEAC also recommended the creation of a second sovereign wealth fund using the proceeds from the sale of stakes in GLCs, with any profits made by the fund to be used to encourage new private-sector initiatives. It said that, unlike the existing sovereign wealth fund, Khazanah Nasional, which is run by the Ministry of Finance, the new fund should not be under direct government control and should be accountable and transparent.

Full implementation of the NEAC's proposals would mean a radical change in Malaysia’s industrial policy, an objective that is likely to be beyond the government’s capabilities. Mr Najib, who is sympathetic to the council's proposals, has declared that a divestment strategy is underway and will be gradually implemented. However, there are concerns that GLCs will continue to receive preferential treatment from the government and that they will be awarded contracts for projects outlined in the ETP, many of which will not be subject to competitive tendering. The NEAC's recommendations for the GLCs are probably the most important proposals in the second part of the NEM, which was published on December 3rd, three months after it was delivered to the prime minister. The first part of the NEM was unveiled on March 30th and aroused strong opposition from conservative Malay groups opposed to economic liberalisation, which claim that deregulation and liberalisation threaten Malays' constitutional rights and privileges. There is no reference to the possibility of entirely scrapping the long-standing policy aim of increasing the bumiputera share of national wealth to 30% (from a tiny 2.4% in the 1970s), but the NEM pays much attention to the market distortions and inefficiencies resulting from affirmative-action policies.

Economic performance: Growth in industrial production slows further

Growth in industrial production on a year-on-year basis continued to lose momentum in October. The slowdown partly reflected the high base of comparison in the year-earlier period. As in previous months, in October the mining sector performed poorly, with output falling by 1.1% year on year as a 5.5% increase in natural-gas production was offset by a 3.9% fall in crude oil production. The rate of output growth in the manufacturing sector slowed from 7.6% year on year in September to 4.5% in October, the lowest rate recorded since November 2009. Manufacturing accounts for 63.5% of the industrial production index, which also includes mining (30.6%) and electricity (5.9%). Unsurprisingly, the index showed sluggish growth of only 3% year on year in October, down from 5.6% in September. Manufacturing companies have warned in business surveys that production growth and new orders have weakened in recent months and that they expect falls in production and export sales in the coming period.


Export revenue growth stood at only 1.3% year on year in October, despite strong global commodity prices. In terms of unit values, palm oil was up by 16.6% year on year, LNG by 12.5% and crude oil by 2.7%. Electronic and electrical products were still Malaysia’s largest export revenue earner, with a share of 40% of total exports, but shipments declined by 5.9% year on year. Merchandise imports, meanwhile, were relatively strong in October, rising by 12.4% year on year (representing only a slight deceleration from the previous month’s gain of 14.6%), with the value of intermediate goods imports surging by 15.1%. On a quarterly basis the value of merchandise exports has remained broadly unchanged since the fourth quarter of 2009. By contrast, the value of imports has continued to rise since the first quarter of 2010, reflecting restocking and firm domestic demand.

Economic performance: Lending to businesses picks up pace

Bank lending remained strong in October. Total outstanding loans increased by 12.4% year on year in October, following a rise of 11.9% in September. Loans to households rose by 13.3% year on year, slightly down compared with growth of 13.4% in September, while loans to non-households were up by 11.3%. Competition between commercial banks resulted in a decline in the average lending rate to 4.99% in October, from 5.19% in September; the rate bottomed out in December 2009, at 4.83%. The strongest competition in the sector is for household loans and loans to small- and medium-sized enterprises. Given that Bank Negara Malaysia (the central bank) has recently tightened restrictions on household loans, new growth will have to come from lending to businesses. Demand for business loans in 2010 has been largely for working capital rather than expansion.

Economic performance: Palm oil prices soar

The price of palm oil recently reached a 30-month high on the Bursa Derivatives Exchange. On December 13th crude palm oil for delivery in February 2011 closed at M$3,722 (around US$1,150) per tonne. Malaysia is one of the world's largest producers of palm oil. Industry analysts expect further sharp price increases, possibly to above M$4,000, during the first quarter of 2011. Malaysian palm oil production was hit by dry weather conditions earlier in 2010, and heavy rainfall in November, resulting in prolonged soil saturation, is likely to have a negative impact on crop yields. International factors are pushing up prices for palm oil and its alternatives. Indonesia, the world’s largest producer of palm oil, has also experienced inclement weather. Low stocks of palm oil, coupled with sustained strong demand from India and China, the world’s largest purchasers of the commodity, are likely to underpin strong prices in the months ahead. Crude palm oil production in Malaysia stood at 1.45m tonnes in November, down by 8.6% year on year.

Data and charts: Annual data and forecast

	2006a	2007a	2008a	2009a	2010b	2011c	2012c
GDP
Nominal GDP (US$ m)	156.6	186.8	222.3	192.8	235.2	271.1	296.6
Nominal GDP (M$ bn)	574.4	642.0	740.9	679.7	756.7	820.1	884.5
Real GDP growth (%)	5.8	6.5	4.7	-1.7	6.8	4.3	4.8
Expenditure on GDP (% real change)
Private consumption	6.8	10.5	8.5	0.7	6.8	5.6	5.8
Government consumption	5.0	6.6	10.7	3.1	-1.4	3.1	3.7
Gross fixed investment	7.5	9.4	0.7	-5.6	10.1	5.6	6.1
Exports of goods & services	6.6	4.1	1.6	-10.4	11.2	6.6	8.2
Imports of goods & services	8.1	5.9	2.2	-12.3	15.5	6.8	9.2
Origin of GDP (% real change)
Agriculture	5.2	1.3	4.3	0.4	3.8	2.3	2.5
Industry	4.5	3.0	0.7	-7.0	7.9	4.0	4.2
Services	7.5	10.3	7.5	2.6	6.4	4.8	5.6
Population and income
Population (m)	26.8	27.2	27.5	27.9	28.3	28.6	29.0
GDP per head (US$ at PPP)	12,274	13,276	14,024b	13,731b	14,564	15,257	16,129
Fiscal indicators (% of GDP)
Public-sector balance	-3.3	-3.2	-4.8	-7.0	-5.6	-5.4	-4.7
Public-sector debt interest payments	2.2	2.0	1.7	2.1	2.4	2.7	2.8
Public-sector primary balance	-1.2	-1.2	-3.1	-4.9	-3.1	-2.8	-1.9
Net public debt	42.2	41.5	41.4	53.3	52.9	54.7	55.7
Prices and financial indicators
Exchange rate M$:US$ (end-period)	3.53	3.31	3.46	3.42	3.14	3.02	3.00
Consumer prices (end-period; % change)	3.1	2.4	4.4	1.1	2.0	3.2	3.7
Producer prices (av; % change)	6.7	5.5	10.2	-7.3	5.1	4.4	5.7
Stock of money M1 (% change)	13.8	19.8	8.2	9.9	9.8	11.1	10.3
Stock of money M2 (% change)	16.6	11.0	13.3	9.5	8.6	10.5	14.2
Lending interest rate (end-period; %)	6.6	6.3	5.9	4.8	5.1	5.6	6.0
Current account (US$ m)
Trade balance	37,441	37,727	51,261	40,254	43,265	51,095	47,970
Goods: exports fob	160,916	176,220	199,733	157,655	189,496	213,008	228,996
Goods: imports fob	-123,474	-138,493	-148,472	-117,402	-146,231	-161,913	-181,026
Services balance	-1,970	794	51	1,297	-689	-390	-1,106
Income balance	-4,712	-4,082	-7,137	-4,169	-6,831	-7,506	-6,907
Current transfers balance	-4,560	-4,668	-5,262	-5,580	-6,335	-7,031	-7,395
Current-account balance	26,200	29,770	38,914	31,801	29,411	36,167	32,561
External debt (US$ m)
Debt stock	55,026	61,567	66,182	58,311b	62,000	64,565	67,976
Debt service paid	7,630	10,436	8,772	11,506b	10,875	9,447	8,042
Principal repayments	5,269	7,818	6,258	9,629b	8,828	7,381	6,157
Interest	2,362	2,618	2,515	1,877b	2,047	2,066	1,885
Debt service due	7,630	10,436	8,772	11,506b	10,875	9,447	8,042
International reserves (US$ m)
Total international reserves	82,426	101,313	91,528	96,713	100,051	107,895	119,416
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.
Source: IMF, International Financial Statistics.

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Data and charts: Quarterly data

	2008	2009				2010
	4 Qtr	1 Qtr	2 Qtr	3 Qtr	4 Qtr	1 Qtr	2 Qtr	3 Qtr
Federal government finance (M$ m)
Revenue	46,300	35,857	39,380	40,813	42,589	28,734	41,973	43,128
Expenditure	64,513	42,516	51,434	48,588	63,525	38,917	49,072	50,931
Current balance	-18,212	-6,659	-12,054	-7,775	-20,936	-10,183	-7,099	-7,803
Output
GDP at constant 2000 prices (M$ m)	131,611	121,660	127,256	134,717	137,463	133,890	138,520	141,895
GDP at constant 2000 prices (% change, year on year)	0.1	-6.2	-3.9	-1.2	4.4	10.1	8.9	5.3
Industrial production index (2000=100)	101.5	94.6	97.3	103.1	104.0	105.1	108.1	107.4
Industrial production index (% change, year on year)	-8.8	-14.6	-10.8	-7.0	2.4	11.1	11.1	4.2
Prices
Consumer prices (2005=100)	113.0	111.8	111.7	112.1	112.8	113.2	113.5	114.3
Consumer prices (% change, year on year)	5.9	3.7	1.3	-2.3	-0.2	1.3	1.6	1.9
Producer prices (2000=100)	118.2	113.3	113.6	114.6	118.3	120.5	120.7	n/a
Producer prices (% change, year on year)	0.9	-6.7	-11.1	-10.9	0.0	6.4	6.2	n/a
Financial indicators
Exchange rate M$:US$ (av)	3.55	3.63	3.55	3.52	3.40	3.37	3.24	3.16
Exchange rate M$:US$ (end-period)	3.46	3.65	3.52	3.47	3.42	3.27	3.26	3.09
Deposit rate (av; %)	3.0	2.0	2.1	2.0	2.0	2.3	2.5	2.7
Lending rate (av; %)	5.9	5.2	5.0	4.9	4.8	5.0	5.1	5.2
Money market rate (av; %)	3.6	2.5	2.1	2.2	2.2	2.3	2.7	2.9
M1 (end-period; M$ bn)	182.8	179.7	185.6	191.4	200.9	201.2	209.0	213.4
M1 (% change, year on year)	8.2	3.5	5.5	6.6	9.9	12.0	12.6	11.5
M2 (end-period; M$ bn)	903.2	921.8	922.6	950.4	989.3	1,002.8	1,007.3	1,028.8
M2 (% change, year on year)	13.3	9.3	6.3	7.6	9.5	8.8	9.2	8.3
KLSE composite index (end-period; Apr 4th1986=100)	876.8	872.6	1,075.2	1,202.1	1,272.8	1,320.6	1,314.0	1,463.5
KLSE composite index (% change, year on year)	-42.1	-38.9	-16.0	17.4	46.8	68.6	32.1	37.0
Sectoral trends
Electronic & electrical products index (2000=100)	93.0	71.3	77.6	89.4	94.6	97.0	101.2	97.8
Electronic & electrical products index (% change, year on year)	-22.5	-35.4	-31.0	-22.6	1.8	36.0	30.4	9.4
Mining index (2000=100)	98.6	96.0	93.3	95.2	95.2	96.7	93.8	92.9
Mining index (% change, year on year)	-4.6	-6.1	-3.2	-4.2	-3.4	0.7	0.6	-2.4
Foreign trade (M$ m)
Exports fob	149,145	121,398	129,097	143,805	158,995	158,707	157,126	158,753
Imports cif	118,358	88,686	102,574	117,132	126,549	119,777	133,699	136,413
Trade balance	30,787	32,713	26,524	26,673	32,446	38,930	23,426	22,340
Foreign payments
Current-account balance (M$ m)	29,644	31,295	27,981	25,448	27,416	30,449	16,240	n/a
Reserves excl gold (end-period; US$ m)	91,149	87,434	91,154	94,810	95,432	94,003	93,336	99,205
Source: IMF, International Financial Statistics.

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Data and charts: Monthly data

	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Exchange rate M$:US$ (av)
2008	3.27	3.22	3.19	3.16	3.22	3.26	3.25	3.33	3.44	3.52	3.59	3.55
2009	3.57	3.64	3.67	3.61	3.52	3.52	3.55	3.52	3.50	3.40	3.39	3.41
2010	3.38	3.42	3.33	3.21	3.25	3.26	3.21	3.15	3.11	3.10	3.12	n/a
Exchange rate M$:US$ (end-period)
2008	3.24	3.19	3.19	3.16	3.24	3.27	3.26	3.39	3.46	3.56	3.62	3.46
2009	3.61	3.69	3.65	3.56	3.51	3.52	3.52	3.52	3.47	3.41	3.39	3.42
2010	3.41	3.41	3.27	3.19	3.25	3.26	3.19	3.14	3.09	3.11	3.16	n/a
Real effective exchange rate (2000=100; CPI basis)
2008	82.08	82.49	81.75	82.09	81.20	82.80	82.94	82.75	81.51	82.26	81.25	80.95
2009	80.84	80.93	80.73	80.70	80.66	79.63	78.52	78.32	78.23	79.63	79.61	79.50
2010	80.49	80.24	82.24	85.20	85.33	85.49	85.43	85.89	86.15	n/a	n/a	n/a
Money market rate (av; %)
2008	3.6	n/a	n/a	3.6	3.6	3.6	3.6	3.6	3.6	3.6	3.6	3.6
2009	2.9	2.6	2.1	2.1	2.1	2.1	2.2	2.2	2.2	2.2	2.2	2.2
2010	2.2	2.2	2.5	2.6	2.7	2.8	2.9	n/a	3.0	3.0	n/a	n/a
Money supply M1 (end-period; % change, year on year)
2008	21.8	15.5	20.0	15.6	13.9	17.8	15.1	13.1	14.9	8.6	11.1	8.2
2009	4.7	3.9	3.5	7.4	9.3	5.5	6.0	7.8	6.6	10.6	13.6	9.9
2010	10.7	15.3	12.0	8.9	11.2	12.6	10.7	13.9	11.5	n/a	n/a	n/a
Money supply M2 (end-period; % change, year on year)
2008	12.8	10.5	11.8	14.4	13.7	15.7	16.1	14.7	15.6	13.3	14.4	13.3
2009	10.7	9.5	9.3	6.6	5.4	6.3	5.9	8.4	7.6	9.7	10.4	9.5
2010	8.2	8.4	8.8	8.5	9.6	9.2	8.3	8.2	8.3	n/a	n/a	n/a
Industrial production (% change, year on year)
2008	9.7	9.9	3.0	4.6	2.4	2.3	4.8	1.8	-1.0	-2.7	-7.6	-15.8
2009	-18.0	-12.7	-13.0	-11.8	-11.0	-9.7	-7.9	-6.9	-6.1	0.8	-0.8	7.5
2010	13.8	4.9	14.2	11.6	12.4	9.3	3.4	3.8	5.6	n/a	n/a	n/a
KLSE composite index (end-period; Apr 4th 1986=100)
2008	1,393	1,357	1,248	1,280	1,276	1,187	1,163	1,101	1,019	864	866	877
2009	884	891	873	991	1,044	1,075	1,175	1,171	1,202	1,243	1,259	1,273
2010	1,259	1,271	1,321	1,346	1,285	1,314	1,361	1,422	1,464	1,506	1,485	n/a
Consumer prices (av; % change, year on year)
2008	2.3	2.7	2.8	3.0	3.8	7.7	8.5	8.5	8.2	7.6	5.7	4.4
2009	3.9	3.7	3.5	3.0	2.4	-1.4	-2.4	-2.4	-2.0	-1.5	-0.1	1.1
2010	1.3	1.2	1.3	1.5	1.6	1.7	1.9	2.1	1.8	2.0	n/a	n/a
Producer prices (av; % change, year on year)
2008	10.5	12.0	12.9	13.7	14.0	16.9	16.1	14.0	10.7	4.8	0.7	-2.6
2009	-4.0	-7.0	-9.2	-9.6	-11.0	-12.5	-13.0	-9.9	-9.8	-3.3	0.0	3.6
2010	4.2	5.9	9.0	7.4	5.9	5.2	5.6	4.8	n/a	n/a	n/a	n/a
Total exports fob (M$ m)
2008	53,181	47,266	51,801	55,743	61,171	58,439	63,472	59,972	62,825	52,823	51,309	45,013
2009	38,270	39,557	43,572	41,105	42,919	45,074	48,824	47,786	47,196	54,256	50,066	54,673
2010	52,447	46,840	59,420	52,016	52,281	52,830	55,427	52,852	50,475	54,980	n/a	n/a
Total imports cif (M$ m)
2008	43,209	37,903	43,613	43,231	45,404	45,102	48,728	46,857	47,401	43,709	40,212	34,437
2009	30,161	27,499	31,026	33,717	32,905	35,952	40,980	38,229	37,923	42,788	41,186	42,575
2010	39,516	35,169	45,093	42,761	44,153	46,786	48,414	44,532	43,467	48,130	n/a	n/a
Trade balance fob-cif (M$ m)
2008	9,971	9,363	8,188	12,512	15,768	13,337	14,744	13,115	15,424	9,115	11,097	10,576
2009	8,109	12,058	12,545	7,388	10,014	9,122	7,844	9,557	9,272	11,468	8,881	12,098
2010	12,932	11,672	14,327	9,255	8,128	6,043	7,013	8,320	7,007	6,850	n/a	n/a
Foreign-exchange reserves excl gold (US$ m)
2008	108,952	115,963	119,963	123,755	124,860	125,480	124,761	122,263	109,446	99,899	97,373	91,149
2009	90,941	90,702	87,434	87,343	87,948	91,154	90,775	92,955	94,810	94,904	95,032	95,432
2010	95,656	95,506	94,003	94,683	94,110	93,336	93,650	93,861	99,205	103,825	n/a	n/a
Sources: IMF, International Financial Statistics; Haver Analytics.

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PAZ Pasasalamat Year-ender Celebration

Straight from the Heart

By:  Abs Damahan

PAZ Pasasalamat Year-ender Celebration

Peace Advocate Zamboanga culminating the year-ender activities dub as “PAZ Pasasalamat 2010”. The twin events celebration of Pasasalamat and Birthday of Fr. Angel Calvo was held at Palmeras place, Pasonanca, this city on December 28, 2010 started from 4:00PM until the late night a regale of success for the peace icon PAZ President Fr. Angel C. Calvo and Directress Sister Mercado of the same organization. Guest and attendees enjoyed the evening of festivities sipping the frugal drink and foods prepared by the Palmeras Restaurant. All invited speakers representing their organizations delivered their speeches to the Podium. Presentations of activities and awardees were presented and were given to all recipients of ‘Young Peace Achievers Awardees for 2010’. Outside the Convention Hall you can see Tarpaulins letter murals, insignia and memorabilia of the past and up-to-date activities and achievement of PAZ Zamboanga.

The one memorable accomplishment of Peace Advocate of Zamboanga is the sculptor PAZ peace marker situated in front of Edwin Andrew Airbase at Barangay Sta. Maria, this city. Among the rest achievements and accomplishments are just pieces of document for the records of this organization.

For 2011 and beyond as long we are bonding together explore peace mission to every community “violence motives cannot defeat the truth forces, evil desires and peace obstructionists will definitely perish into oblivion, there are sure the losers” by our strong commitments for peaceful world, peaceful Philippines and peaceful Mindanawan. 

Send comments and reactions to abs_damahan@yahoo.com or call 926-9418, CP 09283147761 and Blog: http://absdamahan.wordpress.com

P60-B cost of jury system vs P160-B savings from corruption

Berteni Cataluña Causing

P60-B cost of jury system vs P160-B savings from corruption

Running jury system costs Phils P60-billion but 

saves P160 billion from corruption reduction

Privilege Spits (January 3 to January 9, 2011 issue of Dyaryo Magdalo)

By TOTO CAUSING

In my burning desire to change the country’s present fiscal-judge system of justice, I am now taking the liberty of analyzing the cost of maintaining a jury system similar to that of the United States of America (USA), know how it can reduce corruption that runs now in the Philippines at 20% of the national budget, and know how much can the country save from the thieves in the government.

I was prompted to go to this dissertation by a Facebook friend who insisted that the Philippines can never ever afford to have a jury system because it is very expensive.

I agreed that it was very expensive. However, I begged to disagree that being expensive does not mean it is not economical.

The result of my dissertation, as will be read hereunder, shows that the cost of running a jury system in the entire country reaches only to Php 60 billion and the additional jury education program entails only Php 20 billion.

The total cost of Php 80 billion is far lesser than the Php 160-billion savings that can be gotten from the reduction of corruption due to the jury system’s nature of being a far better rigid justice system that is too difficult to be manipulated by the racketeers, the thieves in the government, and the lords.

Thus, the cost: Php 80 billion.  The savings: Php 160 billion. 

My premises:

So, here is my dissertation on this matter of economics of the jury system.

Let me begin by saying that if the amount required to run the jury systems is "very expensive" as you describe, it does not automatically mean it is not economical.

Amongst us who are civil engineers, we may choose one option that demands triple expense when the lifespan is at least triple more than any of the other choices.

A better economic strategy I know chooses from what options that stimulate the more number of transactions in a given period of time;  what ensure bigger returns from these transactions  in terms of taxes paid to the government and in terms of incomes going to participants in the transactions;   what attract more number of people participating in transactions in a given community;  and what make the number and magnitude of transactions going and growing.

Eventually, good economic decisions must be founded on what result in most number of transactions with biggest number of taxes along with bigger number of persons involved.  The more transactions, the more taxes to the government, the more and better services are given by the government to its people, and the more people are exchanging goods and services and monies, and the more people are employed or earning income.

One community for instance has a total of 100 million pesos if we sum up all monies in each person and in each entity (business unit such as a corporation, partnership, or sole proprietorship).  

Assume that the government in this place is capitalism and not socialism that has more regulations about how the funds shall be controlled, or not communism that ensures each individual therein is as rich or as poor as each other. 

Assume further that this capitalist place cannot compel individuals to spend because it believes in free market and as such it relies only on the willingness of each of the people to spend or invest as they wish.  

Now, we know that transactions cannot happen without buyers or without those that are obliged to pay by reason of deals.  

 With these givens, if we want progress for all we prefer a system of government that brings about more people buying services and goods in a year so that:  (1) more taxes (sales, evat, and income) are collected in one tax year;  (2) more businesses have better chance to continue to live and grow consequently resulting in generation of more employment;  (3) more chances that people are employed to make them acquire wealth in the form of incomes as fruits of their labor in order to empower them as having more buying capacity to, in turn, acquire goods, services, better education, etc;  (4) more people becoming more creative in thinking what to do to make decent profits; and  (5) more people continue behaving in the way what the laws want them to conduct in relation to each other and in relation to their government.

Assuming this government has achieved these desirable economic activities to happen, can this ideal economy continue without strict justice system that compels people to behave by the laws?    I strongly believe it will not stay as ideal with a loose justice system that chooses to vow to those who are the wealthy and the influential. 

Despite all these sought-after objectives to give real progress for all people, there are always things that go out of hand.   This is because there all always people who  “greed” for money or sex, “desire to seek glory” either in wealth or politics, err in the performance of duties and the exercise of rights, or commit improprieties simply because of intoxications like liquor that loosen the hold of morality over intoxicated persons, or fall on accidents and or else can we think of.  

Co-existing with these negative matters that any society, rich or poor, cannot avoid, is the NATURAL DESIRE to avoid punishments.  

And this natural motive among persons to evade liability breeds and grows a culture of corruption if only to escape the harshness of hell behind bars, if only to preserve reputation, or if only to escape paying out for liabilities incurred.

So that if the justice system can be bought or influenced, the situation in this place will deteriorate over time, sooner or later, into the culture of impunity bad as what Maguindanao has reached.

Thus, I argue: even if we begin to create a country with all citizens having One Million Pesos in their respective pockets but with loose justice system such as what we have for 110 years, we will still end up as one of the poorest and most chaotic countries in the world.

Before continuing, let one more truth be spoken: crimes are offenses against the state so that it should be the state’s obligation to ensure justice is served where it is due.

Where lies our country:

Now, take a scenario of the Philippines where, approximately, 10% of the people are  holding 80% of the total country’s monetary wealth while 90% are fighting for shares of the remaining 20% of all monies.

Look at our country.  

Our country is where the justice system for over a hundred years is composed of fiscals deciding as to who should be charged in court and the court with one judge.   It has been modified over time that the Ombudsman now has the sole power to bring to court corruption cases and the Commission on Elections having exclusive power to bring to court election crime offenders.

Thus, you see Malacañang man Joc-joc Bolante not getting charged in court by the Ombudsman; or former Comelec commissioner Virgilio Garciliano not charged in court by the Comelec for vote rigging. 

Our country is where over time we have seen decisions of trial courts overturned by higher courts and where higher courts give out decisions that amused the people.   

Our country is where we often hear songs crying out for justice from inside our prison walls, as echoed by Freddie Aguilar’s “Katarungan.”

Our country is where one can hear countless of songs of freedom for these songs are born only where  liberty is restrained and where injustices are aplenty.

Our country is where judgments are more based on opinions than evidence as proven by Hubert Webb case where they were convicted upon the opinion of the trial court only to be acquitted 15 years later by another opinion of the court, this time the Supreme Court's opinion.

Our country is where we have seen more and more economically-lower-classedcitizens becoming more and more mistrusting in the justice system because their common experience point to the poor rarely getting the better end of justice.

Our country is where the poor and have-nots prefer to suffer the pain of injustice in silence than to fight lords who not only buy fiscals and judges but also kill more if only to ensure freedom to kill, to steal, to cheat in political contests, and to do what else.

Our country is where the poor absolutely have no fair chance at courts of law.

Name what you want and we are on the nadir of all the ebbs, of all the law tides.

Taking a deeper look at justice economics:

Thus, the question now is: JUST BECAUSE IT APPEARS THAT JURY SYSTEM IS EXPENSIVE, DO WE HAVE TO DISCARD IT BECAUSE OF THE GIVEN CIRCUMSTANCES WE HAVE AS STATED ABOVE?

On what scale should we measure to choose a justice system to use given the circumstances the Filipinos are in?  

Shall we have a “cheap” court with one judge and one fiscal deciding almost everything, for or against the accused, depending on the availability of funds, just because of the circumstances the Filipinos are in? 

Shall we continue with this “cheap” fiscal-judge justice system where the supposed “learned” (pronounced as “learn-ed”) in law have, as is normal nowadays, been taking advantage of the citizens’ ignorance of the law, just because of the circumstances the Filipinos are in?

Shall we keep the “cheap” status quo even though we have heard so many people complaining of injustice and inability to obtain fair game in law, just because of the circumstances the Filipinos are in?

Shall we prefer to resign to this “cheap” status quo just because of the circumstances the Filipinos are in?

Shall we continue to argue that “it is not in the system but the people in the system” even though we know that it is actually more of the system because we cannot avoid the people who are prone to fall to dishonesty, greed and worldly desires, just because of the circumstances the Filipinos are in?

This is my appeal: Please look deeper as to what can this big expense give us in return.

Haven’t we thought that by using the jury system we are employing more people and that this will remedy the yearly problem of millions of college graduates from every private and state colleges and universities found now in every province and that problem is how to find jobs?  And in so doing, more people are empowered to buy to add taxes to the government and income to others to generate more employment.

Haven’t we thought that by using the jury system it is doubly stricter and doubly rigid against influence and money such that more and more people would think they cannot fool the jury (grand and trial juries) so they tend to think it is better to behave well and refrain from fooling, stealing, and harming others?

Haven’t we thought that with strict and rigid justice system the number and magnitude of corruption incidents may likely reduce by as much as 90%? 

Can we not blame extremely-high corruption incidences and magnitudes in the Philippines on the lax justice system for a century and a decade?  

The cost of corruption:

Look at these reports about our dear country as posted athttp://www.11.be/11/index.php?option=com_content&task=view&id=103158&Itemid=112:  

“The Philippines has been ranked as among the world's most corrupt by, among others, the Berlin-based non-governmental organization Transparency International. Corruption has become so widespread here that that scandals coming out one after the other dominate the news. Worse, many of these scandals are linked to Malacañang Palace and the first family. President Gloria Arroyo was perceived as the most corrupt in Philippine history in a survey done by Pulse Asia in 2007. 

“Corruption has diverted away whatever meager resources that could have been extremely helpful to alleviate the lives of poor Filipinos. The Presidential Anti-Graft Commission (PAGC), a government body tasked to investigate and hear administrative cases and complaints against erring presidential appointees, has revealed that in the Philippines, an average of 20 percent of the country's annual budget goes to corruption. 

“In 2008, the national budget was PhP 1.227 trillion (USD 26 billion). The budget for 2009 is pegged at an all-time high of PhP 1.415 trillion (USD 30 billion) as the government wants to boost spending to shield the economy from a global slump. A provision in the bill requiring reporting transparency was recently taken out by the government despite congressional and media protests. 

“PAGC chairperson Teresita Baltazar says the money lost to corruption "could have been a lot to fund spending for social services like education, healthcare, housing and livelihood capital, and infrastructure."

Looking at the average 20% of the national budget, it means that based on the 2011 national budget of Php1.6 trillion the cost of corruption necessarily goes around Php 320 billion.

The projected savings from corruption through jury system:

So that if the implementation of the jury system reduces corruption by only 50%, does it mean a savings of Php 160 billion?

Based on the nature that it is a far more rigid system of justice, the jury system will cause a reduction of corruption incidences by at least half the present number in the Philippines where the latest national budget approved by President PNoy is at Php 1.6 trillion.

This is guaranteed and supported by the experience of countries with jury systems.  There in the US, corruption is an exception; decency in government service is the rule.  

In the US alone, you can see plenty of state and federal senators and congressmen getting charged and convicted by the grand jury and trial jury.  You saw then President Richard Nixon compelled to resign because of the grand jury investigation.  You saw then President Bill Clinton vowing to get investigated for oral sex scandal in the Oval Office by the grand jury and getting impeached in the US Congress.

In the Philippines, jail time comes to a senator only when he rebels as in Senator Gringo Honasan and Senator Antonio Trillanes IV; like Senator Panfilo Lacson had been charged only because he was ganged up by the then incumbent administration's men but he is wise enough to seek cover.

In the Philippines, you see ex-President Joseph Estrada getting charged and jailed just because the President's men ganged up on him.

In the Philippines, the whole of the Ampatuan lords in Maguindanao were charged all because Gloria Macapagal Arroyo was compelled by the world outrage over the killing of 58 persons including 33 journalists.  But if she chose to ignore these outpouring of outrage, nothing would happen.  Even now that the Ampatuans are held, only one of them is facing trial yet while the rest have succeeded in forestalling the reading of the charges: what with Php 2 billion a year looted from the coffers of the Province of Maguindanao as reflected in the very recent report of the Commission on Audit. Under the Philippine jurisdiction, one cannot be convicted if he has not yet been read of the charges in court. 

Thus, in the Philippines, it all depends if the President desires to help you in order to have a good fight at the prosecution offices or the courts.  And if the President does not know you, say "Goodbye, justice." 

The projected expense of running jury systems:

Now, imagine how much is needed to run a jury system in a province.  Assume that in each province we have one grand jury consisting of 23 jurors and 2 alternates. 

If each is paid Php 1,000 a day, they get Php 20,000 a month.  Multiply this by 25, we spend Php 500,000 a month in salaries.  Add to this Php100,000 more a month for the maintenance of the staff and offices so we spend Php 600,000 a month.  Multiply this by 13 months in one year  (13th month pay law), we need to spend Php 7.3 million in one year for each province or urbanized city for the maintenance of the grand jury, the body whose members hidden from the public shall decide who should be tried in court or not.  By the way, grand jurors' name and faces are hidden to ensure they are independent and not afraid of deciding who to bring to court or not.

NOW, consider trial juries in all six branches of RTCs and about six MTCs, assuming that all courts will have 600 cases to be tried each year by a jury of 12 ordinary Filipinos and 2 alternates.   As the long and rich experiences in other countries show that jury trials last in one to two weeks in the average, assume P30,000 cost for each juror to answer for hotel and security escorts.  Multiplying, we get 30 x 14 = P420,000.00 for each trial.  Multiply this by 600 cases we get: Php420,000 x 600 = P252 million a year.  

With these budgetary estimates, in one province we need to spend Php 7.3 milion + P252 million = Php 259.2 million.

In Maguindanao alone, one of the poorest provinces in the country, the Commission on Audit found that the Ampatuans stole Php 2 billion or Php 2,000 million a year.  This means that even the poorest province can finance the cost of running a jury system unit.

Let us look at a larger scale.

We have 79 provinces. Add 33 highly-urbanized cities to be considered having own separate jury system and we get a total number of 112 jury system units.  

To know how much would be spent for one year in the entire country, we compute: 112 jury system units x 259.2 million expense for each unit = Php 29.0304 billion in cost.  

Now add to this 20% buffer fund to answer for unexpected costs and yearly infrastructure constructions. We get around Php 35 billion in total cost to be spent for the jury system.

Compare this cost to the savings that will be earned from reduction of corruption: Php 160 billion in savings from corruption vs Php 35 billion in cost of running the whole jury systems.

Now, to ensure better understanding of the system among all tribes, use Php 20 billion each year in jury education projects for every province.  Yet we have too plenty of money to spare.

Now, consider also the fact that in civil cases, it is the losing party that will pay for the jury costs.   

Do we see a trend of civil suits reducing sharply just because those who know they have no defenses or evidence to prove their claims are afraid to shoulder the cost of the jury?  

Yes, it will because the civil case litigants will tend to save the most and they can do so by resorting to compromise agreements or settlements to reduce the dockets of the courts instead of opting for a jury trial.

Looking at these hard facts, can we now turn a blind eye to jury systems for Filipinos?

Consider these, my friends.