Sunday, December 21, 2014

The "Syiok Sendiri" Syndrome

The recent "syiok sendiri" (self-gratification) pronouncements by some of our fiscal and monetary "authorities" in the wake of falling oil prices and shrinking Ringgit remind me of a book my son passed me to read some time ago. It is called "The (Honest) Truth About Dishonesty" by Dan Ariely. I can't quite remember the theory part; but some of the illustrations of the author's argument still ring fresh and loud in my ears, especially Enron. Kenneth Lay could fool the world; after all, the world wanted to be fooled by him. But how could also the thousands in the organisation who were directly involved in the operations and the accounts help him to fool the world? The author says it has very little to do with "costs and benefits" in such an act of dishonesty on the part of those who helped to lie; rather, it was a case of "internalisation", i.e., they have also conditioned themselves to voluntarily help Lay to cheat the world. Our so-called "authorities" are really a case in point.

They know the truth, but they willingly succumb to speak out dishonestly.

These "authorities" are behaving like those lieutenants Lay had in Enron. They are telling us not to worry: Falling on prices has no impact on our economy! Cheap Ringgit is good for our exports! Etc. – as if all of us are devoid of any knowledge in Economics or Public Finance.

They, as well as many run-of-the-mill economists, are telling us that falling oil prices and weak Ringgit are not really bad for us. Lower oil prices will mean cheaper cost of energy, transportation and many raw materials that are used in the manufacture of chemicals and fertilisers for the agriculture sector. Weak Ringgit means we can export more and attract more tourists. Blah, blah, blah.
But really?

In the wake of these two precipitous developments, Malaysia is basically caught between the devil and the deep blue sea.

Everybody knows that Petronas’ contribution – in the form of taxes and dividends - accounts for about 30% of the government’s fiscal spending needs. How can the falling oil prices not have an impact on the economy? The CEO of PETRONAS was most blunt with his take of the situation. If I have read him correctly; he is simply telling us to get real and not be fooled by all these armchair experts. I feel for this CEO. Petronas is caught in the paradox of a NOC (national oil company): the need to make fuel prices affordable to the men-in-the-street on one hand and the desire for have a healthy margin for every barrel of oil extracted either in the country or overseas, since it is now a global player. Coupled with the fact that many of our companies are also going big in upstream and downstream pursuits all over the world, the economic equation of oil for Malaysia is no longer a simple question of our NET export-import position in this commodity.
Price of oil at less than USD60 a barrel, which we are seeing now, is making many big boys in this sector nervous. Many have merrily gone on to pick up assets and contracts – both upstream and downstream – in the wake of rising oil prices the last two years or so. Billions have perhaps been committed; many companies, listed or otherwise, are likely to see their balance sheet shrunk in no time, not to mention cash flow squeezes, thanks to banks’ about-turn and operational needs. The impact has not quite cascaded down yet, save those who are dabbling in the O&G stocks; but soon it will. Many jobs will be lost for sure. Billions have already been wiped off in terms of market capitalization.
There is also a price correlation between hydrocarbon and palm oil, which we were already seeing a steady decline for months before the present crude oil shock. And what do you expect Ringgit to behave? Down, of course.

Is a weak Ringgit good for Average Joe?

I live in both Melbourne and Kuala Lumpur. Iron ore and coal prices peaked in 2011. Australian Dollar was even stronger than US Dollar those days. Without exception, everyone in the policy domain was trying to "talk" down the Australian Dollar. “Oh, it is good for our economy!”
Really? How much more wine and beef and lamb can Australia export? I happen to be  also involved in wine-making in Victoria. Everyone is still struggling to keep his farm afloat! And ask the Average Joe in Australia now that its Dollar has sunk close to US 80 Cents: Are you better off now? No, my friend, Australia is close to zero growth. If not for the hot money that is flowing in from China and Southeast Asia, Australia - with its low productivity culture - should already be a basket case by now.

Our political and policy "authorities" can always patronise us with "cheap Ringgit is better" rhetoric. But the reality to Average Joe in Malaysia is simply this: a higher cost of living.

If you earn RM20K a month, an extra RM200 to 300 per month is unlikely to make you feel poorer. But for a fellow citizen who earns about two to three thousand Ringgits a month, to feed a family is, mildly put, tough!
To these "authorities", please tell the truth and prepare the country for challenges.

And, don't forget to go down to talk to Average Joe! 

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