Malaysian Economy

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Is Malaysian ringgit due to fall from its peg?

By Wayne Arnold International Herald Tribune

WEDNESDAY, JUNE 29, 2005

KUALA LUMPUR If gambling were not against his religion, Nor Mohamed Yakcop could probably make a decent living playing high-stakes Texas hold'em in Las Vegas.

As special economic adviser to the prime minister at the time, Mahathir bin Mohamad, during the Asian financial crisis in 1998, Nor was the architect of Malaysia's ringgit peg, the policy of fixing the value of the currency against the dollar, in the same manner as China fixes its yuan exchange rate.

Ever since, the ringgit has remained at 3.8 to the dollar despite an export-led economic recovery that has even the government conceding that the ringgit is undervalued. So when Mahathir's successor, Abdullah Ahmad Badawi, appointed Nor last year to run the Ministry of Finance, many economists and investors suspected that Nor was being brought in to revise the peg, or even abandon it.

But Nor has kept them guessing, offering only a policy-making poker face. He will say only that revaluation is not out of the question.

"It is not something that is cast in stone," he said.

"At this point in time it seems it is still serving a useful purpose. But that doesn't mean we should take it for granted."

Apart from the yuan and the Hong Kong dollar, the ringgit is the only Asian currency whose value is pegged to the dollar. Central banks in other Asian countries, from Japan to Singapore, seek to minimize drastic changes in the value of their currencies, and in recent years they have tried to keep currencies from appreciating in order to maintain their export competitiveness, but the marketplace ultimately decides their value.

Few economists doubt that Nor will have to move.

While the peg keeps Malaysia's exports from losing competitiveness as the dollar declines, keeping the currency artificially undervalued is inflating the costs of imports, jeopardizing growth.

Yet after a surge of speculation at the beginning of the year, investors have lately begun to have doubts, pulling more than $200 million out of Malaysia's stock market in March and April.

"They've lost hope that there will be a ringgit revaluation," said Gan Kim Khoon, executive director at AmResearch in Kuala Lumpur.

What may force Nor's hand, economists say, is a move by China to revalue the yuan. That would allow Malaysia and other Asian exporters to let their currencies rise without making their exports more expensive relative to China's. The trick for Nor, they say, will be anticipating China by revaluing the ringgit just before it revalues the yuan. Too soon and Malaysian exports will suffer; too late and a flood of speculative funds will rush into Malaysia, risking higher inflation.

Fixing the ringgit's value was just part of a controversial package of controls on the flow of money into and out of Malaysia designed to insulate the country from the financial crisis, controversial because it flouted the advice being given at the time by the International Monetary Fund.

Malaysia has since lifted most of its capital controls. Only the peg remains, having gained in the interim a measure of respectability. "On balance, it's been beneficial," said Arjuna Mahendran, chief economist and strategist at Credit Suisse Research in Singapore. In addition to keeping Malaysia's exports price competitive, the peg has provided stability for businesses.

"The downside is that they frightened a lot of portfolio investors," Mahendran said. Economists say that despite the stability the peg offered to exporters, it discouraged investment in Malaysia's capital markets, leaving them stunted compared to others in the region.

Still, there are those who contend that the peg remains essential to Malaysia's financial and economic health. Exporters and Malaysia's trade minister, Rafidah Aziz, are the most outspoken supporters of the peg.

With the global economic outlook dimming, many say now is not a good time to tinker with the peg. Electronics exporters are likely to be the worst affected if the ringgit were to rise, as are agricultural producers such as Malaysia's influential palm oil producers. Revaluing the ringgit could also hurt farmers, which would run counter to the prime minister's stated policy of improving the lot of the rural sector.

But the case for revaluing the ringgit is growing by the month in the form of rising foreign currency reserves. Since 1997, Malaysia's foreign reserves have more than tripled, to $75.2 billion. Keeping the ringgit fixed when so much money is flooding into the country requires expensive foreign exchange operations by the central bank. To help ease the pressure upward on the ringgit, Malaysia has also lifted requirements that exporters convert their earnings abroad into ringgit and now allows Malaysian residents to hold deposits in foreign currencies.

Despite these efforts, the undervalued ringgit is accelerating inflation, now at its highest level since 1999.

Inflation is raising the cost of imported machinery and other equipment, to the point that many manufacturers are calling for a change in the ringgit's value. "Nine months ago they were happy about the peg," said Chua Hak Bin, an economist at DBS Bank in Singapore. "But now they'd prefer to see the peg go. They need to expand capacity."

Once China revalues its yuan, supporters of revaluation say, Malaysia will have no choice but to revalue. If Malaysia waits until after China to revalue its currency, currency speculators will pour money into Malaysia to cash in on the inevitable rise in its currency, a flood of funds that will create even more inflationary pressure.

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notes from toronto on ireland.

July 3, 2005

How Ireland learned a smart way to get rich

Thomas L. Friedman learns that Europe's former `sick man' now healthy, wealthy, wise

DUBLIN

Here's something you probably didn't know: Ireland today is the richest country in the European Union after Luxembourg.

Yes, the country that for hundreds of years was best known for emigration, tragic poets, famines, civil wars and leprechauns has a per capita GDP higher than that of Germany, France and Britain.

How Ireland went from the "sick man of Europe" to the rich man in less than a generation is an amazing story. It tells you a lot about Europe today: all the innovation is happening on the periphery in countries embracing globalization in their own ways — Ireland, Britain, Scandinavia and Eastern Europe — while those following the French-German social model are suffering high unemployment and low growth.

Ireland's turnaround began in the late 1960s, when the government made secondary education free, enabling a lot more working-class kids to get a high school or technical degree. As a result, when Ireland joined the European Union in 1973, it was able to draw on a much more educated workforce.

By the mid-1980s, Ireland had reaped the initial benefits of EU membership — subsidies to build better infrastructure and a big market to sell into. But it still did not have enough competitive products to sell, because of years of protectionism and fiscal mismanagement. The country was going broke, and most college grads were emigrating.

"We went on a borrowing, spending and taxing spree, and that nearly drove us under," said Deputy Prime Minister Mary Harney. "It was because we nearly went under that we got the courage to change."

And change Ireland did.

In a quite unusual development, the government, the main trade unions, farmers and industrialists came together and agreed on a program of fiscal austerity, slashing corporate taxes to 12.5 per cent (far below those in the rest of Europe), moderating wages and prices, and aggressively courting foreign investment.

In 1996, Ireland made college education basically free, creating an even better educated workforce.

The results have been phenomenal. Today, nine out of 10 of the world's top pharmaceutical companies have operations here, as do 16 of the top 20 medical device companies and seven of the top 10 software designers.

"We set up in Ireland in 1990," Michael Dell, founder of Dell Computer, explained via email.

"What attracted us? Well-educated workforce — and good universities close by. Ireland has an industrial and tax policy which is consistently very supportive of businesses, independent of which political party is in power."

Intel opened its first chip factory in Ireland in 1993, attracted by the large pool of young educated men and women, low corporate taxes and other incentives. National health care didn't hurt, either.

In 1990, Ireland's total workforce was 1.1 million. This year, it will hit 2 million, with no unemployment and 200,000 foreign workers.

Others are taking notes. Prime Minister Bertie Ahern said: "I've met the premier of China five times in the last two years."

Ireland's advice is very simple: Make high school and college education free; keep corporate taxes low, simple and transparent; actively seek out global companies; open your economy to competition; speak English; keep your fiscal house in order; and build a consensus around the whole package with labour and management — then hang in there, because there will be bumps in the road — and you, too, can become one of the richest countries in Europe.

"It wasn't a miracle, we didn't find gold," said Harney. "It was the right domestic policies and embracing globalization."

Thomas L. Friedman is a Pulitzer Prize-winning New York Times columnist.

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UMNO’s Corruption - Din Merican Comments

July 4th, 2005

UMNO’s Leaders for the 21st Century

by Din Merican

The esteemed UMNO President informed Malaysians that since the dateline of April 18, 2005 had past, UMNO would not entertain further reports of Money Politics. As a result of this decision taken by UMNO’s Supreme Council, those who competed with Isa Samad during the last UMNO elections are clear of the danger from being investigated and hauled up before the Disciplinary Board chaired by UMNO elder statesman, Tengku Ahmad Rithauddin, to answer charges of party level corruption. Maybe it is true that they have no grounds to answer. Otherwise, there would have been plenty of complaints against them. To them, I suppose, one must give them the benefit of the doubt.

Sarcasm aside, what does this mean? I guess, it means that UMNO is now free from the scourge of “politik wang” just as our country is now also free from corruption after Eric Chia and Kasitah Gadam were hauled into the courts.

The Royal Police Force too is cleared of corruption, because we now have the Royal Commission Report that had nothing significantly negative to say of the performance of the Force. With that Report completed, the Police can rest easy, wait for more perks and benefits, and conduct business as usual.

More importantly, it means that the UMNO President possesses awesome political power that he can use against his “enemies” and keep others in the party in check. As Prime Minister, he can use the ISA, the ACA, and other instruments of his Office. This is, of course, not new.

The difference is that Abdullah’s immediate Mahathir was more open in the exercise of his power. He did not have to hide behind some glorified pretense. One always knew where one stood with him. He used power to maintain stability and get things done. He also ensured that the country continued to grow and prosper. I admired the man for his convictions. He never claimed to be a democrat. He was an authoritarian leader who actively and openly promoted “Asian Values.” Malaysians and Asians must be led by strong leaders.

The new man promotes “Civilizational Islam,” talks about “cemerlang, gemilang and terbilang” and civil service excellence, and champions good governance. At the same time, he treats the economy with benign neglect, and dreams of a prosperous future. He claims to lay the foundation for the long-term future. As Lord Keynes said, “in the long run we are all dead.” Abdullah must now act and stop messing around. If he can do that, he will redeem himself, and restore his credibility.

To his diehard supporters, it is “Hurray!” for Badawi, the man who rid the party and country of corruption by his simply waving the magic wand. All UMNO Presidents and Prime Ministers in Malaysia before him had done that. Abdullah has done this “noble act” to save UMNO and our country from further embarrassment, for which we the Malays who support UMNO must be beholden to him.

Unfortunately, his magic wand cannot remove the stain of corruption. What he did was to confirm that UMNO, the foremost national and oldest political party representing the Malays, is corrupt to the core. Prior to this, people who charged that UMNO is corrupt were accused of speculating. Now it is crystal clear that UMNO is corrupt.

Bakri, I must admit that you were right. I was naive to be excited when I first heard the news that Isa Samad had been nabbed, found guilty, and then asked to resign from all party positions for blatantly violating UMNO’s “code of ethics,” and for bribing delegates in order to secure the highest votes for his Vice President post.

I had expected a purge of the party at various levels. Now it looks like that is no longer the case. I am wondering how long I can continue to put my faith in the man who had received such a strong mandate in the last election. My hat’s off to his spinmeisters for their skills in creating this grand illusion, but in the end substance matters.

Best wishes, Din.

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Declaration made based on criteria reflecting its status

WHEN we declare Selangor a developed state we are not declaring that our state has achieved perfection and that there are no more faults or problems to solve; instead our declaration recognises an achievement that is plain for all to see.

What is wrong with admitting that we have achieved something to be proud of? Are we to say that for more than 40 years since our independence Malaysia has not progressed?

Is progress only the providence of the Western world? Do Asian nations aspiring to achieve developed status need to be perfect with no faults to be recognised as developed?

Why is it that so-called Western developed nations can be both developed and have homeless people in their parks, whereas Selangor, which has successfully relocated 31,925, or 66.8%, out of 47,781 squatter families (more than 80% will be relocated by August) to low-cost homes with all the basic amenities, cannot declare itself developed?

This is truly a case of myopic assessment.

Consider these facts: Selangor is the most industrialised state in Malaysia with 60.8% of its Gross Domestic Product (GDP) contributed by the industrial sector, which provides employment to 36.5% of the state's workforce. The second biggest contributor is the services sector (36.5%), which employs 60.8% of the state's workforce.

From 2000 to last year, Selangor received investment from foreign and domestic sources totalling RM28.54bil, creating nearly 100,000 jobs in the manufacturing sub-sector.

This year, Selangor was the top destination for investment in this sector, receiving more than RM6bil in investment, which created 24,146 jobs.

The state's GDP is nearly US$60bil (RM228bil), with Selangorians enjoying a per capita income of US$12,876 (RM48,928.80), measured using the purchasing power parity method.

Selangor’s infant mortality rate at 3.7 per 1,000 live births is better than that of Australia, Austria, New Zealand and Switzerland. Its teacher-to-student ratio for schools is 1:19 for primary schools and 1:16.8 for secondary schools, comparable to Japan.

There is no one body that ascertains or accredits any nation as a developed nation.

In order to ascertain our achievement, we commissioned the National Productivity Corporation (NPC) to conduct a study benchmarking us against 30 nations and regions using 75 indicators developed by the International Institute for Management Development for its World Competitiveness Report measuring economic growth, business, public sector delivery system and infrastructure.

According to the observation of the NPC, a developed nation has attained a minimum ranking of 1st to 20th in 70% of the 75 indicators.

In the initial study in 2003, our achievement was 69.3%; in the second round of study last year our achievement improved to 77.3%.

Coupled with our per-capita income that is in excess of US$10,000 (RM38,000), we are to all intents and purposes a developed state.

If membership in the Organisation for Economic Cooperation and Development (OECD) is the criterion for developed status (there are currently 30 nations) then what about the other 54 high-income countries that are not members but, according to the World Bank, are high-income economies?

One of these non-OECD members but a high-income economy is Singapore. Is Singapore not a developed country?

Turkey is an OECD member, but according to the World Bank it is a lower-middle-income country. Malaysia also is not an OECD member but it is an upper-middle-income economy.

What we are declaring is that we have achieved a certain level of progress – we are entering a new level of development.

We will be doing things differently, more efficiently and more effectively. We want to create an environment in Selangor where each citizen will be able to optimise his potential to the fullest, where we can raise our families peacefully and where hard work, initiative, playing by the rules and being creative will have their own reward.

DR MOHAMAD KHIR TOYO,

Mentri Besar,

Selangor

Wednesday July 13, 2005

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Declaration made based on criteria reflecting its status

WHEN we declare Selangor a developed state...

Yessir! Selangor richly deserves 'developed state' status

Annabel Chong

Jul 13, 05 1:36pm

One must be fair to Menteri Besar Dr Khir Mohd Toyo for his intention to declare Selangor a developed state. In his opinion, Selangor is a developed state and the evidence is everywhere for all to see.

Hasn't the state permitted the clearance and rape of large tracts of virgin forests at Bukit Cahaya and other places for housing development? Go to any large housing estate like Subang Jaya, USJ, etc, and you can barely see any greenery. Only hot, hot concrete and asphalt. Who cares about the rise in temperatures? After all, residents can afford air conditioners, and it is good for the economy.

Lat even drew a cartoon recently of a child in 2020 looking at a specimen of a tree in the middle of a concrete jungle.

And the water authorities just recently declared that one-third of Selangor's rivers are dead, heavily polluted, with industrial effluents, garbage, carcases of animals like dogs and cats. These are definitely clear signs of progress and development.

There is no need to wonder why the fireflies in Kuala Selangor, one of the very few in the world, are dying in large numbers. Incidentally, didn't Khir Toyo recently ordered his councillors to camp the whole weekend at the firefly colony to study why the flies are dying and to recommend remedial action? What has become of it?

There are no squatters in Selangor any more, never mind the statement recently that all these will be 'resolved' by next year. Does this mean that big boards will be put up to block the views of the many ugly settlements and ghettos that line the roads all over the state? Or may be there will be more rumah panjangs?

Arne’t there still a lot of requests from the 'hardcore poor' for assistance both in monetary form and in kind? Arent there many illegal settlements in the many hills and villages all over Selangor whose residents speak foreign tongues and who from time to time like to engage in vicious fights, not to mention indulge in their favourite past-time of crime?

As for social life, well, what have we got? No cinemas, no liquor advertising, strict licencing, only entertainment suitable for the whole family. And to ensure compliance and good morality, there is the ever eager and zealous religious police.

And Selangor's ever 'efficient' bureaucratic civil service can be depended upon to make many and regular costly mistakes in land registration, monitoring of projects, inaction, etc. And the MB says they (including himself) are learning from their 'bitter and costly' mistakes. No need for punishment, just a lot of continuous learning curves, like from the belly dancers in Egypt while cruising on the Nile.

But best of all, corruption is not prevalent in the state! No private allocation of choice plots to politicians, no allocation of low-cost houses to those who do not qualify, local council meetings are transparent, and politicians in high places did not receive gratifications like houses and plots of land.

Selangor shamelessly claims many national infrastructure projects as its own - like the ports, highways and international airports - and takes credit for the trade that passes through them, never mind if they originate for other states.

The list goes on.

Given all these 'achievements', the good Dr Khir should set up a consultancy to offer his 'expertise' (not in root canal treatment) to other mentri besars and chief ministers on to how to achieve a 'developed' state status in double-quick time.

Especially to Dr Koh Tsu Khoon whose Penang state, also the prime minister's home state, is still painfully 'undeveloped' even after 20-odd years.

Better still, there just might be a vacancy at the Ministry for Federal Territories and the PM just might be looking for a 'shooting star' to attend to the many urgent matters there.

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Approved Permit holders

19 Jul 2005

• Full list of AP recipients

KUALA LUMPUR: They were said to have had the most number of Approved Permits to import cars. It is now confirmed that Tan Sri Nasimuddin SM Amin, Datuk Syed Azman Syed Ibrahim, Datuk Mohd Haniff Abdul Aziz and Datuk Azzuddin Ahmad are the AP kings.

According to the list of AP recipients released by the Government yesterday, the four – all involved in selling imported cars – were given more than 28,000 of the 67,158 APs allocated thus far this year.

Each AP can be sold for between RM20,000 and RM30,000.

The list, which is expected to be hotly debated at the 51st Umno General Assembly beginning Thursday, was released by the Prime Minister’s office amid the controversy surrounding the issuance of APs.

Of the number, Nasimuddin, managing director of the Naza Motor Group, held 12,524 APs mainly under Naza Kia Sdn Bhd.

For Nasimuddin, five of his six companies which received APs had other shareholders. His brother, Datuk SM Shalahuddin, was listed as a shareholder in five while in one company, Naza-Brabus Sdn Bhd, one Datin Zaleha Ismail is listed as the third shareholder.

Syed Azman, Mohd Haniff and Azzuddin received a total of 15,759 APs under several companies.

The list also indicated the year from which the recipients had been getting APs, but did not state the total received over the years.

The announcement came as a surprise as it was the first time that the names of AP recipients had been made public. Government leaders had earlier said that the policy of not revealing the names would remain.

The AP issue made newspaper headlines when former prime minister Tun Dr Mahathir Mohamad said that the issuance of large numbers of these permits had led to unfair competition against national car Proton.

Many importers, said Dr Mahathir, were also under-declaring the prices of cars.

He had questioned how 20 companies were given the bulk of more than 50,000 APs when the Government’s objective was to assist as many bumiputra businessmen as possible by spreading out the issuance of such permits.

The statement from the Prime Minister’s office accompanying the list said there were two types of APs – open APs and franchise APs.

Under the open APs, the issuance of which was terminated in 1988, permit holders were allowed to import new and used cars from any source.

Franchise APs are issued to companies which have exclusive agency agreements with foreign car manufacturers.

The AP, issued by the Ministry of International Trade and Industry, was introduced in 1970 with the objective of providing opportunities for bumiputra entrepreneurs in the motor vehicle sector.

Nasimuddin, who obtained his first AP in 1988, imports Kia, Mercedes-Benz, Peugeot, Ferrari, Mazda, Maserati, Rolls-Royce, Bentley and Brabus cars.

Syed Azman and Mohd Haniff, both former ministry officers, emerged on the AP scene in 2002.

Under two companies, Atlantic Star Auto Sdn Bhd and Auto Pacific Star Sdn Bhd, the former ministry officers obtained a further 5,669 APs to import Ford and Chevrolet cars. They also received APs to import Audi cars under Territorial Star Sdn Bhd.

Other major recipients included:

• HYUMAL Motor Sdn Bhd – owned by Berjaya Group Bhd, Sime Darby Bhd and Tan Sri Vincent Tan – to import Hyundai cars (18,573 APs);
• CARTRADE Sdn Bhd, of which Datuk Ilyas Mohamed and Zahran Ahmad are the shareholders, to bring in BMW and MINI cars (11,237);
• AMAZING Tempo Sdn Bhd, of which Tunku Datuk Zainol Tengku Izham and Ramzia Arshad are shareholders, to import Wald cars from Japan (12,025); and
• ALADO Bumi Automobile Sdn Bhd – of which Datuk Ayob Saad, Tan Sri Cam Soh Thiam Hong and Soh Ah Gong – are shareholders to import Chery vehicles from China (12,496).

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How Govt Is Short-changed Through Under-declaration

By Yong Soo Heong

20 Jul 2005

KUALA LUMPUR, July 20 (Bernama) -- Malaysians do not just love cars, they are crazy about them, to the point of obsession. At any given time, they have more than 200 different models to choose from.

That explains why 380,568 new cars were sold last year compared 320,524 in 2003. And that even does not take into account sales of second-hand cars.

That also explains why the demand for APs or Approved Permits for the import of completely built-up foreign-made cars is ever so strong because of this craze for cars.

With the relatively low interest rates at around 2.5 percent per annum and the banks' propensity to lend to up nine years for car purchases, consumers are spoilt for choice these days.

Gone are the days when it is difficult to buy a new imported model cheaper than those from Proton or Perodua, the two pioneers in national cars or cars with a high level of local content.

Taking the top of the line Proton Perdana as the yardstick at around RM100,000, one could get a number of imports below this price. They include the Kia Picanto, Suzuki Swift, Suzuki APV, Chevrolet Aveo and Chevrolet Optra.

That means that Proton and Perodua can no longer compete on price or even patriotism these days.

But how are importers able to charge competitively and yet make a tidy profit when there is a 300 percent import duty slapped on such imports?

There have been allegations that some importers may not have been quite straight-forward with their price declaration.

That probably accounts for the unbelievably low prices of some imports in the local market.

For instance, some people are also asking as to why it is such a hassle for individuals to secure an AP to import a car while some parties are given so many APs to flood the market with imports?

The Malaysian Institute of Economic Research (MIER) said the fact there was controversy over the award of APs showed that "something is wrong with the system."

Another issue related to transparency is the reluctance of many car dealerships in showing a detailed breakdown of the taxes paid to the government for CBUs. Most of their price lists would only indicate the "net selling price inclusive of government duties."

The AP system, which was introduced some 30 years ago to help bumiputera entrepreneurs in the car industry, has come into greater scrutiny these days after allegations that the flood of relatively cheap car imports had hurt Proton.

Proton's market share for passenger cars slipped to 44 percent or 166,833 units in 2004 compared 48 percent or 155,420 units in 2003.

Former Prime Minister Tun Dr Mahathir Mohamad, who is now Proton adviser, had also alleged that many importers were under-declaring and selling cars at a price that was lower than the actual price.

Meanwhile, an industry insider alleged that under-declaration was not only confined to re-conditioned vehicles from abroad but also in transactions for new vehicles with the principle car manufacturers.

As a result, millions of ringgit due to the government in taxes were lost, she claimed.

The source, who is associated with a foreign car manufacturer, revealed that some importers had gone to the extent of minimising their exposure on government taxes by splitting their purchase orders twice.

This is how it is done: The importer will send a purchase order for, say, 20 cars, to the exporter or foreign car manufacturer and will include payment for a sum equivalent to only half the price of the cars concerned.

Once the cars are ready to be shipped out, he then makes the balance of the payment.

The source said the exporter would then invoice the importer and the paperwork for Customs declaration would be based on the second payment. In other words, payment is split.

"This means that the so-called selling price to be declared to the Customs would be based on only half of the actual price of the cars," she said.

The invoice used for the Customs declaration would also include fictitious payments purported to have been made by the importer running to several thousands of ringgit per car as the manufacturer is supposed to send personnel to Malaysia to oversee the technical aspects of the after-sales service of the vehicles, the source said.

"Government taxes will thus be based on the discounted price and not on the actual value of the cars and hence the government gets shortchanged through such under-declaration," she explained.

Meanwhile, a port official said it is ironic that it took so long for the authorities to realise such racketeering.

"This is rather interesting. When you bring in a car individually from abroad, the Customs officers will often know in detail the price of the car, the incidence of tax and you can't bluff your way through. But when it comes to large-scale imports, there seems to be some fuzziness and some people can get away with under-declaration. Something is wrong somewhere," he said.

Of late, photocopies of APs purported to show that some German-made limousines had been imported at only RM3,000 each had been circulated. It has been reported that the Royal Customs Department is investigating the alleged under-declaration.

A new phenomenon has also cropped up: Malaysia is now flooded with foreign-made cars which are said to be specially-tuned.

These "sub-branded" cars were unheard of about a year ago but are now promoted along with established brandnames from Germany and Japan.

A car sales executive said it is interesting that some dealers are making a fortune from these specially-tuned vehicles.

"By just changing a computer chip to enable the cars to have higher revs or more power, putting a new set up bumpers and placing new badges of the sub-brands alongside the original names, the dealers can charge up to RM30,000 to RM40,000 more per car," he said.

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Ringgit Peg Against U.S. Dollar Scrapped, Replaced With Managed Float

21 Jul 2005

KUALA LUMPUR (Bernama) -- The ringgit's RM3.80 peg against the U.S. dollar imposed in Sept 1, 1998 has been scrapped with immediate effect and will operate by a managed float against a basket of currencies, Bank Negara Malaysia announced, here Thursday.

The managed float would be "positive to the economy," the central bank's governor, Tan Sri Zeti Akhtar Aziz said here.

Members of the media trying to get comments from Bank Negara Governor Tan Sri Zeti Akhtar Aziz on Ringgit peg after she met Prime Minister Datuk Seri Abdullah Ahmad Badawi at the Umno General Assembly in Kuala Lumpur.

She told this to reporters after she met Prime Minister Datuk Seri Abdullah Ahmad Badawi at the UMNO General Assembly here.

"We will allow the currency to adjust to reflect our fundamentals," she said.

BNM, in a statement, said it would monitor the exchange rate against a currency basket to ensure that the exchange rate remained close to its fair value.

"Promoting stability of the exchange rate continues to be a primary objective of policy," the central bank said.

Changes in the international and regional financial and economic environment have made it important for Malaysia to have a stable exchange rate against its major trading partners, in particular the regional countries.

Consequently, the stability of the ringgit's exchange rate against the regional currencies would become increasingly important, it said.

"Such stability can best be achieved by maintaining the value of the ringgit against a trade weighted index of Malaysia's major trading partners," BNM said.

The central bank also said that the announcement represented a change in the system by which the value of the ringgit was determined.

BNM said "given that the current valuation of the ringgit is consistent with our fundamentals and after taking consideration developments in our trading partner countries, the exchange rate after shifting to this new system is not expected to deviate significantly from the current prevailing level."

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i dont really understand the AP thing.care 2 explain?

Each AP can be sold for between RM20,000 and RM30,000.

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i dont really understand the AP thing.care 2 explain?

1.1 AP permit = 1 vehicle rite?

since the price of AP permit is 20-30k, hw can the make money frm selling a car which cost 60-80k? i really dont get it how it works..

2. AP is only for bumiputera rite? bt how come hyundai motrs(tan sri vincent tan) can get a lot of AP?

3. under-declaration of vehicle, hw did they benefit frm tht?when declaring a vehicle price lower,u have 2 sell it at a lower price rite?

i've posted the article from Bernama on how this is done.

basically you pay less excise duty which is based on the value you claim it cost to import the vehicle. all vehicles are subjected to excise duties, including locally assembled or manufactured vehicles.

local stuff are taxed according to their exact cost to build because the figures are easy to obtain and due to the need for all the numbers to add up correctly by the different vendors. its the same like us going to the restaurant; we see the price stuck on the menu, we pay that amount at the cashier in addtion to service and government tax.

things purchased overseas can be paid twice. you can put an 90% deposit then be billed the remaining 10% for the item when it reaches port. thus the bill for the item will be stated as the remaining 10% which is settled before it clears customs. so the excise duty will be based on this 10%.

then the agent sells the item at a 'fair market price'. by escaping these taxes, they have earned the difference by lowering the cost of their product. since the 'lower cost' products faces competition from products which have duly paid the correct taxes, it is able to raise its price now to a level similar to the products of the competitors. in order to justify the rise in price from the port to the outlet, the agent can do some accounting and show it now includes the cost of providing warranty, service and support of the product and the running cost of other aspects of the business such as a RM100 million annual salary for the CEO and things like that. in business, the faster the money goes to the pockets the better since personal income tax is much lower than corporate income tax. the automotive industry worldwide is more of an accounting industry than an engineering one.

also the cost of the APs are determined by the vehicle being brought in.

berjaya has their own explanations which look legal.

[ferrarihotbabe 0]

I feel just so darn great that Ringgit is finally wanting to get back on its feet, (almost) independently. It's a great challenge to float and as like always, there would be greater benefits, if everything is managed under close watch.. It's just the very first/second day of floating.. And I hope to see a better future that this will lead to.. I'm really looking forward to return to Msia one day..

[cossie 0]

I feel just so darn great that Ringgit is finally wanting to get back on its feet, (almost) independently...

also it will be easier on your family to support your education abroad!

[Ray 0]

also it will be easier on your family to support your education abroad!

things would be cheaper too!!

especially electronics stuff!!!

[cossie 0]

things would be cheaper too!!

especially electronics stuff!!!

but we may end up exporting less goods which will hurt our production. already we have so many holidays. aiyo... malaysians know how to relax only.

[ferrarihotbabe 0]

but we may end up exporting less goods which will hurt our production. already we have so many holidays. aiyo... malaysians know how to relax only.

Well, probably it's time to slow down the heat in the economy anyway.. After being protected for so long in the international financial market, I hope (hopefully not WiSh) the domestic exporters have "toughen" their competitiveness and stock-up their revenue for incoming probably unexpected tight competitions..

Yup, I could pay my education abroad with cheaper Aussie Dollars. Too bad I'm gonna start working soon.. Anyway, good thing Msia updates itself to compete for new investors' attention..

[cossie 0]

Well, probably it's time to slow down the heat in the economy anyway.. After being protected for so long in the international financial market, I hope (hopefully not WiSh) the domestic exporters have "toughen" their competitiveness and stock-up their revenue for incoming probably unexpected tight competitions..

no country, no matter what their policies, have protection in the 'international financial market'. an economics student should know that.

do you mean favourable pricing of goods?

[cossie 0]

The lure of DRB-Hicom

Stories By Siow Chen Ming, Leela Barrock and M Shanmugam

12 Jan 2005

When news leaked out two months ago that Tan Sri Syed Mokhtar Al-Bukhary was willing to pay a hefty premium for a 15.8% stake in DRB-Hicom, the market brushed it aside as a deal that did not make financial sense.

Then Nizam Tun Razak, a former banker, joined the fray. At about the same time, Tan Sri S M Nasimuddin S M Amin became the third person to make a bid. Now, the bid for DRB-Hicom has developed into an interesting corporate tussle.

Subsequently, Nizam, Nasimuddin and little known property developer Datuk Muhammad Azaham Abdul Wahab formed a consortium to put in a competing bid against Syed Mokhtar's. Nasimuddin leads the consortium — hence it essentially boils down to a battle between the two Tan Sris.

The 15.8% stake comprises 155 million DRB-Hicom shares. This block is said to be jointly held by the Estate of Yahaya (40%), Citaria Sdn Bhd (40%) and Tan Sri Mohd Saleh Sulong (20%). Citaria is owned by low-profile businessman Salleh Yusoff, who is said to be the late Tan Sri Yahaya Ahmad's silent partner.

At the time of writing, the official announcement from the Estate of Yahaya is that it is selling the entire stake to the consortium led by Nasimuddin. The price being bandied about is RM3.65 per share — a huge premium to the market price of RM2.14.

But Syed Mokhtar supposedly is the preferred bidder for the stake owned by Citaria and Mohd Saleh.

Irrespective of who actually gains control, the question is, why would two astute Tan Sris — two of the country's leading bumiputera businessmen — pay top money for an insignificant stake?

In fact, if there were an award for the deal that makes the least economic sense, it would go to the sale of the 15.8% in DRB-Hicom for more than RM560.2 million.

The 15.8% stake is the single biggest block that would give the owner management control of DRB-Hicom. But even that is not a certainty. An observer points out that government agencies — such as Khazanah Nasional, Permodalan Nasional Bhd, the Employees Provident Fund and Minister of Finance Inc — together have a 35% stake in DRB-Hicom and technically can call the shots.

So, what is the real attraction in DRB-Hicom?

More interestingly, why is the existing DRB-Hicom management, led by Mohd Saleh, strongly resisting the takeover by Nasimuddin?

The fact is the break-up value of DRB-Hicom is far higher than its market price. Net tangible assets of DRB-Hicom are estimated at RM2.61 as at June 30, while the revised net asset value is RM3.38 per share. However, realising the break-up value of the company will take time.

Considering that the deal will be done in cash, the cost to vendors will increase. Imagine buying a share at nearly 60% above market price and waiting for it to go up to recover one's capital. It's definitely not a game plan for an astute businessman.

A research house points out that DRB-Hicom is sitting on prime undeveloped land valued at RM1.5 billion, which is waiting to be unlocked. But that argument is also not convincing as property development, although it offers a good margin, has a long gestation period.

The AP business

Sources close to Nasimuddin say the real value in getting management control of DRB-Hicom lies beyond the assets in the company, in the approved permit (AP) business and its potential.

APs are documents from the government to certain privately held companies to import vehicles. Hence their financials are largely obscure. The benefits run into millions as one AP is said to be worth up to RM40,000. The most pricey APs are those obtained by members of Pekema (Pengimport dan Peniaga Kenderaan Melayu).

"Pekema members get unrestricted APs which allow the holder to import any vehicle from any manufacturer in the world. It is also tradable. One of the biggest holders of open APs is Nasimuddin, who has made millions over the years," says a car trader.

DRB-Hicom and its associate company Edaran Otomobil Nasional Bhd have a slew of vehicle franchises and are trying to add more — particularly Suzuki, Mitsubishi and Volkswagen. To bring in the new marques, the company would require more APs to import the vehicles. But DRB-Hicom is unable to get sufficient APs from the government because it does not fulfil the bumiputera criteria.

But it does not mean DRB-Hicom does not get any APs at all. Listed auto assemblers such as DRB-Hicom get their quota of APs as a manufacturer of automobiles. DRB-Hicom's quota is 5% of its installed capacity of 114,000 vehicles, or about 5,700.

Still, it is hardly enough to bring in the array of imported vehicles it distributes. So it has to do deals with private companies that get the APs. The government normally allocates APs to companies that are majority bumiputera owned, which is in line with the Ministry of International Trade and Industry (Miti)'s policy to encourage bumiputera participation in the motor trade.

Private companies like Naza Group can get as many APs as they require as long as they can prove that they are able to sell the vehicles. According to a reply by Miti in Parliament, Nasimuddin's related companies obtained a total of 6,387 APs for last year. Assuming each AP is worth RM35,000, the amount is more than RM200 million.

As far as DRB-Hicom is concerned, it sets up back-to-back arrangements with third-party bumiputera companies that are allocated the APs. DRB-Hicom has an arrangement with Auto Pacific Star Sdn Bhd, which gets the APs from Miti to bring in the Chevrolet marques. After importing the vehicles, Auto Pacific Star delivers them to DRB-Hicom for distribution to its dealership network.

This is similar to the set-up of Hyundai Berjaya Corp Bhd, which sources imported Hyundai CBUs (completely built up) from privately held Hyumal Motor Sdn Bhd. Other examples include BMW Malaysia Sdn Bhd's relationship with Cartrade Sdn Bhd, DaimlerChrysler Malaysia Sdn Bhd with NZWheel Sdn Bhd (a unit of the Naza group) and Honda Malaysia with WestStar Motorsport Sdn Bhd. Cartrade, which is substantially owned by Mohamed Ilyas Parker Mohamed, gets APs for the import of BMW CBUs . NZWheel gets APs to import Mercedes-Benz CBUs while WestStar Motorsport brings in the Honda CBUs.

Now, the question is: Assuming Nasimuddin helms DRB-Hicom, would he use his private companies to get the necessary APs for new franchises? Or would he continue to allow the AP segment of the business to be handled by Auto Pacific Star?

"Of course, it can be safely assumed that Nasimuddin would assume the role of the private bumiputera partner in getting more APs for DRB-Hicom. This arrangement will help him and his partner recoup their investments in the company," says a source close to Nasimuddin.

The Syed Azman factor

But that may not affect the Chevrolet franchise, which is DRB-Hicom's sexy story.

According to Datuk Syed Azman Syed Ibrahim, his company Auto Pacific Star calls the shots on the Chevrolet franchise. "Auto Pacific Star has the right to distribute the Chevrolet cars. We use DRB-Hicom to distribute the models to grow our sales faster. We call the shots," he stresses.

Besides Chevrolet, Syed Azman also owns WestStar Motorsport. DRB-Hicom's Mohd Saleh is a shareholder in WestStar Motorsport.

Syed Azman explains that there is nothing to cover up on his link with Mohd Saleh and his dealings with DRB-Hicom. (Some observers have questioned if it's appropriate for Mohd Saleh to have an interest in a company which sells the APs to DRB-Hicom.) He explains that Mohd Saleh's presence in WestStar Motorsport started more than 21/2 years ago.

He says Mohd Saleh was originally a shareholder in the company responsible for bringing in the Honda imports. Eventually, the principals in Japan gave the franchise to WestStar Motorsport and Mohd Saleh became a 30% shareholder.

Thanks to the deal to import Chevrolet and Honda, Syed Azman is seen as one of the biggest beneficiaries of the government's AP scheme. Both Honda and Chevrolet are fast-selling brands and total sales amount to more than 8,000 units per year.

However, he vehemently disputes the tag.

"The APs that I get are merely instruments to do business. They cannot be traded. There is no value to them. They only allow me to bring in the cars to be sold in the country. The more cars the company sells, the more APs it gets," says the former military officer.

Mohd Saleh's stake in WestStar Holdings, the parent company of WestStar Motorsport, is held through Uptrend Prospects Sdn Bhd, which has a 30% interest in the former. This is based on a circular to shareholders dated Sept 1, 2004. Datuk Rashid Rahim, the director of the services division of DRB-Hicom, is also a director of WestStar Motorsport.

Considering that Auto Pacific Star calls the shots, earlier speculation that Nasimuddin is in DRB-Hicom for the APs does not really hold water. Earlier, speculation was that the emergence of a new controlling shareholder in DRB-Hicom would mean a review of terms on the volume or profit margin that Auto Pacific Star gets from its existing or new Chevrolet models.

As far as the APs for Honda vehicles are concerned, it is a different issue because DRB-Hicom does not have management control and holds only an associate stake in the company assembling Honda vehicles. Honda of Japan holds the majority stake.

Monetary gains

The monetary gains from the AP business are huge and not necessarily disclosed. There are several companies owned by bumiputera individuals which have made massive gains. For example, based on disclosed related party transactions between DRB-Hicom and Auto Pacific Star, these run into millions.

According to a DRB-Hicom circular dated Sept 3, 2003, the value transacted between the company and Auto Pacific Star was estimated at RM286.19 million for deals done between Sept 19, 2003, and the annual general meeting (AGM) held in 2004. The said value included "provision of pre-delivery inspection and other related services by Auto Pacific Star, in respect of the vehicles and the sale of such vehicles by Auto Pacific Star to Hicomobil Sdn Bhd; and the subsequent sale of vehicles by Hicomobil to Auto Pacific Star as a dealer".

(Note: Hicomobil is the franchise holder of Chevrolet and is 100% owned by DRB-Hicom.)

The estimated value of related party transactions with Auto Pacific Star could reach RM424.8 million between Sept 24, 2004, and the next AGM, according to the latest circular dated Sept 1, 2004. This would include "sale of vehicles by Hicomobil to Auto Pacific Star as a dealer".

In reality, it is difficult to estimate how much profits the private companies make from the sale of APs to DRB-Hicom because the transacted value includes sales and purchase of inventories between both parties.

Nevertheless, it will not be easy for Nasimuddin or any new management of DRB-Hicom to break up the existing arrangement with Auto Pacific Star, even if there was such a consideration.

That being the case, why is Nasimuddin or Syed Mokhtar so interested in DRB-Hicom?

An executive close to the existing management says the value in DRB-Hicom lies in its 20% stake in EON Bank. DRB-Hicom also has the capacity to assemble cars and franchises to distribute new marques.

These are all attractions for Nasimuddin and his consortium partners. As for Syed Mokhtar, the reason he is in the chase for DRB-Hicom is not really known although its RM1.5 billion worth of letters of intent for railway projects may be the reason.

The real motive for the two Tan Sris fighting so vigorously, and now openly, for control of DRB-Hicom will be known only after one of them is declared the winner. Or will there be further twists to the tale?

[cossie 0]

does the cost of maintaining the APs affect the local automotive industry? yes it does, as the investment could have been used to support the national car industry and improve it. the reason behind the AP is to allow bumiputras a chance to be involved in the automotive business. what is the use of proton then? isn't proton a bumiputra business involved in the automotive industry? why is there a need to have two separate 'opportunities'? --- if a man were to put each of his legs into two different sampans, it will not be steady.

the AP should have been scrapped in 1985 but twenty years later, it is still not too late to scrap it and concentrate on the long established bumiputra foray in the automotive industry. it is also important to maintain proton because malaysians have invested for so long by using its products. if it were to collapse overnight as what some strange people propose, what will be the cost to those who only had protons all their life? can they afford to scrap their vehicles and replace them with those brought in by the AP kings when the spare parts are all consumed?

[cossie 0]

the good thing about having a stronger ringgit is that it is cheaper to import goods. but for those repaying bank installments, we are using 'more' money to continue our repayment, this is where we lose out as the amount we owe the bank didn't change to reflect the 'stronger' currency.

[cossie 0]

FULL TEXT OF THE STATEMENT ISSUED BY FORMER PRIME MINISTER TUN DR MAHATHIR MOHAMAD

July 26, 2005 21:40 PM

Herewith is the translation of the full text of the statement issued today by former Prime Minister Tun Dr Mahathir Mohamad entitled "Proton's Problems".

1. I want to make this clarification because the press and TV might not possibly report all the facts to the public.

2. The question over Proton is not about the different statements made by individuals or a row between a minister and a retiree. On the contrary, it is about a national industry. At a time when many car businesses went bankrupt and closed shop, such as Austin, Morris, MG-Rover and others, and giant companies like General Motors and Chrysler also went bankrupt, Proton is still alive and well, with cash of more than RM2 billion and it did not depend on the government or banks to invest more than RM2 billion in its new plant in Tanjung Malim. A small measure of this success is definitely the result of efficient management, more so in view of the impact from so many foreign-made cars imported at cheap prices.

3. The AP (Approved Permit) was first issued in the 70s, before there was Proton. At that time, the Malays were unable to get into the car business because agents such as Kah Motors (Honda), UMW (Toyota) and Cycle & Carriage (Mercedes) and the others were non-Bumuputera. They refused to give opportunities to Bumiputera traders.

4. The cars assembled in the country or imported by the official agents/dealers (distributors)/importers could not be imported by others without paying "over-riding" commissions to the official agents.

5. Therefore, APs were given to import reconditioned cars. Although many Bumiputeras sold the APs, there were some who were successful in this business. Among them is Tan Sri S. M. Nasimuddin S. M. Amin. Without the APs, it was not possible to have Bumiputera car traders before Proton was produced. When Proton was produced, many Bumiputeras became successful as agents for Proton cars.

6. The production of Proton successfully reduced the import of foreign-made cars by non-Bumiputera agents. It is obvious that more demand for Proton means more Bumiputera agents, and more sales for them.

7. In contrast, when many APs are given to a small number of Bumiputeras, and they do not make any preparation to do business, it is obvious that the number of Bumiputera car traders will not increase significantly and the sale of Proton by Proton agents, who comprise Bumiputeras, is not brisk. Furthermore, the prices of foreign cars imported with the APs are very low, which enable the cars to be given large discounts and thus enjoy brisk sales. At the same time, the number of Proton agents could not be increased.

8. It is very clear that the award of the APs only profited a certain number of Bumiputeras and is a loss to Proton agents, particularly Bumiputeras, and reduces the opportunities for other Bumiputeras to be Proton car traders. It is not true that the issuance of numerous APs has increased the number of Bumiputeras in the car business, especially when two or three people who have no showrooms have obtained thousands of APs.

9. The previous open AP system enabled the holder to import many brands. When the franchise AP was introduced, only those who obtained the franchise could import that specific brand. Those previously allowed to import through open APs now could not import the brands any more. Those who obtained the franchise are not car traders but former ministry officials. They obtained thousands of APs although they do not have the facilities to assemble or sell cars. They only handed over (with certain payments) to parties that could assemble and sell certain brands of cars.

10. The question of Proton's quality does not arise as it has successfully penetrated sophisticated markets such as the United Kingdom and Australia. However, new car models will normally have some defects. Tens of thousands of cars of renowned brands have been withdrawn due to specific defects. These include Mitsubishi, Chevrolet, Ford and others.

11. This explanation is made for the reputation and interest of the nation and a national industry that has been successful. I have no interest in Proton. I have not received a single sen as Proton adviser. If my son gets a small number (95 APs) for Porsche cars, it is according to conditions. To sell 50 cars of this brand is not easy. Don't be like before, involving my family whenever something happens that should not happen.

12. I have to reveal everything in the interest of the national industry, not as alleged by a writer of a certain English language newspaper that it is because I did not get any AP.

13. I have received the letter of explanation from the Minister of International Trade and Industry. I found the contents of the letter as well as the appendices did not prove the minister's claims:

1. Approval for Naza Ria to be accorded national car status
2. The number of APs released between 2004-2005
3. The basis and conditions for the issuance of APs
4. Types of APs issued
5. The names of those (company/individual) who received the APs and the number each received.

14. At the Umno General Assembly, the minister had made several claims which were not true. During TV interviews, she claimed that I might have forgotten some things. Even though I am already 80 years old, I am not senile.

15. Initially, after replying to her letter with a copy sent to the Cabinet, I had not wished to make any more statements. It was up to the Cabinet to decide what was true and what was not. However, since the minister did not make a true statement to the Umno delegates and the public, I have to explain.

16. When I was the Prime Minister, there was no decision by the government not to release the names of AP holders to the public. Maybe the present government made that decision. The question is whether the decision was made before or after the minister made the statement that the government's policy was not to allow the release of the names of AP holders.

17. I have been the Minister of Trade and Industry. The explanation by the minister that when she took over the ministry there were many who were given APs but did not meet the conditions and she had to cancel their APs, which showed how strict the minister was at that time. Who was the Minister of Trade and Industry preceding the current minister? If not mentioned, maybe some would think that I was that person.

The Award of APs to a former civil servant

18. Although there are no official prohibitions for a newly retired officer (optional) to be given special opportunities by the government, the public is questioning why this ex-officer who did not meet the required conditions was given thousands of APs.

19. We know many of car traders, including members of the Malay Vehicle Importers and Traders Association of Malaysia (Pekema), who had asked for the APs but did not get them. They were also not told about the category of franchise from exporters which, if they had got it, would have qualified them for many APs. The introduction of franchise APs was not announced publicly to the car traders. All of a sudden, the category was introduced and certain people obtained the APs in large numbers in this category. And AP holders who had previously been able to import the franchise brands were no longer allowed to import them.

20. I am not envious of Malays who have become rich. But their wealth must be made in the right way. I have many times chided them for selling APs to get rich quickly. It is clear that the sale of APs is widespread now. It is the responsibility of a minister to monitor the situation so that there will be no abuse.

21. The details in the letters between the relevant parties will follow later to avoid any dispute.

DR MAHATHIR BIN MOHAMAD

-- BERNAMA

[Nazri Hamdan 0]

Thailand’s Capital Control Regime:

Macroeconomic Views and Impacts on Malaysian Economy.

Nazri Hamdan

1. Defining the Parameters

After such drastic depreciation of Thai Baht in December 2006, its monetary authority subsequently implementing the capital control measures, mainly to stem capital flight from Thailand. These measures automatically lead to the memory of 1998 where the Central Bank of Malaysia implemented the same regime. During 1998, about a year after the onset of the East Asian Economic Crisis, there was growing concern over the policy circles that the IMF prescription that placed overwhelming emphasis on confidence building through fiscal and monetary policy was not working in the crisis-affected countries. Some economists argued that the IMF has made the crisis worst than it needed to be. These reassessment resulted in a growing consensus in favor of Keynesian reflationary policies. However, any independent policy in favor of reflationary policies could have disastrous consequences because market players are usually suspicious of policies of individual countries which are consistent with IMF prescription. The end result would have been intensification of capital flights and exchange rate collapse leading to a dangerous devaluation – inflation spiral.

2. Economics views on exchange rate and capital controls

There are 2 important frameworks from the macroeconomics that needed to emphasize to understand the role of capital controls on the economy; exchange rate and the model of capital controls. Maybe we will neglect the impact of it to the stock market as it is slightly out from the macroeconomic perspective.

Economics theory postulated that the role of supply and demand of certain currency in the foreign exchange market will eventually leads to the determination of the exchange rate. In the capital control side, the regime will have an impact to the BP (Balance of Payment) curve.

3. Onset of the control

On the 19th December 2006, Thai Baht fell 1.3% in 2 days. It is its sharpest drop since April 05 while Ringgit moderate to RM 3.5743 per US Dollar (as at 5pm on that day). Before such depreciation, the Baht appreciated 16% year – to – date before this week and had risen too sharply. The domestic demand in Thailand was weakening while its export continuing to be strong. Hence, it was important for Thailand to curb currency speculation to preserve the competitiveness of its export.

4. Thailand’s capital control regime.

The Thailand’s central bank measures to overcome capital flights are as follows:

a) On Monday Dec 18, 2006, Thailand lock up 30% of new foreign currency deposits for a year and also imposed 10% penalty of withdrawal of foreign fund deposited less than a year.

They allow overseas investors buying Baht to only invest 70% of what they transect and to only recoup all of their funds if they keep the money in Thailand for more than a year.

c) The Central Bank of Thailand will focus on its management of the Baht in the debt instrument market.

d) Thailand removed the limit on non resident baht deposits, allowing foreigners to make baht deposits rather than taking cash offshore.

5. Some spillover effects

a) Stock market

Asian stock market fell after Thailand’s recent capital controls. The Singapore Straits Times Index lust 66.14 or 2.2% to 2897.30, the biggest drop since June 8, while Indonesia Jakarta Composite Index fell 50.95 or 2.9% to 1736.67, the biggest lost in six months. The KL Composite Index plunged as much as 35.93 points in afternoon trading, its largest one day drop since 5 years, before closing to 21.24 points or 1.96% lower at 1060.36 on 19th December 2006.

The sell down reflects uncertainty caused by the Thailand’s announcement with major fund managers off – loading or reducing exposure to their region. Foreign fund managers were locking in the gains made in the Malaysian market, which had been in the uptrend for the past six months without experiencing a sign of correction.

Investors should acquire stocks once their price fell to attractive levels. Market may take longer time for correction – Malaysia not necessarily will benefit from Thailand because there is still a stigma that Malaysia is the first nation that resort capital control during 1997/98.

On the 20th Dec 06, the regional stock market is read as follows:

Dec 20, 2006 Closing +/- %

KLCI 1076.30 15.94 1.5

Nikkei 17011.04 234.16 1.4

SET 691.55 69.41 1.16

Jakarta Comp Index 1766.80 30.13 1.73

Straits Times Index 2920.83 25.53 0.81

Hang Seng 1924.12 275.57 1.45

Source: The Star, 20 Dec 06

The stock market rebounded when Thailand discarded an earlier shocking plan to impose capital controls on foreign equity investments. Stock market sharp reduction of the easing Thailand capital control measures to excluded equity investment, but added that the local bourse still need to find some ground before the trend develop.

Exchange rate

The ringgit had appreciated partly due to recent Thailand’s capital control. When fund exit from Thailand and went into Malaysia, the demand of rinngit is subsequently increase and causing such appreciation. However, the impact from the Thailand’s capital control is still not enough to boost the value of ringgit that is lacking in terms of regional valuation.

Jan 3, 2006 RM 3.7776 per USD

Dec 29, 2006 RM 3.5280 per USD

Source: Bloomberg, Jan 2, 2007

6. Response from the Economic Policy Makers

The Bank Governor of Thailand (Taisa Watanagasa) defend the measures to control the appreciation of Baht that wiped USD 2.3 billion from the value of stocks and said the rules will be removed once the Baht stabilize. The currency control was set on Dec 18, 2006 to stem a 16% rise in Baht.

The measures, somehow prompted investors to drop Thai stocks and force Finance Minister Pridiyathorn Davakula to interfere by exempting equities from the rules, spurring the rebound of SET index.

The central bank has no target for USD – Baht exchange rate and the foreign investment curbs were aimed to protecting the currency to appreciate beyond 35 Baht to US Dollar. The Baht need to be at least at 35Baht per US Dollar. If the Baht exchange rate appreciate that the rate, they will be a nightmare for Thailand’s export sector.

[cossie 0]

Proton like MAS - NO WAY!

MindSpring

December 2, 2007

This is a continuation of old seadogs article on Proton titled Proton Bullshit.

For this post to have context, I suggest you read Proton Bullshit first.

The hardest thing to do in a turnaround is to ramp up sales. And ramping up sales is the last thing one should do.

Thus what one does, is to rapidly bring cost down to a point where one can break even at the existing sales volume and rate.

By capping revenue to the existing sales rate and volume, it forces management to take out cost and you keep taking it out until you reach BE.

In taking out cost, suddenly cash flow improves and with the improvement in cash flow, interest expense starts to drop and it can drop quite significantly. That is where the “first” profit comes from.

Once the new break even (BE) point has been achieved,then you can look at growth again. the trick is to grow revenue faster than cost.

In MAS case, MAS had an under priced service so Idris had a few buttons he could push which would improve revenue with out growing sales.

Proton unfortunately doesn’t have the same leverage as either Proton and / or their distributors (EON/EDAR) had already over priced the car with loads of stuff that customers never needed but had to pay for.

If you watch MAS carefully what they are now doing is cleverly selling “excess capacity” to partner airlines. Optically, it keeps planes full which is good and it protects the need to discount (ala air asia) to fill seats. The cheapest way to Los Angeles fron KL on MAS is to buy your ticket on Air India…Kul-Lax but you will fly on a MAS plane!

Again Proton doesn’t have the same leverage as MAS. Proton product cycle is short - 18 months. Means every 18 months they have to put out a face-lift or a new model. But to achieve economies of scale, each model must sell a least 500,000 units to achieve unit cost competitiveness.

In MAS it is refocusing to maximize connectivity. So you work with partners to fill each others planes, leveraging each partners advantage but giving customers seamless choice of destinations.

For Proton, connectivity means product range. And this is what Proton can ill afford to do. If each model needs to sell a minimum of 500,000 units to achieve economies of scale, and it has a refresh rate of every 18 months and it needs at least 4 categories of cars to offer choice then in theory proton needs to sell 2 million cars every 18 months.

The next dissimilarity between Proton and MAS is in sales and distribution. MAS can further take out significant cost form its sales and distribution network by selling on line and while agents today are groaning and moaning, the reality is as a customer I want MAS to to online so I can seriously price shop. On top of that, tickets are becoming paperless and soon we will fly “ticket less.” All there changes in consumer preferences are to MAS’s benefits as it drives down cost.

Proton on the other hand will incur massive amounts of cost in each new market it enters. The most expensive being the cost of establishing your brand. the the car has to be priced competitively relative to the competition. So price is dictated by the market and not Proton. And when the market dictates price, all inefficiencies get discounted out. Only with tariffs and protection can the cost of inefficiency be passed on to the consumer - this is the situation in Malaysia where all other brands had to price their cars relative to Protons pricing. In 1999, in the UK, for the same price of a WIRA the UK customer had more than 100 choices of competing models and variants to choose from. In Malaysia, the customer had ZERO choice. So as much as Proton wishes to export it will be forced to do 1 of 2 things - export at a steep discount so that the importer in that country has sufficient margin to make, to cover cost of marketing and sales, or export at break even and support the importer with marketing dollars to cover those costs. So selling 30,00 cars as Taxis is actually a clever move as it creates a small car parc which creates brand awareness, hence no need marketing ad distribution cost but the brand gets screwed.

So the long and short of it, if the powers that be really think Proton can be turned around, then its a reflection of how STUPID they are or how STUPID they think we are.