Let's analyze Tun Mahathir's scare-mongering tactics over the economy

In his attacks against PM Najib, Tun Mahathir likes to repeatedly engage in the scare tactics that with Najib as Prime Minister, Malaysia will go bankrupt or become a failed state - tactics that DAP's Lim Kit Siang has used for 40 years against the govt (in LKS' blog right now, there are 882 references to "failed state" and "1,730" references to "bankrupt") .

In his many repeated and recycled attacks seemingly designed for those less financially savvy or knowledgeable, Tun Mahathir would touch on the stock market, the economy and the currency. Here are some recent examples of what Tun M wrote:

• 30 Nov 2015 -  "big fall in the value of the currency and stock value"
• 6th November, 2015, "The stock market is down with big loss in market capitalisation. Again this would not be good for the economy."
• 1 Sep 2015 - "As long as Najib remains in authority that will be for how long there is going to be economic slump, fall in ringgit, fall in stocks"
• 17 Aug 2015, - "The stock market has all but collapsed. Investors, especially foreign investors are taking out their money to safer places abroad."

But how much of what Tun M wrote is true and how does it compare to Tun M's track record?

Let's take a critical look - purely based on hard data and facts.

Let's have a look at the Bursa Stock Market index first.

Najib became Prime Minister on 3rd April 2009 and as of last Friday's close - the stock market in the six years that Najib has been in charge, is still more than double from 800 points to close to 1,700 points when he took over and there seems to have been a recovery of sorts in the past month too.

Mahathir became Prime Minister on 16th July 1981.

But what was the impact of Mahathir's first 6 years as PM on the stock exchange? 

Tun M's first 6 years Bursa index

Yup. The stock market actually crashed by half during the first 6 years of Tun M's reign.

And what about the last 6 years of Tun M's reign when he retired on 31st Oct 2003.

Tun M's last 6 years Bursa index

Not so pretty reading too for the last 6 years of Tun M. It has dropped from the peak of 1300 points to 800 points and was as low as below 300 points at one time. 

Such a crash would have meant any Prime Minister should just quit but he stayed on since no ex-PM at that time keep writing blogs and going on ceramahs to keep on pestering Tun M to quit.

To summarize:

• Najib's first 6 years saw the stock market more than double.
• Mahathir's first 6 years saw a crash in the stock market which dropped by half
• Mahathir's last 6 years still saw the market down by 33% from its peak and saw a drop of 80% at one time.

Okay, let's look at the Malaysia's Gross Domestic Produce (GDP) next.

Here is Najib's first 6 years in charge.

Najib first 6 years GDP

Najib's first 6 years in charge saw our GDP grow a total of USD124 billion from USD202b to USD326b - a growth of 61%.

For Mahathir's first six years in charge, here is the GDP chart:

Mahathir's first 6 years GDP

Tun M's first 6 year in charge led to a growth in GDP of barely 20%.

And this is Mahathir's last six years in charge:

Mahathir's last 6 years GDP

Mahathir's last six years in charge were basically years of turmoil and stagnation where GDP was about the same in his last year as it was 6 years ago.

In fact, for all the propaganda that Mahathir used to push out how great he was, the results show that he achieved a 4 fold increase in GDP for Malaysia in 22 years.

But based on Najib's first 6 years in charge where the GDP grew 61% from USD202b to USD326b, and if you extrapolate it over 22 years too, the GDP would be USD1,155b - almost 6 times more - compared with Mahathir's 4 times.

Obviously, continuing such growth is gonna be tough as there will be ups and downs but based on Najib's deliberate and bold transformation policies and willingness to make hard but necessary policy decisions such as implementing GST while reducing corporate and income tax, doing away with broad subsidies in favour of targeted direct aid such as BR1M, liberalizing trade, implementing minimum wages and structural reforms in education and industry, he is doing the right things - which has earned Najib praise from international economists and world bodies. 

Like it is easy to move from poor to middle class but very hard to move from middle class to wealthy, it is certainly easier to move from undeveloped to developing country - but the jump from developing to developed is much tougher.

This is called the middle-income trap that many countries fail to break out of. And this is why you need to totally transform the economy since - unlike Mahathir's day where we can depend on low wages to attract factories - we can no longer use the same approach and where innovation and significant structural reforms is needed - hence those tough but necessary policies such as GST etc.

Having said that, humans have a tendency to romanticize the past - our first love is the best, our roti-canai of our youth taste better, no one can beat the Milo ais from the Milo truck when we were young, (okay, this one is true).

However, hard data shows that the past was not as great as we remembered - but that is human psychology always thinking the past was better (in the old days ..etc..) coupled with the fact that the 1980s and 1990s were days of tightly-controlled propaganda which keep on telling us how great Malaysia and Tun Mahathir was.

But then again, if you ask the majority of North Koreans today, they will also tell you how great their supreme leader Kim Jong Un is.

Okay, what about our currency? How shitty is that?

Mahathir actually started with USD1 to RM2.40 but ended up going as weak as USD1 to RM4.88 before he cowardly pegged it at USD3.80 by implementing tough capital controls. which scared of investors for many years until he resigned. 

This was one of the first major policy reversal that Pak Lah did when he removed the peg in 2005

And this is why Najib does not want to implement a currency peg - which is the easiest thing for Najib to do amidst loud criticism by Tun Mahathir about the recent currency weakness. 

How come Tun M does not know that Najib can do whatever Tun M did by cowardly pegging the currency? 

But Najib doesn't do that as it knows the long-term harm it does for the economy and bites the bullet the let the currency find its true level amidst weakening of other currencies too.

Most people have short memories and forgot that for many years, USD1 to RM3.70 was the normal range. 

We got used to the last 6 years when our currency appreciated from RM3.73 when Najib took over to as high as RM2.96 in May 2013. Of course Najib never got praises for this.

It is a fact that we are still trading within a +/- 20% range of the currency when Najib took over. See the graph below.

Our Ringgit has since appreciated somewhat from the low level of RM4.44 to USD4.19 close on last Friday.

And the main reason why our Ringgit have dropped was mainly because Malaysia is deemed as a major primary commodities net exporting country (rubber, timber, palm oil, oil and gas) and the world commodities prices have slumped since late 2014.

Malaysians have a very short-term view and very selective vision.

Here are the currency charts of similar primary commodities exporting countries vs our Ringgit.

The following past 5 years charts shows how much One Ringgit can buy of their foreign currency - which means the higher the chart is, the stronger our currency is against those countries.

These countries are Australia, Kazakhstan, South Africa, Brazil, Russia and the favorite of many Pakatan leaders and supporters - Norway.

As you can see from the above charts, Malaysia has appreciated against those countries over the past 5 years - mainly because those countries depends more on primary commodities exports than Malaysia.

Over time when our transformation policies take place we become more industrialized and depend less on commodities, our currency will be less volatile and will eventually appreciate too.

But back to Mahathir. When Mahathir took over as Prime Minister, our Ringgit was about one to one to the Singapore dollar. But when he finished, we were as low as RM2.82 against the Singapore dollar and ended up in the RM2.30 range.

The Tun M years: Ringgit vs Singapore 

Najib years: Ringgit vs Singapore dollar

During Najib's 6 years in charge, the currency was pretty stable against the Singapore Dollar at the RM2.50 level and it only started weakening by 20% only in the last half of 2014 along with the commodities slump.

When commodity prices recover and our transformation policies take root, it is anticipated that our Ringgit will recover against the Singapore dollar too. It is now at RM3.01 - an improvement over the RM3.12 level just months earlier.

In any case, because Singapore's city-state economy is completely unique to the rest of the world and everything is imported (including labour), a strong Singapore dollar doesn't hurt but helps Singapore - which is why Singapore has no choice but to continually appreciate its currency.

Recently, there is still much doom and gloom due to scares about 1MDB - which is mostly politcized by Tun Mahathir, Pakatan politicians and their friendly media.

In the context of things however, even a RM42b debt to Malaysia is quite insignificant as our GDP is more than RM1 trillion.

And plus, PM Najib have promised to settle all the debts without relying on government funds - and it is already well in progress.

Out of the RM42b, 

- about RM16b has been settled with an asset swap arrangement signed in June 2015 with the Abu Dhabi govt owned fund IPIC where 1MDB's financial assets (including the remainder of the Cayman funds)

- about RM17.3b has been settled with the recent sale of Edra.

- another RM5b or RM6b will be settled with the sale of a stake in Bandar Malaysia by Dec 2015 - a process in its final stage.

By the end of this restructuring, 1MDB will be no more but will end up passing about RM12 billion worth of appreciating assets back to the government - which is not bad considering government only ever put in RM1 million of real capital into 1MDB.

Moving forwards, Malaysia still faces headwinds next year due to the scares of China economy slowing down and the global economy not recovering as fast as they should - but for the moment, we are still pretty decent.

For example, 2015 GDP Growth so far this year :

And strong exports growth - for example, the Oct 2015 trade results which was just announced last Friday where we completely blew away market expectations to achieve our largest surplus in 4 years.

Malaysia reported a RM12.16 billion trade surplus in October of 2015, up ten fold from RM1.19 billion a year earlier - the largest trade surplus since October 2011, as exports surged.
Malaysia's exports in October surged 16.7% from a year earlier, increasing for a fifth consecutive month, supported by demand for electrical and electronic products, government data showed today.
October's exports had the highest year-on-year growth since April 2014, more than twice the 7.9% growth forecast by economists in a Reuters poll.
Imports were almost flat, down 0.4% on lower imports of electronic integrated circuits. The poll expected a 4.3% drop in imports following September's sharp rise of 9.6%.
Malaysia's trade surplus rose to RM12.2 billion in October from RM9.69 billion the previous month.
Exports to China, Malaysia's biggest trading partner, expanded 26% year-on-year in October driven by sharp increase in electronic products segment such as integrated circuits. Shipments to the U.S. and European Union countries soared 31% and 27% respectively thanks to higher exports of manufactured products.

The above are hard data and facts which no one can dispute. You are more than welcome to check my date for GDP (click here), for Stock Market (click here) and for Currency (click here),

If I am wrong, please do leave a comment and call me a liar.

In the meantime, smart Malaysians with actual knowledge and who bother to check their facts will know that Tun Mahathir's scare-mongering about the economy and frankly, utter lies - just so that Najib will resign and be replaced with someone that Tun Mahathir can control with his Council of Elders - will not work.

A few days ago, even the famed The Economist magazine seems to have lost patience with Tun Mahathir recently and had this very unflattering (and frankly quite biadap) sentence about Tun M which read:

"But Dr Mahathir’s dire warnings that UMNO faces doom at the next election, due in 2018, sound increasingly like the impotent rants of a cranky has-been."

I would think that Tun Mahathir has done his part for the country and should really give up the hate and the dendam - and let the current Prime Minister take over without your constant heckling, lies, bad-mouthing and interfering - something that you have done for 4 out the 6 Prime Ministers that Malaysia ever had (one PM died before he had a chance to be attacked by Tun M and the other PM is Tun M himself).

Enjoy the retirement, Tun M. I do sincerely wish you well.