6-Days to 13GE – Idris Jala’s 12 clear signs of success – April Fool’s Day Message of Illusions

Datuk Seri Idris Jala in his article entitled 12 Clear Signs of Success has the chutzpah to make the claim that he believes in numbers and that their proper use and measurement does not result in lies.

It is rather laughable that having staked out this position, he proceeds to use fabricated numerical data in a brazen manner to make claims that do not have a basis and the assertions being made deviate from the truth.

However, he is not alone in spewing false and spurious numbers to befuddle the public. This has indeed been the season in which the nation has been treated to a recitation of false numbers to telltales of success and to make promises and paint mirages.

Pemandu has led the way and carved a niche for itself as the propaganda arm of the Government; and Datuk Idris is now a purveyor of twisted facts to cover up the failings of the Government.

The BN effort started with the Prime Minister claiming in the course of his March 23rd televised interview that per Capita GNI had grown by 49 percentage – and according to him the fastest ever in global terms – between 2009 and 2012.

This audacious claim, despite being challenged, was repeated by Pemandu in its Annual Report.

When further challenged, Datuk Idris was forced into issuing a “correction” citing a figure of 41 percent, further repeated in his article.

This so-called correction has been justified with an utterly unbelievable claim that the international methodology for computation of per Capita GNI had been revised by the United Nations by way of the 2008 edition of the System of National Accounts, thus necessitating a correction.

This was the lamest excuse that could have been concocted. The truth of the matter is that Pemandu has never fully used the World Bank’s Atlas method for computing GNI per Capita.

The credibility of Pemandu and its CEO was further punctured by the wholly unprofessional use and treatment of data on its recent Annual Report.

The rather glossy and slick presentation did not mask the odor of false and wild claims of “achievements” and untenable promises of achieving “High Income Country” status by 2018.

The Report was replete with other false numbers based on erroneous calculations and misuse of commonly accepted methodologies and conventions.

Datuk Seri Idris has come forth on April Fool’s Day with more fables. He, along with the rest of the BN Government, does not appear to have noted Abraham Lincoln’s warning: “You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time”.

Datuk Idris’s article of April 1st – 12 Clear Signs of Success- is a rather convoluted and implausible set of statements and claims built around numbers that cannot be fully substantiated.

The numbers are based on illusions; many of the calculations are dishonest as they use numerical methods that are not used by serious analysts.

The article cannot stand professional scrutiny and dismally fails in conveying a believable portrait of the performance of the economy and its medium-term prospects.

The author has lost all claims to objectivity and professionalism; not a word is said about the several looming economic challenges confronting the country: stagnant incomes, a rapidly exploding debt burden faced by the Government, the private sector and households, and the country becoming entrapped in the shallows as a Middle Income Country because of policy failures.

The numbers and the accompanying assertions offered by Datuk Idris can be easily punctured.

The truth of the matter is that there are no 12 signs of success. The road ahead is not paved in gold as Datuk Idris would like us to believe but is likely to be hard and rocky unless remedial measures are taken.

The target of Achieving High Income Country Status

A central theme of his article deals with the target of achieving “High Income Country” status by 2020. However, if the country continues on its present trajectory, Malaysia will miss that target and remain entrapped in the category of Middle Income Countries.

Datuk Idris and Pemandu have created a false he target of US$15,000 per capita GNI based on dubious assumptions.

What PEMANDU has done is a two stage juggle. It has first converted the GNI per Capita series for recent years in Ringgit terms into US Dollars using prevailing exchange rates. The resulting converted numbers in US Dollars differ grossly from the World Bank’s US $ GNI per Capita figures.

The reason for the divergence from the World Bank’s calculations of country per Capita GNI lies in the fact that the World Bank uses a unique methodology (the so-called World Bank Atlas Method) which has not been used by Pemandu.

This failure to use the World Bank’s methodology leads to the exclusion of a number of important variables pertaining to global inflation and changes in exchange rates that impact in establishing threshold levels for classifying countries and estimating per Capita GNI. These fact explain the differences in the GNI series as calculated by Pemandu and the World Bank.

GNI CALCULATIONS

Pemandu has not used the Atlas method to calculate the bench-mark figure for the categorization of “high Income”.

The PEMANDU Report states: “The World Bank’s current GNI per capita threshold for a high income economy is US$12,476. We factored in the World Bank’s published historical global inflation figure of two per cent until 2020 to arrive at a high-income threshold of US$15,000.”

This is totally flawed for several reasons. The threshold figure of US$12,476 for High Income level is in current dollar terms with adjustments for inflation and exchange rate deviations.

It must be stressed that this figure is never projected by the World Bank. Indeed, it cannot be projected in the manner done by Pemandu. By ignoring these methodological issues, Datuk Idris shows that he is either clueless or engaged in deluding readers.

Datuk Idris makes much of the so-called “correction” in the GNI per Capita figures and the lowering of the growth rate from 49 percent to 41 percent over the period 2009 to 2012.

A number of observations are in order. He has offered no explanation as to why 2009 was chosen as the reference base year; the reference to the SNA 2008 is a red herring as the change in methodology was marginal in nature.

It is clear that Datuk Idris and his cohort of consultants are being devious in so far as the target GNI per Capita is concerned. It would appear that the goal posts are being shifted surreptitiously.

He appears to be suffering from a bout of amnesia and does not recall that the 10th Five Year Plan had used a vastly different growth measure, namely of GDP growth. The Plan stated: “Looking ahead towards 2020, the challenge is to sustain the momentum of robust growth. Our goal of high-income status by 2020 requires, among others, achieving an average GDP growth of 6.0% per annum during the Tenth Plan Period.”

By this criterion, Malaysia has fallen short thus far in attaining GDP growth of 6 percent. Growth in 2011 was 5.1 percent; 5.6 percent in 2012 and is projected at under 6.0 percent in 2013. Thus, the claim now being made that the country could reach developed status by 2018 is truly delusional and has really been manufactured and has indeed been plucked from the air!

Pemandu’s Other Numbers Gamews

The tale that Datuk Idris spins is replete with other glaring abuse of statistics.

For instance, the claim of an addition of 438,800 employees to the workforce is unsubstantiated and certainly inconsistent with employment/labor force growth estimates embodied in the 10th Plan and inconsistent with demographic trends.

The comparisons of GDP growth rates of other countries are selective. Were countries such as China, India, and Indonesia included, Malaysian performance would not be as brilliant.

Datuk Idris’s treatment of the Federal Government deficit and debt story is selective and partial. The calculations pertaining to the deficit tell only part of the story.

The Federal Government’s debt has grown from RM 228.5 billion in 2005 to RM 501.6 Billion as of the end of 2012 and the debt level is now almost reaching the ceiling of 55 percent of GDP.

These numbers only relate to the debt of the Federal Government and exclude the Non-Financial Public Enterprises (NFPE)that have a sizable debt portfolio of their own.

Furthermore, the numbers cited in both the Pemandu Report and in the article exclude the Contingent liabilities of the Federal Government. The latter are in the nature of loan guarantees to entities such as toll operators, IPPs etc. While no details are provided by the Government, they are estimated at 15 percent of GDP.

The Federal Government’s overall public sector deficit is projected to have risen to 5.1 percent of GDP in 2012 (from 3.3 percent in 2011), partly reflecting higher investments by nonfinancial public enterprises (NFPEs), and according to the IMF’s calculations the overall deficit for the Consolidated Government ( a more comprehensive measure made up of both the Federal Government and the NFPEs) is expected to further widen to 6.3 percent of GDP in 2013.

Thus, the soothing statements advanced by Datuk Idris conceal the true state of affairs. Clearly, in the post-election period a re-elected BN Government will attempt to “balance the books” by introducing the GST and reducing consumer subsidies.

The burden of these fiscal measures will directly fall on households. The intent to make these fiscal changes has not merited mention by Datuk Idris and is thus being concealed even though a promise has been made by the Government to the IMF, a fact reported in the IMF Report following the Article IV Annual Consultations.[1]

Datuk Idris has conveniently omitted to mention the fact that household debt has exploded and at the end of 2012 amounted to 80.5 percent of GDP. This component of data has grown from RM 465.2 billion at the end of 2008 to RM 754.6 billion at the end of 2012.

It does not require a lot of imagination to visualize a situation when the bubble bursts, and the resulting havoc when households default on their debts, causing a mini version of the 2008 subprime crisis in the United States which forced foreclosures and the collapse of several financial institutions.

The factors that have contributed to this mountain of household debt can in part be attributed to policies pursued by the Government. The failure to support the construction of an adequate volume of truly low and modestly priced housing has pushed the cost of housing leading to the need for larger and larger loans; the protection provided to Proton and the abuse of the AP regime has led to high prices for automobiles, again forcing households to get deeper into debt in order to purchase motor vehicles.

Datuk Idris makes much of percent changes in private investment in a rather disingenuous manner.

He chooses to calculate growth based on the current price series, a practice no serious analyst would adopt as the convention for growth rate calculations of this nature are conventionally based on constant price series in order to neutralize the impact of price changes.

Thus, Private Investment as reported by Bank Negara in 2011 in constant prices was estimated at RM 70.3 billion rather the figure of RM139.5 billion cited by Datuk Idris.

He claims that the there was a hefty 48 percent increase over the previous year. He somewhat glibly proclaims: “That really is something!” Indeed, it is something to distort numbers in the manner he has done!

Yet another claim concerns the performance of the stock exchange. However, he makes no mention of the fact that the Malaysian market performed below other markets in the region.

According to the Financial Times of April 3, , the KLCI index has performed about three times less than benchmarks in Thailand, Indonesia and the Philippines since Najib took office. The ringgit has been Asia’s fifth-worst performing currency this year.

While indeed there were improvements in Malaysia ‘rankings in the World Bank’s ranking of countries in the ease of doing business, and in the AT Kearney’s Foreign Direct Investment Confidence index, Datuk Idris conveniently fails to point to the deterioration in the TI Corruption Perception Index, the Global Competitiveness Index and other indicators of performance.

The citation of improvements in infrastructure described under point 11 of the article read much like a mixed list that is neither meaningful nor can the reported results be verified. For instance, the reported number of beneficiaries cannot be verified as the reader is given no indication of how these numbers were derived.

Like so many other numbers cited by Datuk Idris, the numbers relating to trade, meaning the sum of imports and exports, amounted to RM 1.16 billion, RM 1.27 billion and RM 1,.31 billion in 2010, 2011 and 2012 respectively.

The numbers cited in the article are in error and conveniently conceal the fact that exports grew very sluggishly at a rate of 0.6 percent in 2012 after growing at 9.2 percent in the previous year.

The corresponding rates of change in imports was 5.9 percent and 8.5 percent. The reality is that both imports and exports were sluggish in 2012 and were not performing robustly in the manner Datuk Idris would like the public to believe.

Conclusion

The article attempts to blind an unsuspecting public into believing that the transformation programs launched by the BN Government have led to miraculous change and put Malaysia on to the road to great prosperity.

The nation is being promised that in five short years from now Malaysia shall have attained the status of a High Income country.

This forecast is based on false assumptions and dubious manipulation of number. The necessary GDP growth in excess of 6 percentages for the rest of this decade is not within reach as the country has lost its competitiveness.

The truth is that the policies that have been pursued by the BN Government have led the country to become mired in a Middle Income trap; it has become a highly indebted country in grave danger of having to cope with a debt crisis; it is facing massive capital flight and losing further competitiveness as the brain drain continues unabated.

These are not signs of success; these are signs of a country facing ruin unless urgent remedial measures are taken. Datuk Idris is doing the nation a grave disservice by peddling false data. It is imperative that he retract the fairy tales he has put out.