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Wednesday, March 21, 2012

Are antibiotics an end to modern medicine?

A warning by the head of WHO that antibiotic resistance is so serious that it may lead to an end to modern medicine should alert health authorities to contain this most serious health crisis.

A schematic representation of how antibiotic r...
A schematic representation of how antibiotic resistance is enhanced by natural selection (Photo credit: Wikipedia)
LAST week, the head of the World Health Organisation (WHO) sounded a large alarm bell on how antibiotics may in future not work anymore, due to resistance of bacteria to the medicines.

Antibiotic resistance has been a growing problem for some time now. From time to time, there will be news reports of the outbreak of diseases, old and new, that cannot be treated because the bacteria have grown more powerful than the antibiotics used against them.

And experts have been warning about how the wrong use of antibiotics has given the bacteria the opportunity to develop resistance, enabling them to become immune to the medicines.

What is needed, of course, is a multi-prong strategy to prevent the abuse and wrongful use of antibiotics. Drug companies should not over-market their products. Doctors should not over-prescribe. And antibiotics should not be used on animals that are not sick but to fatten them and thus enable higher profits.

Now, the Director-General of the WHO has given a big warning that the growing threat of resistance may mean an end to modern medicine, and the entry of the post-antibiotic era.

Speaking at a meeting of infectious disease experts in Copenhagen last week, Dr Margaret Chan said there was a global crisis in antibiotics caused by rapidly evolving resistance among microbes responsible for common infections that threaten to turn them into untreatable diseases.

Every antibiotic ever developed was at risk of becoming useless.

“A post-antibiotic era means, in effect, an end to modern medicine as we know it. Things as common as strep throat or a child’s scratched knee could once again kill. For patients infected with some drug resistant pathogens, mortality has increased by around 50%,” she said.

“Some sophisticated interventions, like hip replacement, organ transplants, cancer chemotherapy and care of pre-term infants, would become far more difficult or even too dangerous to undertake.”

Dr Chan called for action to restrict the use of antibiotics in food production. “Worldwide, the fact that greater quantities of antibiotics are used in healthy animals than in unhealthy humans, is a cause for great concern,” she said.

She called for measures — doctors prescribing antibiotics appropriately, patients following their treatments — and restrictions on the use of antibiotics in animals.

These actions have, in fact, been suggested for many years, including by the health group REACT, based in Sweden, by health networks such as Health Action International, and locally, by the Consumers’ Association of Penang.

The WHO itself has the scope to do much more in alerting health authorities and in building the capacity, especially of developing countries, to act.

There are forms of TB that have become untreatable because of multi-drug resistance. The TB pathogen has become immune to many antibiotics. This has resulted in a resurgence of the deadly disease. The story is the same for many other pathogens causing other diseases.

As Global Trends reported in June 2011, a worrying development is the discovery of a gene, known as NDM-1, that has the ability to alter bacteria and make them highly resistant to all known drugs, including the most potent antibiotics.

In 2010, there were reports of many such cases in India and Pakistan and in European countries. At the time, only two types of bacteria were found to be hosting the NDM-1 gene – E coli and Klebsiella pneumonia.

But it was then feared that the gene would transfer to other bacteria as well, since it was found to easily jump from one type of bacteria to another. If this happened, antibiotic resistance would spread rapidly, making it difficult to treat many diseases.

These concerns have been proven to be justified. In May 2011, the Times of India published an article based on interviews with British scientists from Cardiff University who had first reported on NDM-1’s existence.

The scientists found that the NDM-1 gene has been jumping among various species of bacteria at “superfast speed” and that it “has a special quality to jump between species without much of a problem”.

While the gene was found only in E coli when it was initially detected in 2006, now the scientists have found NDM-1 in more than 20 different species of bacteria. NDM-1 can move at an unprecedented speed, making more and more species of bacteria drug-resistant.

Since there are very few new antibiotics in the pipeline, when the resistance grows among the whole range of bacteria to the existing drugs, human beings will be more and more at the mercy of the increasingly deadly bacteria.

In May 2011, there was an outbreak of a deadly disease caused by a new strain of the E coli bacteria that killed more than 20 people and affected another 2,000 in Germany.

They were affected by a new strain of the already rare 0104 type of E coli. There are other common types of E coli which normally cause only a mild ailment. The WHO said the variant had “never been seen in an outbreak situation before”.

Although the “normal” E coli usually produces mild sickness in the stomach, the new strain of E coli 0104 causes bloody diarrhoea and severe stomach cramps, while in some of the more serious cases so far, it also causes haemolytic-uraemic syndrome (HUS), which damages blood cells and the kidneys.

A major problem is that the bacterium is resistant to antibiotics. Eradication of these kinds of bacteria is impractical partly because they are able to evolve so rapidly, according to medical experts.

Now that the WHO chief has sounded the alarm bell, health authorities should redouble their efforts to contain the crisis. An “end to modern medicine” and a “post-antibiotic era” are predictions too horrible to imagine.

By  GLOBAL TRENDS By MARTIN KHOR

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India, Asia #1 world's top weapons importer!

 A study has found India to be the biggest weapons importer.

STOCKHOLM AFP— Asia leads the world when it comes to weapon imports, according to a study released Monday by the Stockholm International Peace Research Institute (SIPRI).

 World arms trade (AFP Graphic)

Globally the volume of international transfers of major conventional weapons was 24 percent higher in the period 2007-11 compared to the 2002-06 period, the report said.

Over the past five years, Asia and Oceania accounted for 44 percent in volume of conventional arms imports, the institute said.

That compared with 19 percent for Europe, 17 percent for the Middle East, 11 percent for North and South America, and 9 percent for Africa, said the report.

India was the biggest arms importer in the period covered, 2007-11, accounting for 10 percent in weapons volume.

 India is the world's largest arms importer (AFP/File, Raveendran)
File photo shows Indian soldiers firing a Bofors gun 

It was followed by South Korea (6 percent), China and Pakistan (both 5 percent), and Singapore (4 percent), according to the independent institute which specialises in arms control and disarmament matters.

These five countries accounted for almost a third, 30 percent, of the volume of international arms imports, said SIPRI.

"India's imports of major weapons increased by 38 percent between 2002-06 and 2007-11," SIPRI said.

"Notable deliveries of combat aircraft during 2007-11 included 120 Su-30MKs and 16 MiG-29Ks from Russia and 20 Jaguar Ss from the United Kingdom," it said.

While India was the world's largest importer, its neighbour and sometime foe Pakistan was the third largest.

Pakistan took delivery of "a significant quantity of combat aircraft during this period: 50 JF-17s from China and 30 F-16s," the report added.

Both countries "have taken and will continue to take delivery of large quantities of tanks," it also noted.

"Major Asian importing states are seeking to develop their own arms industries and decrease their reliance on external sources of supply," said Pieter Wezeman, senior researcher with the SIPRI Arms Transfers Programme.

China, which in 2006 and 2007 was the world's top arms importer, has now dropped to fourth place.

"The decline in the volume of Chinese imports coincides with the improvements in China's arms industry and rising arms exports," according to the report.

 File photo shows Chinese People's Liberation Army (PLA) …

But "while the volume of China's arms exports is increasing, this is largely a result of Pakistan importing more arms from China," it added.

"China has not yet achieved a major breakthrough in any other significant market."

China is however the sixth largest world exporter of weapons behind the United States, Russia, Germany, France and Britain.

In Europe, Greece was the largest importer between 2007 and 2011, the institute said.

Between 2002 and 2011, Syria increased its imports of weapons by 580 percent -- the bulk supplied by Russia -- while Venezuela boosted its imports over the same period by 555 percent, it reported.

Throughout the Middle East as a whole, weapons imports decreased by eight percent over the period of the survey.

However SIPRI warned "this trend will soon be reversed."

Tunisia, where mass protests ousted strongman Zine El Abidine Ben Ali early last year, launched the so-called Arab Spring and inspired similar movements in Egypt, Libya and elsewhere.

"During 2011, the governments of Bahrain, Egypt, Libya, Tunisia and Syria used imported weapons in the suppression of peaceful demonstrations among other alleged violations of human rights and international humanitarian law.

"The transfer of arms to states affected by the Arab Spring has provoked public and parliamentary debate in a number of supplier states," the report said.

The volume of deliveries of "major conventional weapons" to African nations increased by a massive 110 percent in 2007-2011 over the previous five-year period, with deliveries to North Africa up by 273 percent.

Morocco saw its own imports increase by 443 percent, the report added.

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Tuesday, March 20, 2012

Malaysia's household debt rise a concern

PETALING JAYA: While not an imminent danger, the level of household debt is of concern and warrants close monitoring, RAM Ratings head of financial institution ratings Wong Yin Ching said,

The nation’s household debt as a percentage of gross domestic product (GDP) had risen to 77% as at end-2011 compared with 69% at end-2006, and its household debt-to-GDP ratio was considered high when compared with other countries in the region, especially in relation to GDP per capita.

Wong was speaking to StarBiz after the release of the rating agency’s Banking Bulletin 2012. Home loans remained the largest component, contributing about 45% of the total household debt, she added.

However, unsecured financing in the form of personal loans and credit-cards had been growing rapidly, accounting for about 15% and 5% of total household debt, respectively.

Development financial institutions, cooperatives and building societies that offer personal financing facilities to civil servants under salary-deduction schemes contributed to the bulk of the growth, she noted.

“We view positively Bank Negara’s various pre-emptive measures implemented since late 2010 to rein in growth in household debt and safeguard the soundness of the financial system.

“On top of the tighter measures on residential property financing, stricter guidelines have also been implemented on credit cards, such as increasing the income eligibility criteria.

“We do not discount additional prudential regulations to be imposed in future,” Wong said.

Effective Jan 1, banks are required to use net income calculation method instead of gross income when computing debt-service ratio.

Wong added that unemployment rate was still relatively low at 3% and the credit quality of household sector was also healthy, with a low gross impaired-loan ratio of 1.8% as at end-January 2012 (end-2010:2.3%).

Nevertheless, she said the debt-servicing ability of households in the lower-income segment might be more vulnerable to economic down-cycles, greater variability in income and inflationary pressures.

On loan growth, RAM Ratings expects the overall banking system’s loan growth to taper to about 8% to 9% this year, after clocking in a strong 14% expansion in 2011. This is supported by a projected 4.6% real GDP growth this year, which is slightly lower than the 5% in 2011.

Private investments, she said were expected to remain strong, although a weakening in global demand would have some bearing on export performance.

Wong anticipates the central bank to remain accommodative in its monetary policy by maintaining the overnight policy rate at 3% with a downside bias in 2012, as preserving growth momentum would take precedence over curbing inflationary pressures.

While a more moderate household loan growth was anticipated due to the prudential regulations introduced, she added this would be balanced by stronger financing demand from the commercial and corporate sector from the rollout of projects under the Economic Transformation Programme and 10th Malaysia Plan.

For non-performing loans this year, she said the industry’s gross impaired-loan ratio was expected to be kept healthy this year, with a slight uptick to about 3% from the current all time low level of 2.7%.

“In terms of capitalisation, all the domestic, all the domestic banks were well poised to meet the new capital requirements under Basel III, of which the implementation would be phased in from 2013,” she added.

Although these new capital measures would elevate banks’ funding costs, which may in turn be passed on to consumers, it would ensure the banking sector was safeguarded against unexpected shocks, Wong said.

As at end-January, the banking system’s capitalisation was strong with a tier-1 risk-weighted capital adequacy ratio of 12.9%.

Banks’ profitability, she said had been on a steady rise over the last couple of years on the back of strong loan growth, benign loan impairment charges and growing fee income. However, net interest margins (NIMs) had been under pressure due to stiff price competition, particularly in certain loan segments such as residential mortgages.

NIM is a measure of the difference between interest income generated by banks and interest paid out to depositors.

Source: By DALJIT DHESI  daljit@thestar.com.my

Related post:
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Politician Integrity the order of the day

Ceritalah By Karim Raslan

Aspiring leaders have to learn that to be elected into office is to be dutybound to one’s constituents — to be honest, scrupulous and morally good. 

WOMEN, Family and Community Develop­ment Minister Datuk Seri Shahrizat Abdul Jalil has been a dynamic and forward-looking leader – a stand-out among the Umno line-up – and they will sorely miss her talents.

However, it would be incorrect to think that what she has gone through is an isolated or a one-off case. Nor is her fall wholly attributable to PKR’s director of strategies Rafizi Ramli. The young former chartered accountant is merely an agent of change in the National Feedlot Centre (NFC) saga.

In reality, the unravelling of the NFC debacle reflects deeper, global trends brought about by technology and social media – most notably the fact that we have entered the Age of Full Disclosure.

Dynamic leader: It would be incorrect to think that what Shahrizat has gone through is an isolated or one-off case.
 
In this respect, Julian Assange and WikiLeaks are emblematic of these changes.

The Age of Full Disclosure has been a rude shock for Malaysia’s political elite.

In the past, Malay bangsawan culture – the deference and respect for figures of authority – emboldened our leaders to say one thing and do another. This is no longer acceptable or sustainable.

From now on, the Malaysian public expects leaders to do as they say. The unquestioning trust and adoration that once existed have disappeared. Technology has also freed up the mind.

Moreover, Malaysians are no longer fearful of the leaders as the last vestiges of the kerajaan ethos are swept away.

Of course, as Assange has discovered, being a whistle-blower is a very lonely business. Everyone is afraid of the man (or woman) who insists on telling the truth, especially when it’s highly compromising and/or embarrassing.

The point is that surviving in “the new political landscape” and “engaging the social media” doesn’t just mean setting up Facebook and Twitter accounts as well as hiring cyber troopers to blog for you.

It also means realising that information can no longer be controlled, and modifying your behaviour accordingly.

Malaysian politicians have to realise that nothing is sacred and nothing can be hidden anymore. The most seemingly innocuous comment or odd scrap of paper can, and will, be dredged up against you.

I’ve already said that it’s no longer possible for our leaders to present one message to another community and then say something else to the next.

So what is the solution for politicians?

It’s quite simple: Don’t run for office if your affairs (and those of your family and close associates) are not in order. Probity is the order of the day. Aspiring leaders have to learn that elected office is to be dutybound to one’s constituents, not a means to enrich themselves or their families.

This in effect forces politicos to be what we’ve always wanted them to be: Honest, scrupulous and moral in the public sphere. The only difference is that we, the people, now have the power to enforce this.

Indeed, the NFC scandal heralds a long-awaited power shift in Malaysia, whereby our elite families no longer monopolise the power to set agendas or deflect issues. Technology has inverted our social pyramid.

As I said, the double standards that Malaysia’s rich and powerful once enjoyed is no longer as pervasive as before. If they abuse the public trust and misuse the country’s money, the people can now turn on them with a vengeance.

It’s no longer enough for our leaders to say: “Trust me; I know what I’m doing and what’s best for you all”.

The continued fallout over the UK phone-hacking scandals and Rupert Murdoch’s travails should also be a warning to media practitioners that they will be subject to the same scrutiny as the politicians.

They too will be called to account if their ethics are not up to scratch or if they toy with the truth. At this rate, this tukang cerita would be better off as a rice farmer! We have been served a severe, but very timely, warning.

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Monday, March 19, 2012

Tech companies 'control the future of news'

Jon Dube, Forbes Contributor Digital Media Executive & Advisor 

Technology companies such as Google, Amazon, Facebook, Apple “now control the future of news.”

That’s one of the take-aways from the 2012 State of the News Media report, released today by the Pew Research Center’s Project for Excellence in Journalism. The news industry, the report says, “finds itself more a follower than leader shaping its business.”


But I think there’s hope. The report touches on a number of opportunities for traditional media in the digital space – areas that are growing rapidly and still up for grabs. Those include targeted advertising, the mobile/tablet space, and digital video.

Winning in these areas will be tough, given the traditional media’s historical inability to rapidly evolve and the head start other companies have on them.

TARGETED ADVERTISING

A good example is the fast-growing opportunity of targeted advertising, where Google and Facebook dominate and news organizations lag far behind.

The Project for Excellence in Journalism (PEJ) report points out that even though targeted advertising is one of the forms of online advertising expected to grow most rapidly, only a few of the top news sites use it.  Meanwhile, the report says, tech companies like Facebook and Google “are using personal data collected over the internet to direct ads to specific consumers to a far greater degree than ever before – and to a far greater degree than most news organizations are capable of.”

While Facebook and Google have taken the lead, news organizations could catch up, if they try. Most have the ability, and at least some data, that would enable them to engage in targeting. A PEJ study of digital advertising at 22 top news sites found that few of them do, however. Of the 22 sites, most did not contain any ads targeted to consumers based on their online behavior, according to the January study. Only three – CNN, The New York Times and Yahoo! News – employed high levels of targeting based on a user’s recent online activity. A handful of others employed limited targeting. (For more, see “Who Advertises on News Sites and How Much Those Ads Are Targeted.”)

While targeted display ads account for just 10% of local online ads, or $1.5 billion, right now, by 2016, they are expected to grow to $14.6 billion and make up more than half the market, according to Borrell Associates.


MOBILE

One of the bright spots in the PEJ report is the research on mobile and tablet usage. Readers spend far more time with news apps on the smartphone and tablet, visit more pages at a time, and return more frequently than they do on conventional computers, according to data from Localytics, a client-based mobile analytics firm. And most importantly, there are signs that mobile news consumption is actually increasing total news consumption – one report from comScore indicates mobile devices increase news site traffic by between 7 and 11 percent.

The good news is mobile and tablet usage are expected to continue skyrocketing. And the ad dollars will shift there as well. Mobile ad spending grew 89% in 2011, to $1.45 billion – and is expected to grow to $10.83 billion by 2016.

News organizations know this is an opportunity, and are investing resources in developing mobile and tablet apps and sites. Still, it’s not clear whether news organizations can capture these dollars. Google already earns more than half of mobile ad dollars in the U.S. and Facebook is expected to move aggressively into the mobile ad market after its IPO.

“Our analysis suggests that news is becoming a more important and pervasive part of people’s lives,” PEJ Director Tom Rosenstiel said, referring to the findings about mobile and tablet usage in particular. “But it remains unclear who will benefit economically from this growing appetite for news.”

RELATED: Mobile, tablet devices increase news consumption


DIGITAL VIDEO

Another big opportunity for news organizations is digital video, because video advertising earns much higher rates – and digital video viewing and advertising is expected to skyrocket in the next few years. While video advertising spend is only $2.02 billion now, it is projected to grow to $7.11 billion by 2015 — which would make it the most lucrative type of online ad after search and banner ads, according to eMarketer.

Despite that, video news and advertising still represents a small fraction of the content on most news sites, aside from those of major broadcasters. In a February PEJ study, none of the top stories on major news sites were in a video format — even on the sites of broadcast news organizations. Stand-alone video ads were also rare, making up only 1.3% of ads on the news websites studied.

The good news is we are starting to see increasing signs of life in digital news video. A few months ago Reuters launched a YouTube channel, dubbed Reuters TV, featuring 10 news shows. The Wall Street Journal has been one of the most aggressive newspapers in the video space, and is now producing more than four hours of video a day.  (Check out WSJ’s fantastic video app for the iPhone and iPad)

One of the more interesting experiments to watch will be The Huffington Post Streaming Network, an online news channel AOL plans to launch later this year that will live-stream news video 12 hours a day. (Disclaimer: I used to be the SVP/GM of News & Information at AOL but left last year).



THE FUTURE

As the digital world becomes more mobile, social and targeted, media companies still have plenty of opportunity. They will have the chance to to attract new audiences and dollars. The question is whether news organizations can move nimbly enough to survive, and thrive.

RELATED: How Facebook, Twitter differ for news consumption

For the latest news from SXSW and general insights on digital media, please follow me on Twitter at @cyberjournalist and visit CyberJournalist.net for the latest digital media headlines.

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'Quantum criticality': Ultracold experiments heat up quantum research

Ultracold experiments heat up quantum research
Enlarge

This false color image shows the average density of cesium atoms taken during multiple experimental cycles for studying quantum criticality in the ultracold laboratory of Cheng Chin, associate professor in physics at UChicago. The density is lowest in the white area on the outside, highest toward the center, where higher numbers of atoms are blocking the incoming infrared laser light. Xibo Zhang collected these data in connection with his recently completed doctoral research at UChicago. (Xibo Zhang and Cheng Chin)

(PhysOrg.com) -- University of Chicago physicists have experimentally demonstrated for the first time that atoms chilled to temperatures near absolute zero may behave like seemingly unrelated natural systems of vastly different scales, offering potential insights into links between the atomic realm and deep questions of cosmology.

This ultracold state, called “ criticality,” hints at similarities between such diverse phenomena as the gravitational dynamics of black holes or the exotic conditions that prevailed at the birth of the universe, said Cheng Chin, associate professor in physics at UChicago. The results could even point to ways of simulating cosmological phenomena of the early universe by studying systems of in states of .

“Quantum criticality is the entry point for us to make connections between our observations and other systems in nature,” said Chin, whose team is the first to observe quantum criticality in ultracold atoms in optical lattices, a regular array of cells formed by multiple laser beams that capture and localize individual atoms.

UChicago graduate student Xibo Zhang and two co-authors published their observations online Feb. 16 in Science Express and in the March 2 issue of Science.

Quantum criticality emerges only in the vicinity of a quantum phase transition. In the physics of everyday life, rather mundane phase transitions occur when, for example, water freezes into ice in response to a drop in . The far more elusive and exotic quantum phase transitions occur only at ultracold temperatures under the influence of magnetism, pressure or other factors.

“This is a very important step in having a complete test of the theory of quantum criticality in a system that you can characterize and measure extremely well,” said Harvard University physics professor Subir Sachdev about the UChicago study.

have extensively investigated quantum criticality in crystals, superconductors and magnetic materials, especially as it pertains to the motions of electrons. “Those efforts are impeded by the fact that we can’t go in and really look at what every electron is doing and all the various properties at will,” Sachdev said.

Sachdev’s theoretical work has revealed a deep mathematical connection between how subatomic particles behave near a quantum critical point and the gravitational dynamics of black holes. A few years hence, offshoots of the Chicago experiments could provide a testing ground for such ideas, he said.

There are two types of critical points, which separate one phase from another. The Chicago paper deals with the simpler of the two types, an important milestone to tackling the more complex version, Sachdev said. “I imagine that’s going to happen in the next year or two and that’s what we’re all looking forward to now,” he said.

Other teams at UChicago and elsewhere have observed quantum criticality under completely different experimental conditions. In 2010, for example, a team led by Thomas Rosenbaum, the John T. Wilson Distinguished Service Professor in Physics at UChicago, observed quantum criticality in a sample of pure chromium when it was subjected to ultrahigh pressures.

Zhang, who will receive his doctorate this month, invested nearly two and a half years of work in the latest findings from Chin’s laboratory. Co-authoring the study with Zhang and Chin were Chen-Lung Hung, PhD’11, now a postdoctoral scientist at the California Institute of Technology, and UChicago postdoctoral scientist Shih-Kuang Tung.

In their tabletop experiments, the Chicago scientists use sets of crossed laser beams to trap and cool up to 20,000 cesium atoms in a horizontal plane contained within an eight-inch cylindrical vacuum chamber. The process transforms the atoms from a hot gas to a superfluid, an exotic form of matter that exists only at temperatures hundreds of degrees below zero.

“The whole experiment takes six to seven seconds and we can repeat the experiment again and again,” Zhang said.
The experimental apparatus includes a CCD camera sensitive enough to image the distribution of atoms in a state of quantum criticality. The CCD camera records the intensity of laser light as it enters that vacuum chamber containing thousands of specially configured ultracold atoms.

“What we record on the camera is essentially a shadow cast by the atoms,” Chin explained.

The UChicago scientists first looked for signs of quantum criticality in experiments performed at ultracold temperatures from 30 to 12 nano-Kelvin, but failed to see convincing evidence. Last year they were able to push the temperatures down to 5.8 nano-Kelvin, just billionths of a degree above (minus 459 degrees Fahrenehit). “It turns out that you need to go below 10 nano-Kelvin in order to see this phenomenon in our system,” Chin said.

Chin’s team has been especially interested in the possibility of using ultracold atoms to simulate the evolution of the early universe. This ambition stems from the quantum simulation concept that Nobel laureate Richard Feynman proposed in 1981. Feynman maintained that if scientists understand one quantum system well enough, they might be able to use it to simulate the operations of another system that can be difficult to study directly.

For some, like Harvard’s Sachdev, quantum criticality in ultracold atoms is worthy of study as a physical system in its own right. “I want to understand it for its own beautiful quantum properties rather than viewing it as a simulation of something else,” he said.

More information: “Observation of Quantum Criticality with Ultracold Atoms in Optical Lattices,” by Xibo Zhang, Chen-Lung Hung, Shih-Kuang Tung, and Chen Chin, Science, March 2, 2012, Vol. 335, No. 6072, pp. 1070-1072, and online Feb. in Science Express Feb. 16.

Provided by University of Chicago (news : web)

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Malaysia could go bankrupt by 2019?

Why Malaysia won’t go bankrupt

TRANSFORMATION BLUES By IDRIS JALA idrisjala@pemandu.gov.my
 
The Government is not in dire financial straits right now. By all measures its finances are good, but as in any situation involving finances, this is not to say it cannot be better.

I AM frequently asked why I said Malaysia could go bankrupt by 2019. I have had many queries asking for clarification and this has become one of my transformation blues.

In charting out our transformation journey in 2009, one of the first things the Prime Minister and the cabinet did was to list our current status, say where we want to be and set up a programme for transformation to get us there.

Amongst the many things on the list was a need to rationalise subsidy and so we ran a lab to do this.

During our open day, we engaged the public on the lab recommendation on the subsidy rationalisation. I wanted to be as frank as possible and to make it clear what the consequences of inaction would be.


Perhaps I was too frank but what I said has been misrepresented on a number of occasions, and I have since been saddled and hobbled with an unnecessary problem.

Habitual critics latched on to a small part of one of my first presentations where I said we have to change our spending patterns for sustained fiscal health.

Against a backdrop of several caveats and conditions, I said that we would be bankrupt by 2019 IF we continued to increase our subsidies and borrowings the same way we did before and IF our economy grows at less than 3% annually.

I've worked in Shell for more than 20 years, a company that is famous for its scenario planning techniques.

In layman terms, scenario planning means describing a future that could either be “good, bad or ugly” and doing our best to achieve the “good scenario” and avoid the “bad and ugly”.

My statement was heavily qualified but little or no mention was made of the clear caveats that I had put forward.

I still stand by what I said and it is important that my statement is taken together with the conditions.

This statement has been taken out of context so many times that it really gave me the blues - I have been talking till I turned blue in my face explaining what I meant!

Let me say in the clearest terms that my intention then was to illustrate the consequences of inaction when faced with tough decisions. We cannot continue to subsidise the way we have.

Let me also state that the Government is not in dire financial straits right now. By all measures its finances are good, but as in any situation involving finances, this is not to say it cannot be better. Here's why.

Our debt as at end 2011 is 53.8% of gross domestic product (GDP the sum of goods and services produced in the country) and the budget deficit is better than the 5.4% target of GDP.

Compare this with Greece's debt which stands at 110% of GDP and a budget deficit of 13% and it is obvious that we are not anywhere close to a crisis.

Subsidy rationalisation

Globally, many economists are cautioning the Governments against rising national debts. In 2009 the year for which the figures I used when I talked about subsidy rationalisation we had to increase government spending via our “economic stimulus package” in the face of the world financial crisis caused by the sub-prime mortgage problem in the United States.

This had spill-over effects into 2010 as well. But the debt as a percentage of GDP has begun to level off while the budget deficit, again as a percentage of GDP, has begun to significantly decline and as our economy continues to grow. We are reversing the situation.

In a simplified system to assess whether countries are in a sovereign debt crisis, the Boston Consulting Group (BCG) uses a graphical representation to identify countries with a potential problem.

Public debt as a percentage of GDP is plotted on the vertical axis while surplus or deficit in the national budget as a % of GDP is plotted on the horizontal axis.

BCG identifies a potential problem looming if public debt is 100% or over of GDP while simultaneously the budget deficit is 10% or more of GDP (see chart).

The more a country is to the left of the chart and the higher on the vertical axis, the greater the risk of a potential debt crisis but note that a country has to be simultaneously in problem in both areas to be regarded as a big risk.

If you look at Singapore, public debt as a percentage of GDP is 100% in the problem area but only for one of the two criteria but there is hardly any budget deficit to speak of in the republic.

Nobody considers Singapore a financially troubled country.

For Malaysia, it is important to notice that it has moved to the right in 2011 compared with its position in 2009 and 2010 while there is hardly any upward movement. That indicates a move in the right direction.

Based on this analysis, we are better than the United Kingdom, the United States, Spain, Italy, Portugal and Japan, to name a few. We will get into the safe zone soon enough.

The problem I highlighted using 2009 figures, making the caveat that IF debt continued to increase at previous levels we can have a serious problem in 2019 and IF we grow less than 3% annually, does not exist anymore.

Making improvements

Why? Because we are making improvements on both counts.

Firstly, as a responsible Government, in 2010, we began the process of gradually reducing subsidies for fuel, sugar, electricity and so on, knowing fully well that this was unpopular.

Secondly, our GDP grew by 7.2% in 2010 and 5.1% in 2011 and that's an average of 6.2%; we are meeting our Economic Transformation Programme (ETP) target. Of course, we can and should do much more.

As I have pointed out in previous presentations very little of our subsidies amounting to billions of ringgit every year go to the poor, the rich get most of it. We must rationalise the subsidy system not do away with it and cut other extraneous expenditures.

However, we continue to help the poor via our GTP initiatives e.g. Azam programmes and BR1M for the low income households and rural infrastructure programmes.

On the other side of the equation, we must increase government revenue sources by introducing such measures as a goods and services tax (GST) and get more economic activity going. We can exclude necessities from the tax.

We are already succeeding. We have the ETP and we are growing our revenue we had additional tax revenue of RM26bil in 2011. This has allowed us to finance rakyat-centric programmes such as BR1M.

Why, if we continue to make progress by these measures, we may even be able to balance the budget come 2020 even though that will welcomingly surpass our own target.

I know there will be critics who will say that I have changed my mind on the bankruptcy issue. I haven't changed my position vis-a-vis scenario planning.

I always believe in describing the “good, the bad and ugly” scenarios (that hasn't changed) i.e. the “good” scenario is if we successfully implement our ETP, we will achieve high income status by 2020.
The “bad or ugly” scenario is if we don't do anything to avoid it, then we can go bankrupt.

The fact is we are doing a lot of things to transform our country. So, we will not go bankrupt.

With the implementation of the ETP, we must acknowledge that Malaysia is on the right track in transforming its economy. The average annual GDP growth in two years (2010 and 2011) is more than 6%. In 2011, we met our GNI and investment targets, trade reached a record high of RM1.27 trillion in 2011.

We cut our deficit in 2011. In April, our PM will be releasing our ETP and GTP annual reports which provide all the details of our country's achievement.

Let me conclude by quoting Dale Carnegie: “It is tragic when we put off living. We dream of a magical rose garden over the horizon and miss the roses blooming outside our windows”.

Datuk Seri Idris Jala is CEO of Pemandu and Minister in the Prime Minister's Department. Fair and reasonable comments are most welcome at idrisjala@pemandu.gov.my

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