Currency War & Exchange Rates Tension!

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Tension over exchange rates

WHAT ARE WE TO DO By TAN SRI LIN SEE-YAN

Amid heightened fears over eurozone sovereign debt risks and increasing concerns about the health of the United States and eurozone economies, worried investors have flocked to the safety of haven currencies, especially the Swiss franc, and gold.

While investors and speculators have since moved aggressively to buy gold, the switch from being large sellers to buying by a number of emerging nation's central banks (Mexico, Russia, South Korea and Thailand) has helped propel the price of gold more than 25% higher this year, hitting a record US$1,920 a troy ounce earlier this month. At a time of high uncertainty in the face of the International Monetary Fund's (IMF) latest gloomy forecast on global growth, few central banks relish the prospect of a flood of international cash pushing their currencies higher.

Massive over-valuation of their currencies poses an acute threat to their economic well-being, and carries the risk of deflation.

The Swiss franc

Switzerland's national currency, the CHF, should be used to speculative attacks by now. So much so in the 1970s, the Swiss National Bank (SNB) was forced to impose negative interest rates on foreign investors (who have to pay banks to accept their CHF deposits).

And, it has been true in recent years, with the CHF rising by 43% against the euro since the start of 2010 until mid-August this year. There does not seem to be an alternative to the CHF as a safe haven at the moment.

With what's going on in the United States, eurozone and Japan, investors have lost faith in the world's two other haven currencies: US dollar (USD) and the yen.

This reflects the Federal Reserves' ultra-loose policy stance and the political fiscal impasse in the United States which have scared away investments from the dollar. The prospect that Tokyo might once again intervene to limit the yen's strength has deterred speculators from betting on further gains from it. To be fair, the CHF has also benefitted from recent signs that the Swiss economy, thanks in large part to its close ties to a resurgent Germany, is thriving.

But enough is enough. SNB made a surprising announcement on Sept 6 that it would buy foreign currencies in “unlimited quantities” to combat a huge over-valuation of the CHF, and keep the franc-euro exchange rate above 1.20 with the “utmost determination.”

On Aug 9, the CHF reached a new record, touching near parity against the euro from 1.25 at the start of the year, while the USD sank to almost CHF 0.70 (from 0.93). The impact so far has been positive: the euro rose 8% on that day and the 1.20 franc level had since stabilised. It was a gamble.

Of course, SNB had intervened before in 2009 and 2010, but in a limited way at a time when the euro was far stronger. But this time, with the nation's economy buckling under the currency's massive over-valuation, the risks of doing nothing were far greater. In July last year, following a chequered history of frustrated attempts, SNB vowed it would not intervene again. By then, the central bank was already awash with foreign currency reserves. Worse, the CHF value of these reserves plunged as the currency strengthened. In 2010, SNB recorded a loss of CHF20 billion, and a further CHF10 billion in 1H'11. As a result, SNB came under severe political pressure for not paying the expected dividend. But exporters also demanded further intervention to stop the continuing appreciation.

This time, SNB is up against a stubborn euro-debt crisis which just won't go away. True, recent efforts have been credible. Indeed, the 1.20 francs looks defensible, even though the CHF remains over-valued. Fair value appears to be closer to 1.30-1.40. But inflation is low; still, the risk of asset-price bubbles remains. What's worrisome is SNB acted alone. For the European Central Bank (ECB), the danger lies in SNB's eventual purchases of higher quality German and French eurozone government bonds with the intervention receipts, countering the ECB's own intervention in the bond market to help weaker members of Europe's monetary union, including Italy and Spain.



This causes the spread between the yields of these bonds to widen, and pile on further pressure on peripheral economies. Furthermore, unlimited Swiss buying of euro would push up its value, adding to deflationary pressures in the region.

The devil's trade-off

As I see it, the Swiss really has no other options. SNB has been attempting to drive down the CHF by intervening in the money markets but with little lasting effect. “The current massive over-valuation of the CHF poses an acute threat to the Swiss economy,” where exports accounted for 35% of its gross domestic product. The new policy would help exports and help job security. As of now, there is no support from Europe to drive the euro higher.

SNB is caught in the “devil's trade-off,” having to choose risking its balance sheet rather than risk “mounting unemployment, deflation and economic damage.” The move is bound to cause distortions and tension over exchange rates globally.

New haven: the Nokkie'

SNB's new policy stance has sent ripples through currency markets. In Europe, it drove the Norwegian krone (Nokkie) to an eight-year high against the euro as investors sought out alternative safe havens. Since money funds must have a minimum exposure in Europe and, with most European currencies discredited and quality bonds yielding next to nothing, the Nokkie became a principal beneficiary. It offers 3% return for three-month money-market holdings.

Elsewhere, the Swedish krona also gained ground, rising to its strongest level against the euro since June after its central bank left its key interest rates unchanged, while signalling that the rate will only creep up. What's worrisome is that if there is continuing upward pressure on the Nokkie or the krona, their central banks would act, if needed with taxes and exchange controls. With interest rates at or near zero and fiscal policy exhausted or ruled out politically in the most advanced nations, currencies remain one of the only policy tools left.

At a time of high uncertainty, investors are looking for havens. Apart from gold and some real assets, few countries would welcome fresh inflows which can stir to over-value currencies. Like it or not, speculative capital will still find China and Indonesia particularly attractive.

Yen resists the pressure 

SNB's placement of a “cap” to weaken the CHF has encouraged risk-adverse investors who sought comfort in the franc to turn to the yen instead. So far, the yen has stayed below its record high reached in mid-August. But it remains well above the exporters' comfort level.

Indeed, the Bank of Japan (BoJ) has signalled its readiness to ease policy to help as global growth falters. But so far, the authorities are happy just monitoring and indications are they will resist pressure to be as bold as the Swiss, for three main reasons: (i) unlike to CHF, the yen is not deemed to be particularly strong at this time it's roughly in line with its 30-year average; (ii) unlike SNB, Japan is expected to respect the G-7's commitment to market determined exchange rates; and (iii) Japan's economy is five times the size of Switzerland and the yen trading volume makes defending a pre-set rate in the global markets well-nigh impractical.

Still, they have done so on three occasions over the past 12 months: a record 4.51 trillion yen sell-off on Aug 9 (surpassing the previous daily record of 2.13 trillion yen from Sept 2010).

The operation briefly pushed the USD to 80.25 yen (from 77.1 yen) but the effects quickly waned and the dollar fell back to a record low of 75.9 yen on Aug 19. But, I gather the Finance Ministry needs to meet three conditions for intervention: (a) the yen/USD rate has to be volatile; (b) a simultaneous easing by BoJ; and (c) intervention restricted to one day only.

Given these constraints, it is no wonder MOF has failed to arrest the yen's underlying trend. In the end, I think the Japanese has learnt to live with it unlike the Swiss who has the motivation and means to resist a strong currency.

Reprieve for the yuan 

I sense one of the first casualties of the failing global economic expansion is renewed pressure to further appreciate the yuan. For China, August was a good month to adjust strong exports, high inflation and intense international pressure. As a result, the yuan appreciated against the USD by more than 11%, up from an average of about 5% in the first seven months of the year. However, the surge had begun to fade in the first half of September.

But with the United States and eurozone economic outlook teetering in gloom, China's latest manufacturing performance had also weakened, reflecting falling overseas demand.

This makes imposing additional currency pressure on exporters a no-go. Meanwhile, inflation has stabilised. Crude oil and imported food prices have declined, reducing inflationary pressure and the incentive to further appreciate the yuan. Looks like September provided a period of some relief. But, make no mistake, the pressure is still there. The fading global recovery may have papered over the cracks. Pressure won't grind to a halt.

Central banks instinctively try to ward-off massive capital flows appreciating their currencies. There are similarities between what's happening today, highlighted by the recent defensive move by SNB, and the tension over exchange rates at last year-end. It's an exercise in pushing the problem next door.

This can be viewed as a consequence of recent Japanese action (Tokyo's repeated intervention to sell yen). It threatens to start a chain of responses where every central bank tries to weaken its currency in the face of poor global economic prospects and growing uncertainty. So far, the tension has not risen to anything like last year's level. But with rising political pressure provoking resistance to currency appreciation, the potential for a fresh outbreak remains real. The Brazilian Finance Minister just repeated his warning last year that continuing loose US monetary policies could stoke a currency war.

Growing stress

With the euro under growing stress from sovereign debt problems, the market's focus is turning back to Japan (prompting a new plan to deal with a strong yen), to non-eurozone nations (Norway, Denmark, Sweden and possibly the United Kingdom) and on to Asia (already the ringgit, rupiah, baht and won are coming under pressure on concerns over uncertainty and capital flight). Similarly, Brazil's recent actions to limit currency appreciation highlights the dilemma faced by fast growing economies (Turkey, Chile and Russia) since allowing currency appreciation limits domestic overheating but also undermines competitiveness.

This low level currency war between emerging and advanced economies had further unsettled financial markets.

Given the weak economic outlook, most governments would prefer to see their currencies weaken to help exports. The risk, as in the 1930s, is not just “beggar-thy-neighbour” devaluations but resort to a wide range of trade barriers as well. Globally co-ordinated policies under G-20 are preferred. But that's easier said than done.

So, it is timely for the IMF's September “World Economic Outlook” to warn of “severe repercussions” to the global economy as the United States and eurozone could face recession and a “lost decade” of growth (a replay of Japan in the 90s) unless nations revamped economic policies. For the United States, this means less reliance on debt and putting its fiscal house in order.

For the eurozone, firm resolution of the debt crisis, including strengthening its banking system. For China, increased reliance on domestic demand. And, for Brazil, cooling an over-heating economy. This weekend, the G-20 is expected to take-up global efforts to rebalance the world overwhelmed by heightened risks to growth and the deepening debt crisis. Focus is expected on the role of exchange rates in rebalancing growth, piling more pressure on China's yuan.

Frankly, IMF meetings and G-20 gatherings don't have a track record of getting things done. I don't expect anything different this time. The outlook just doesn't look good.

Former banker, Dr Lin is a Harvard educated economist and a British Chartered Scientist who now spends time writing, teaching and promoting public interest. Feedback is most welcome; email: starbizweek@thestar.com.my.

A crisis of capitalism

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The financial problems plaguing Europe and Italy are not home-grown. They are part of a global attack on labour

• Riccardo Bellofiore guardian.co.uk

Riot police during a clash with anti-austerity protesters in Rome last week. Photograph: Reuters

History repeats itself, Marx wrote, first as tragedy, then as farce. If you wonder how it might repeat itself the third time, look at Italy: a country where the most effective opposition to government are – literally – comedians, and where the prime minister himself is a joke. This has distorted most analysis of the country's economical and political situation, as if Italy's problem is just its PM, distracted by sex and trials.

To understand the true nature of the Italian crisis we need to look at it in a wider European context. The limits of the eurozone are well known: it has a "single currency" that isn't backed by political sovereignty, a central bank that doesn't act as lender of last resort or finance government borrowing, and no significant European public budget. The flaws of the ECB's obsessive anti-inflationary stand, and its propensity to raise the interest rate whatever the cause of price rises, are also plain to see. And Germany's tendency to profit from southern Europe's deficit while simultaneously imposing austerity budgets on those countries pertains more to psychiatry than economics.

That said, the European crisis is not a home-grown one, the sovereign debt crisis is not truly a public debt crisis, and Italy's crisis is not Italian-born. German neo-mercantilism induced stagnation in Europe, which survived thanks to US-driven exports. When "privatised Keynesianism" – mixing institutional funds, capital asset inflation and consumer debt (a model exported from the US and UK to Italy, Spain and Ireland among others) – exploded, European growth imploded.



Private debt crisis in disguse

The sovereign debt crisis is thus the private debt crisis in disguise. Deficits are not of the "good" kind (planned to produce use values, and self-dissolving through qualitative development), but of the "bad" kind (induced by real stagnation or saving finance).

The problem has been the unwillingness to refinance first Greece, then Ireland, then Portugal. Their share in the euro area public debt to GDP ratio is ridiculously low: cancelling the debt would have been less painful.

The crisis came because "markets" and rating agencies saw the stupidity of European leaders, who were ineffective when it came to rescuing indebted countries, and who introduced self-defeating austerity programmes. Fear produced a ballooning of the interest rate spread. The sharp decrease in the already very low Italian GDP growth rate (1.3% in 2010, 0.1% in the first quarter of 2011) and the dramatic rise in interest rates paved the way to Italy's current nightmare.

Italy's economy does have serious failings, but they are structural, long-standing ones. They date from the mid-1960s, and they resulted in the continuous decrease in both labour productivity and the growth rate. Capitalists answered workers' struggles with a kind of investment strike – through the intensification of labour rather than innovation. Industrial sectors disappeared; technology was imported; public enterprises were privatised. Mid-sized Italian companies profited from international exports, but they were dependent on outside-generated growth. Public debt was a means to assist a de-industrialising economy.

 Fatal blow

The fatal blow came with the policies of flexibility (that is, casualisation) of labour, which led to a collapse of labour productivity. For a while, this led to full under-employment in the centre-north. The crisis is revealing the hidden truth, and the drama of Italian unemployment and further casualisation is only just beginning as the impact of increasing regressive taxes and savage cuts is felt.

Default plus exit from the euro will not help. In 1992, Italy left the European monetary system and witnessed a huge devaluation: the structural problems deepened, and workers' conditions deteriorated. This time, Italy leaving the euro would mean the end of monetary union, and a dramatic broadening of the European and world crisis.

The crisis can be overcome only by dealing at once with the European crisis in order to stop the domino effect. One suggestion has come from Yanis Varoufakis and Stuart Holland: eurobonds not only as financial rescue but also as finance to a wave of investments.

However, this crisis is not just a financial crisis, but a capitalist crisis: it is part of an attack on labour. From this point of view, a New Deal should be part of a wider programme of the European left, who should push for a socialisation of investment, banks as public utilities, the intervention of the state as direct provider of employment, and capital controls.

It is not (yet) Marx. It is Hyman P Minsky. Unfortunately what's really missing in Europe is not the money to finance debt; it is internationalism. Only European struggles can resist austerity and deliver decent reform.

Related articles

• European banks head towards another meltdown (telegraph.co.uk)
• IMF: Banks need more cash to hedge against euro crisis (telegraph.co.uk)
• Italy's Berlusconi survives test with arrest vote (seattlepi.com)

Soros makes Forbes Top 10 rich list

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SINGAPORE: Microsoft founder Bill Gates has retained his top spot on the Forbes 2011 ranking of the richest people in America with US$59bil.

The number two spot went to Warren Buffett with US$39bil and Larry Ellison (No. 3) with US$33bil.

George Soros (pic), in seventh spot, joins the Top 10 for the first time, with US$22bil, and is one of the 27 hedge fund managers – 7% of the Forbes 400 – featured in Hedged Fortunes.

George Soros

This year, entrepreneurs dominate the ranks, comprising an all-time high of 70% of the Forbes 400 members.

Enthusiasm for popular brands, like Starbucks and Forever 21, has helped boost some fortunes, while the spread of social media has sparked others.

The combined wealth of America’s richest is US$1.5 trillion, with an average net worth of US$3.8bil, reflecting a 12% uptick from 2010.

Wealth was up for 262 members of this year’s list, while 72 members saw a decline.



The Forbes 400 welcomed 18 new members in 2011 (Fresh faces), including Sean Parker (No. 200) who rocked the music industry with Napster and helped build Facebook (agent of disruption), John Henry (No. 375), majority owner of the Boston Red Sox and Liverpool FC, Jeffrey Skoll (No. 139) whose Participant Media’s most recent release, “The Help”, has grossed nearly US$143mil to date and Forever 21’s Jin Sook & Do Won Chang (No. 88).

Every member of the Top 20 gained wealth this year, with the exception of Buffett, down US$6bil from 2010, the largest dollar amount loss of any 400 member.

The year’s biggest dollar gainer is Mark Zuckerberg (No. 14), who cracked the Top 20 with a gain of US$10.6bil.

Among the 42 women on the list are media mogul Oprah Winfrey (No. 139) newcomer Gayle Cook (No. 96) and Meg Whitman (No. 331). – Bernama

Related articles

• Forbes 400 Richest: Less to Tax Buffett On (thestreet.com)
• Forbes 400: Bill Gates Tops Forbes Rich List 2011 (blippitt.com)

Job-seekers not so street-savvy these days; Top American graduates heading to India for employment!

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Did you know famous Rod Stewart had football trials at Celtic and dug graves?

Monday Starters - By Soo Ewe Jin

DID you know that Rod Stewart had football trials at Celtic and worked as a grave digger before starting his music career by singing on the streets across Europe? Or that Michael Dell’s first job was as a dishwasher at a Chinese restaurant earning US$2 an hour?
Image via CrunchBase
What about your first job? There are many magazines, including Reader’s Digest, that have at one time or another, run a column simply entitled My First Job.

Of course, they only interview the famous personalities but I am sure even ordinary people like us have extraordinary first-job experiences to share.

Rajan Moses is well known in the journalistic fraternity but what he shared in The Star last Tuesday (The Star, where I cut my teeth, see below) contains an important lesson for all of us, especially the thousands of unemployed graduates out there.

Rajan was studying mass communications at Universiti Sains Malaysia when The Star came into existence. He wanted to be part of this racy new tabloid so he rode his motorcycle to the Weld Quay office to try his luck and see if he could get his break into journalism.

Rajan wrote how he managed to slip past the guard on duty and headed straight to the office of the legendary KS Choong, the founding editor of this newspaper. As he was talking to the secretary, Choong peered through the glass window from his desk and beckoned him in. He had a strict face, but was surprisingly kind and gentle.

“When I told him that I wanted to intern at the paper, he smiled and said yes. He gave me my first break and told me I could be The Star’s USM correspondent, and even said that I could work full time with the paper in Kuala Lumpur during my three-month varsity vacations,” Rajan wrote.

From that first break, Rajan went on to have an illustrious career not only in The Star but in other media organisations at home and abroad. He is currently with Ogilvy as a senior media adviser.

I find recollections like this very rare these days. There was a time when people would do all sorts of things to get a job, but these days, many of them expect the job to be handed to them on a silver platter.
I believe we were more street-savvy those days and we knew how to take the initiative. When I tell fresh graduates that they do not need to wait for advertisements to appear before they apply, they are not too convinced.

After finishing my Form 6, I decided to write in to all the newspapers to see if they would offer me a job.

The National Echo was the first to respond. The kind and gentle Choong at that time had moved to The Echo which had been revamped to be also a tabloid to challenge The Star. He brought along many of The Star’s pioneers with him.

At the interview, the first thing he said was, “So you are the fella who is always writing letters to the editor. I didn’t know you were still in school then. You had so many good comments on current issues. When can you start?”

So, for a princely sum of RM135, I started my journalism career as a cadet reporter.

For the next job I applied for, I was surprised I was even called for the interview because I thought I had flunked the pre-entry written test.

One section required us to explain the meaning of 20 rather bombastic words.

I didn’t know any, so I wrote, “If I had a dictionary with me, I could give you the meaning of these words. But if I have to use a dictionary to read a newspaper, then these words certainly don’t deserve to see print.”

There was still an hour to go, but I handed in my test paper and walked out of the hall. Call it bravado or whatever, but the editors appreciated my candour. I was interviewed and I got the job.

Deputy executive editor Soo Ewe Jin wonders what young people do to get a job these days besides giving us those templated CVs that are strong on style but weak on substance.

The Star, where I cut my teeth

WAS one of the pioneers who had the good fortune to work with The Star at Weld Quay in Penang soon after its birth. The Star was the launching pad for my eventual success as a seasoned journalist, correspondent, chief sub-editor and editor with the international news agency Reuters, the national news agency Bernama and the Business Times, spanning a period of over 32 years.

I believe I owe a care of duty to The Star and its founding editor K.S. Choong, who gave me my first break.

The launch of The Star in September 1971 had a great impact on Penangites who were so used to the existing newspaper fare that the arrival of something new perked them up. Finally, an alternative paper to read had arrived, and a racy tabloid at that!

Newspaper boys sold the first editions of the new paper late into the night on Penang’s streets, and The Star created quite a buzz.

It had a picture of a Page 3 girl daily (very much like what the The Sun and Daily Mirror did in London) and bright, bold and interesting human interest stories and pictures which sparked much local interest.

As an undergraduate at Universiti Sains Malaysia pursuing a Mass Communications degree, I was on the hunt for an internship to learn more about my passion – journalism. I saw in The Star my guide and mentor.
Plucking up courage one fateful day, I rode my motorcycle to the Weld Quay office to try my luck and see if I could get my break into journalism.

I had long hair then (which was the vogue among students), but managed to slip past the guard on duty and headed straight to the office of the Editor-in-Chief, K.S. Choong.

I told his secretary that I wanted to see him. Choong peered through the glass window from his desk and beckoned me in. He had a strict face, but was surprisingly kind and gentle.

When I told him that I wanted to intern at the paper, he smiled and said yes. He gave me my first break and told me I could be The Star’s USM correspondent, and even said that I could work full time with the paper in Kuala Lumpur during my three-month varsity vacations.

It was indeed an honour to be a Star reporter then. It opened many doors for me in Penang – people started recognising this rookie reporter – and with my enthusiasm bursting, I started seeing stories everywhere and in many things.

One of the biggest stories I ever broke as the USM correspondent was about how forged coupons were used by a syndicate at a major USM carnival, which resulted in the organisers losing thousands of ringgit.

The work – for which I was paid by the column inch (that is, the length of the story) – earned me about RM50-RM60 a month, good supplementary income for a poor student.

Then when the long university vacation came around mid-year, I was despatched as a reporter with The Star in KL where the paper at that time was circulating a few thousand copies. I was paid RM100 a month.

The KL office was then headed by bureau chief Maureen Hoo, who taught me a lot about writing news stories by re-writing my copy and who was generous enough to let me go out and pound the streets to find really rare and interesting stories.

There were five or six staff in the rather small KL office in a building in Jalan Silang in downtown KL. The Star was really small in KL.

Then we moved to the Jalan Travers office in Bangsar, where the circulation department, advertisement salesmen, and editorial department were all housed in one place for the first time in KL.

At that time, in 1972-73, The Star circulation was only a mere 8,000 copies, and we had to fight hard to get our KL stories in the Penang-centric edition of the newspaper.

Lady Luck poured her fortune on me when I got my first front page byline after witnessing a major fire at a rice/padi godown alongside the railway line near the Brickfields/Jalan Travers junction. Police estimated the fire had caused millions of ringgit in damage, quite a large sum at that time.

It was truly gratifying to see my name on the front-page story, and I remember showing it to my parents, relatives and friends. I think I still have a copy of it somewhere at home.

Soon after came another front-page byline from me in The Star when a tall and well-endowed Australian stripper I had interviewed in KL several weeks before was found walking around bald, naked and in a drug-induced daze along Batu Feringghi beach in Penang.

My experience as a reporter for the then under-dog newspaper was really exciting.

On one assigment, our photographer, the late Mok Yong, and I interviewed two sales representatives of the “Perfumes of the Orient” company at their stand in the Federal Hotel in KL. Soon after the article and photo came out, the local perfume company wrote to my editor and booked a whole year’s worth of advertisements in the paper.

I received a congratulatory letter from the boss because, as the under-dog newspaper then, it was tough getting advertising revenue.

Upon graduation from USM in 1974, I joined The Star full time as a journalist in Penang at the Pitt Street office. I remember I was paid RM125 a month, although I was a graduate, and given an increment of a mere RM15 a year.

It was not the money I was working for. My friends who had graduated along with me from USM were earning about RM650-RM800 a month in government service or as graduate trainees elswhere.

I chose to remain in The Star despite the low salary because of my passion for journalism, loyalty to the paper that gave me my first break, and the great company of senior journalists who taught me the ropes.

That was when I met former greats who believed in the cause and laid the foundations for The Star to become the great paper it is today.

I remember the valuable guidance and counselling from pioneer Star journalists and editors like K. Sugumaran, Charlie Chan, Mohanan Menon, R.D. Selva, Gobind Rudra, Tony Rangel, R. Pachymuthu, Khoo Kay Peng, Tony Chew, Alan Tan, Soon Boon Phin, S.P. Cheah, Robert Ang, Robert Kuan, Sri K. Nayagam, and a host of others.

In November 1975, having earned a solid base in journalism and becoming well honed in reporting news at The Star, I made the decision to leave Penang and return to Kuala Lumpur to work for Bernama as a news executive.

There was no looking back after that.

In 1983, I was head-hunted by Reuters to join the KL bureau. I went on to become the pioneer Malaysian journalist to be posted by an international news agency to the United States – Chicago and Washington DC, between 1987 and 1991.

After 20 successful years with Reuters as bureau chief in Thailand, Myanmar, Cambodia and Laos, chief subeditor in Hong Kong and Singapore, I returned to KL and worked for the Business Times as executive editor for several years.

Today I work for Ogilvy, a PR and advertising agency, still keeping my links with journalists as senior media advisor.

When I look back at my early days in The Star, I feel a sense of warmth and gratitude.

My mind races back to the many things I learnt that gave me the foundation to become a journalist, of those who gave me great friendships and taught me the ropes and, of course, some of the funny, weird and interesting news situations that I encountered as a rookie.

Most of all I remember and thank the late founding editor, K.S. Choong, for giving me that first break.

RAJAN MOSES, Kuala Lumpur

Top American graduates heading to India for employment

Breaking tradition, top American graduates are heading to India to find jobs and opportunity. Many believe that having experience in India is an important addition to their resume in this increasingly globalized world. Some say that its easier to find a good job in India than in the United States, as India's economy is growing while the US economy is predicted to shrink within the next year.

China to Launch Space Station Test Module Next Week

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China to Launch Space Station Test Module

by Clara Moskowitz, SPACE.com Senior Writer

 China is developing its first full-fledged space station, called Tiangong (Heavenly Palace). Early tests of China’s skills at rendezvous and docking, shown in this artist's illustration, are set to begin in 2011. CREDIT: China Manned Space Engineering Office View full size image

China will launch a test module for its first space station next week between Sept. 27 and Sept. 30, state media reported today (Sept. 20).

The unmanned module, called Tiangong-1 (which means "Heavenly Palace") will test autonomous docking procedures and other space operations in preparation for China's plan to build a 60-ton space station by the year 2020.

The Chinese Long March 2F rocket set to launch Tiangong-1 has already been rolled out to its launch platform at the Jiuquan Satellite Launch Center in northwest China's Gansu Province, according to state-run news service Xinhua. [Photos: China's First Space Station]



The liftoff was delayed last month when a Long March 2C booster, similar to the rocket that will loft Tiangong-1, failed to deliver an experimental unmanned satellite to orbit. However, after an investigation into the accident, China successfully launched a military satellite aboard a related Long March 3B/E rocket on Sunday (Sept. 18), clearing the way for the Tiangong liftoff.

Final tests of the spacecraft and its booster will take place over the next few days, a project spokesperson told Xinhua.

"Every main system is standing by and the final preparations are running smoothly," Xinhua reported.
The 8.5-ton Tiangong-1 is slated to dock with the unmanned Shenzhou 8 spacecraft, which will launch at a later date. It will be the first docking between Chinese spacecraft, and will represent a significant step forward in the nation's space capabilities, experts have said.

Medical and engineering experiments will also be carried aboard Tiangong-1. [How China's First Space Station Will Work (Infographic)]

China is only the third country, after the Soviet Union and the United States, to launch a person to orbit. The first Chinese manned mission, Shenzhou 5, launched astronaut Yang Liwei in 2003. Two more manned missions followed, including a flight that featured the nation's first spacewalk in 2008.

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Changes in Malaysia's horizon; Keep the momentum up!

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Changes in the nation’s horizon

Reflecting On The Law By Shad Saleem Faruqi

Whether by revocation by the King or annulment by Parliament, all emergency legislations will cease to exist six months after the end of an emergency proclamation.

Image via Wikipedia

THE Prime Minister’s surprise announcement that the Emergency will be lifted, that the Internal Security Act will be repealed, and that laws like the Printing Presses and Publications Act will be amended to constitutionalise and humanise them has fired everybody’s imagination, and at the same time raised apprehension among the defenders of the status quo.

One reader asked whether the Prime Minister consulted with, and obtained, the consent of the Cabinet before making these bold pronouncements.

No outsider can answer this accurately, but what can be pointed out is that in parliamentary democracies, prime ministers are known to launch bold initiatives on their own and to present their Cabinets and their countries with a fait accompli.

Clear examples are decisions on premature dissolution of Parliament and budget and foreign policy initiatives.

In 1956, Anthony Eden of Britain got his country embroiled in the disastrous Suez invasion, and informed his Cabinet only after British paratroopers had landed on Egyptian soil.

In a strictly legal way, the prime minister is not bound by the Cabinet; instead the Cabinet is bound by the direction he supplies.

Politics may, of course, encourage a consultative approach but all students of parliamentary government know that the prime minister is the sun around which the Cabinet revolves.

Individual ministers are bound under the doctrine of collective ministerial responsibility to support their prime minister or step down from office.

Another reader asked whether the Prime Minister’s announcement means that the Emergency is already lifted?  The answer is in the negative.

The Emergency is proclaimed by the King and either he must revoke his proclamation(s) or the two Houses must by resolution annul the proclamation(s).

If the King (acting on advice) revokes a proclamation, the revocation comes into effect immediately.

However, if the two Houses are to debate and vote on a resolution to annul, that process can be expected to take some weeks or months because the Dewan Negara will probably convene only after the Dewan Rakyat’s lengthy budget session beginning in October.

However, if immediate parliamentary action to annul the 1966, 1969 and 1977 proclamations is thought desirable, the two Houses can meet concurrently to draw to a close the 47-year saga of the existing post-independence Emergency.

Once a proclamation expires, whether by revocation by the King or annulment by Parliament through an Emergency Act of Parliament or a piece of subsidiary legislation under an emergency law, all emergency legislations will cease to exist six months after the proclamation.

If the Emergency ends, does the Internal Security Act (ISA) also cease to exist? The answer is in the negative.  The ISA is a law against subversion under Article 149.

It is independent of Article 150 and has a life of its own, no matter what happens to the Emergency.

If the ISA is repealed, will those detained under the ISA have to be released? Undoubtedly, yes.

If the basis of their detention is extinguished, the detention, too, ceases to be valid.

Even if there is a new law under Article 149 to deal with security or terrorism cases, that law cannot be backdated due to the prohibition of Article 7(1).

Of course, the detainees may face new prosecutions under the Penal Code or the new laws.
The rule of double jeopardy will not apply.

Will the Government have to pay compensation to all people detained under the ISA, including in previous years?

The answer is “no” because the legality of an act must be judged by the law at the time of the commission of the act and not by what happens afterwards.

How can the ISA be repealed? Does its repeal require the consent of the Conference of Rulers?

Under Article 149, any law against subversion may be passed or repealed by Parliament. A simple majority vote is sufficient. The consent of the Conference of Rulers is not needed.

From what we have heard, the ISA will be replaced by two laws on terrorism and national security.
Some cynics are saying that the move is therefore purely cosmetic and political.

The ISA may end but preventive detention may remain. I think we should hold our judgment on this issue till we see the substantive content of the proposed new laws.

I would give anxious consideration to the following issues:

> The concepts of terrorism and national security must be precisely and objectively defined and must not have any catch-all tendencies.

> There should be no exclusion of judicial review so that any abuse or misuse of power can be tested in the courts.

It is acceptable that on matters of security, the political executive must have a strong say without excluding the power of the courts to determine independently whether security was indeed involved or not.

> There must be some safeguards against political detentions.

> The power of the police to detain for purposes of investigation must be drastically reduced from the present 60 days to no more than three weeks.

> The Minister’s power, as at present, to order detention for two years and for such further periods as he deems necessary must be abolished.

Detentions on the orders of the Minister raise the unconscionable issue of accuser, adjudicator and executioner being combined. Some separation of powers and some check and balance is desirable.

Justice must not only be done but must be seen to be done.

> The power to try, to convict and to detain must be committed to a Special Security Court or Anti-Terrorism Court (or by whatever name called).

> Anxious consideration must be given to the composition of this Special Court which must arouse public confidence.

> The executive must accuse, the court must decide.

> Special procedural rules for security trials exist in many countries and must be examined.

Perhaps trials should be held in camera (without the public present).

Whatever the case, there must be fair due process. The accused must know the charge.

No incriminating evidence must be withheld from him and from the judge, as is possible at present.

The accused must be allowed to defend himself fully and fairly.

> The penalties and the maximum period of detention must be prescribed.

> Whether there should be no appeal in “security” and “terrorist” trials is a matter for further consideration.

We have many model legislations from many countries that we can emulate.

Whatever we follow must show fidelity to our own Constitution and to the primary instruments of international law.

> Shad Saleem Faruqi is Emeritus Professor of Law at UiTM and Visiting Professor at USM.

Keep the momentum up!

Question Time By P. Gunasegaram

The momentous changes proposed by the Prime Minister need to be pushed through with the utmost urgency for greater effect.

THE overwhelming support and acclaim from Malaysians over the proposals by the Prime Minister to repeal the Internal Security Act or ISA and lift all proclamations of emergency show just how unpopular these measures are among Malaysians.

Datuk Seri Najib Tun Razak has read the signals right. But as important as these and other proposals are, the larger agenda is even more significant – to review and if necessary repeal and replace all laws which stand in the way of demo-cracy, legitimate free expression, and human and individual rights.

Two paragraphs from Najib’s speech last Thursday are worth re-quoting: “It is absolutely clear that the steps I just announced are none other than early initiatives of an organised and graceful political transformation. It stands as a crucial and much needed complement to the initiatives of economic transformation and public presentation which the government has outlined and implemented for over two years in the effort to pioneer a modern and progressive nation.

“…the Malaysia that we all dream of and are in the process of creating is a Malaysia that practises a functional and inclusive democracy where public peace and prosperity is preserved in accordance with the supremacy of the Constitution, rule of law and respect for basic human rights and individual rights.”

Two things are necessary to carry these reforms to its natural conclusion. The first is to keep the momentum generated up and without any delay implement what has been promised. Any delay and back-pedalling to cater to the interests of some sections of the community will have the effect of raising cynicism yet again.

The second is to look into all the other laws which need to be changed to allow Malaysians to exercise all their full rights as enshrined in the Federal Constitution without hindrance.

That means that all those laws that are in direct contradiction to the letter and spirit of the Constitution must go. The sooner they go, the better. There has to be demonstrable urgency over this matter.

Already there are some politicians who are saying that the amendments to make some of the major changes cannot be tabled at the forthcoming Parliament session and will have to be deferred to next year. That will be a wrong start.

The necessary repeals of the relevant legislation can be made and still passed by Parliament this year for implementation next year. By that time, other legislation such as a counter-terrorism Act to still allow detention without trial under special circumstances and under judicial review can be introduced.

That will have the effect of setting a timetable for the implementation of the proposed changes already announced so that no one will doubt that the Government is serious about implementing the promises.

Already, there is talk that some sections within the ruling party and some parts of the police force are opposed to the repeal of the ISA and the Banishment Act. But these people must not be permitted to stop – or even delay – the reform process set into motion by the Prime Minister.

Simultaneous with the rapid implementation of the announced measures is the necessity to do an urgent yet comprehensive review of existing laws to expand the public space and bring forth important issues to be debated maturely and openly – with no threat from any party.

The proposal to remove the yearly licensing requirement for publications including newspapers under the Printing Presses and Publications Act is a relief, but a small one. The Home Ministry still wields disproportionate power and has the right to stop publication at any time without there being any recourse to the courts.

For the full flowering of legitimate expression across the board, it will be necessary to repeal fully this Act. That of course does not mean we are free to publish whatever we want because we will still be subject to provisions of the law for defamation, sedition, secrecy and so on. There is still adequate check and balance.

Another piece of draconian legislation that needs to be reviewed is the Official Secrets Act (OSA). This Act was amended in the eighties to provide for mandatory jail sentence and gave the Government the right to determine what affected national security without review by the courts.

In practical terms, this has prevented many issues of great public interest such as toll agreements to come out into the open. In practical terms, the Government could classify the number of cups of coffee consumed in a departmental canteen as a secret and anyone who reported it could be convicted under the OSA and go to jail for a minimum one year.

New legislation should be worded such that it respects secrecy when it involves issues of national security, not cover up inefficiency, incompetence or breach of trust by the Government. That would help ensure a more accountable government.

One other Act which deserves mention is the University and University Colleges Act that prevents local students from taking part in political activities and being aligned to political parties. This is strange considering that many of our founding fathers were political activists from their student days.

They may be students but they are also adults and as adults should play their full role in society, including taking part in political activities. That is part and parcel of developing their maturity and making them better members of society in future.

There is no doubt many other pieces of legislation need to be reviewed and the task is momentous. However, momentous as it is, the momentum that has been created by the announcement of the proposals must not be lost. We must press on relentlessly.

Momentum is of the utmost importance for change to take place. We need to turn the wheels of transformation faster instead of slowing them down with all manner of unfounded excuses. Malaysia and Malaysians have to move forward and quickly.

> Managing editor P. Gunasegaram believes in the old axiom that change is the only constant.

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Towards a brave new Malaysia, keep lobbying and pushing for change!

Winds of change blowing in Malaysia; Dawn of a new era?   

Obama Wants $1.5 Trillion In Tax Hikes, Mostly On Rich, Draws Election Battle Lines

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Janet Novack, Forbes Staff I write from D.C. about tax and retirement policy and planning.

Image via Wikipedia President Barack Obama will call today for an additional $3.2 trillion in deficit reduction over the next decade, including $1.5 trillion in tax hikes, mostly on the rich. His plan also includes $1.1 trillion in savings from winding down the wars in Iraq and Afghanistan and $580 billion in savings from “mandatory” programs, including $248 billion in Medicare cuts, but significantly, no increase in the age for Medicare eligibility and no Social Security trims.

Contrary to earlier press reports, however, the plan Obama is sending to Congress’ Joint Select Committee On Deficit Reduction—the so-called Super Committee– won’t include a special  new  millionaire’s tax. Instead, Administration officials said in a background briefing with reporters Sunday night, Obama will call for tax reform to be based on five principles and one of those will be the “Buffett rule”—in honor of Berkshire Hathaway CEO Warren Buffett who has complained for years that he pays taxes at a lower rate than his secretary.  An official put the rule this way: “People making more than $1 million should not pay a smaller share of their income in taxes than middle class people pay.”  The other four principles, he added, are that tax reform should lower rates; reduce the deficit (in other words raise taxes) by $1.5 trillion over 10 years; close “wasteful loopholes and tax breaks”; and “boost job creation and growth.”


Republicans, too, favor tax reform and lower rates, but have ruled out raising any new revenue. On Thursday House Speaker John Boehner (R-Ohio) declared tax increases “off the table”.  In an interview on NBC’s Meet The Press show Sunday, Senate Minority Leader Mitch McConnell (R-KY) dismissed any consideration of tax increases as “a bad thing to do in the middle of an economic downturn.”

The August political deal that raised the nation’s debt ceiling and averted a Treasury debt default created the Super Committee and charged it with coming up with a plan by Thanksgiving to trim at least $1.2 trillion from the deficit over 10 years. The Super Committee is  made up of six Democrats and six Republicans and if it deadlocks—or its final product is voted down by Congress or vetoed by Obama–automatic budget cuts would kick in. Republicans insist the $1.2 trillion should come solely from cuts to spending, including to entitlement programs like Medicare and Medicaid.

Significantly, the Administration official said Obama is making his embrace of Medicare cuts contingent on tax increases being included in the final deal.  “He’ll say he’ll veto any bill that takes one dime from the Medicare seniors rely on without asking the wealthy and the biggest corporations to pay their share,’’ the official said in a preview of Obama’s remarks. In another move that should similarly please his restive Democratic base, Obama is excluding from his proposal any change  to Social Security, including a reduction in inflation adjustments for Social Security recipients that was part of a bigger deal he tried to strike with Boehner in July. “It’s his vision,  not a legislative compromise,” an Administration official explained. “It’s inherently different form the grand bargain he was working on with the Speaker.”  A higher age for Medicare eligibility was also, reportedly, considered as part of the failed bargain with Boehner but won’t be in Obama’s proposal. (Currently, Americans become eligible at 65 even if they haven’t yet claimed their Social Security benefits.)



In the Sunday night preview, Administration officials cast Obama’s plan as a total of $4.4 trillion in net deficit reduction —including cuts that were made in discretionary spending as part of the August deal and prospective savings on interest costs. (While Republicans are sure to dismiss Obama’s counting of war savings, they have done the same thing in their deficit plans.)  Moreover, an Administration official noted, the $4.4 trillion is net of the cost of Obama $447 billion “jobs” proposal—a package of payroll tax cuts, infrastructure spending, and help for the unemployed designed to attack the nation’s stubbornly high 9.1% unemployment rate. Obama has proposed paying for that too with tax hikes Republicans have rejected, including a limit on mortgage, charitable and other deductions for the well off; elimination of the “carried interest” tax break enjoyed by the managers of hedge funds and other partnerships; and the repeal of various tax preferences enjoyed by oil and gas producers, including Exxon Mobil,  Chevron and BP.

Indeed, most of Obama’s tax proposals will apparently repeat those he has made before. For example, $800 billion would come from letting the Bush tax cuts for families earning more than $250,000 expire at the end of 2012, meaning the top rate on ordinary income such as salary would rise from 35% to 39.6%. Last month, in a New York Times op-ed, Buffett called for two higher tax rates—one on income over $1 million and the other on income over $10 million. Published reports over the weekend variously suggested Obama would endorse a new millionaire’s rate or release some sort of proposal for a minimum tax on millionaires—say to replace the current convoluted alternative minimum tax.  But Sunday night, the Administration official said the Buffett rule was simply a principle for tax reform.

Most people earning more than $1 million are already taxed at a higher effective rate than their secretaries. In 2008, for example, taxpayers with adjusted gross income between $1 million and $10 million paid an average of 24.5% of their adjusted gross in federal income tax, compared with an average of 12.6% for those earning $100,000 to $200,000, and 8.4%  for those earning $50,000 to $100,000. But the 400 highest income taxpayers do pay a lower effective rate  than mere millionaires—an average of just 18.1% in 2008. That’s because the top 400 get the bulk of their income from capital gains, which are taxed at a top rate of 15%, scheduled to rise to 20% when the Bush tax cuts expire at the end of 2012. If tax reform is to insure that billionaires pay a higher effective rate than the upper middle and middle class it would have to reduce or eliminate the break for capital gains—something that was done in Reagan’s 1986 tax reform but that doesn’t sit well with most Republicans today.

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Obama tax plan draws election battle lines

Stephen Collinson 

An impassioned US President Barack Obama has set up an acerbic and personal clash with Republicans, demanding $US1.5 trillion ($A1.47 trillion) in new taxes on the rich in a plan aimed at slashing the deficit.

"This is not class warfare, it is math," Obama declared, arguing that without tax increases on those who could afford it, the budget gap - which is casting a shadow over future generations of Americans - could never be closed.

"All I'm saying is that those who have done well, including me, should pay their fair share in taxes," Obama said in a speech that effectively staked out the ground on which the 2012 presidential election will likely be fought.

But Republicans immediately came out against the move, making it more likely that a fierce partisan row over taxes and spending will rumble on and define the terrain of the 2012 presidential election.

"Pitting one group of Americans against another is not leadership," said Republican House Speaker John Boehner.

A fiery, populist Obama laid out a plan few experts believe has any chance of passing Congress but which will make clear the battle lines between the White House and Republicans on the lumbering economy.

"We can't just cut our way out of this hole," Obama said in the White House Rose Garden, laying out his plans to cut $US3.0 trillion from the deficit with a mixture of spending cuts and tax hikes.

"It is only right we ask everyone to pay their fair share," Obama said, in a direct challenge to House of Representatives speaker John Boehner, who has categorically ruled out any tax increases to trim the budget gap.

"We can't afford these special lower rates for the wealthy. We can't afford them when we are running these big deficits," Obama said, fighting for the end of tax cuts for the rich passed by former president George W Bush.

"Middle class taxpayers shouldn't pay higher taxes than millionaires and billionaires. That's pretty straightforward. It's hard to argue against that," said Obama, who has seen his approval ratings hammered by the slowed economy.

In a sign of the antipathy between Obama and Republican leaders after months of political confrontations, the president took personal aim at Boehner's refusal to contemplate any tax revenue raises.

"The speaker says we can't have it 'my way or the highway' and then basically says 'my way or the highway'."

"That's not smart. It's not right."

Obama's plan amounted to suggestions to a congressional supercommittee charged with finding up to $US1.5 trillion in deficit cuts by November.

The president threatened to veto any bill produced by Congress that was based on cutting medical benefits for the elderly but did not include increased revenues drawn from higher taxes on the rich and corporations.

Obama's plan effectively forced Republicans to defend continued favourable tax treatment for the wealthiest Americans and corporations while unemployment is at 9.1 per cent and economic frustration stalks the United States.

But Republicans, who say tax hikes would penalise small business and lower growth, reacted with contempt to his speech.

"Veto threats, a massive tax hike, phantom savings, and punting on entitlement reform is not a recipe for economic or job growth-or even meaningful deficit reduction," said Mitch McConnell, the top Republican in the Senate.

Mitt Romney, a leading Republican contender to take on Obama in the 2012 election, also rejected his plans as the action of a president who he portrays as out of his depth on the economy.

"President Obama's plan to raise taxes will have a crushing impact on economic growth," Romney said.

"This is yet another indication that President Obama has no clue how to bring our economy back."

Obama's plan includes $US1.2 trillion in cuts in federal discretionary spending already agreed in August as part of a compromise which ended a standoff with Republicans over raising the federal debt ceiling.

It includes $US580 billion in spending cuts across all mandatory spending programs and $US1.1 trillion of savings realised from drawing down US troop numbers in Afghanistan and Iraq.

Tax reform would result in $US1.5 trillion in savings, and a further $US430 billion will be found in additional interest savings elsewhere.

Included in the spending cuts will be $US248 billion in savings from Medicare programs for the elderly and $US72 billion in cuts from the Medicaid service for the poor, officials said.

© 2011 AFP
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Towards a brave new Malaysia, keep lobbying and pushing for change!

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As a writer, however, I’m most concerned with what will happen to the media. A functioning democracy needs a free and independent press and the PPPA has been a long-term stumbling block to both.

First off, I, along with most Malaysians, want more details. I totally disagree with the need for newspaper licences. The very concept is wrong-headed.

Second, access to and ownership of the media are also critical. We need all sides of the political debate (Barisan and Pakatan) to be given fair and equal coverage.

Malaysians can only make in­­formed decisions about who to vote for if they’re properly informed.

It’s worth bearing in mind that blanket media coverage of BN leaders has been a major turn-off. Whoever thought we needed to watch the PM wishing the country Selamat Hari Raya again and again was wrong. With the media, less is more, especially when you have nothing to say.

The current order also makes BN politicians lazy and high-handed when dealing with journalists and editors. But a freeing up of the media will force BN cadres to change – let’s call it political Darwinism.

The Singapore Government is also experimenting with liberalisation. During its recent general election, Singapore’s ruling PAP allowed its press some latitude in their coverage of the opposition. While the opposition made substantial gains, the ruling party still won because ordinary Singaporeans saw the candidates for what they were and still felt safer with the PAP.

There’s no reason to assume why the same couldn’t happen here, all the more so if the Prime Minister maintains his humility and candour.

At this stage, I must add that I would personally like to see Najib go head-to-head with Datuk Seri Anwar Ibrahim in a live, no holds barred debate during the next polls.

Such a debate would give Malaysians the chance to see who has a better vision for the country. Besides, Umno leaders really need to overcome their pathological fear of Anwar’s supposed superhuman rhetorical skills.

The man is not invincible. Then Information Minister Datuk Seri Ahmad Shabery Cheek faced him back in 2008 and came out of the encounter very creditably.

Umno politicians also have to realise that constant communication and media coverage is the order of the day. Those who are not up to the exposure and pressure should be dropped – Barisan is better off without them. Certainly, if I had my way I’d dump over 80% of the present Cabinet. Most are ill-equipped for present-day challenges.

Also, reporters are stakeholders to be engaged, not hirelings to be ordered about. Treat them with respect and the returns will be considerable. Remember that the media, however tetchy and irritating, is the voice of the people.

At the same time, Malaysia’s mainstream media will now have to up its game. With Najib’s reforms, there’ll no longer be any excuse to not provide the critical news, investigative reporting and analysis that Malaysians crave.

We are tasked to serve the people and not our erstwhile political masters.

Najib has opened the door to a new world. We know most of his Barisan Nasional colleagues are ill-prepared. The tougher question is this: are we – the Malaysian people – ready for what’s to come?

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