The Damocles index by Nomura warns of fiscal tension in Malaysia, score accross coountries, the hits and misses 1996~20118

PETALING JAYA: Allowing a larger fiscal deficit and running the risk of a sovereign credit rating downgrade in 2019 could cause balance of payments stress, given Malaysia’s high short-term external debts and low foreign exchange (forex) reserves, said Nomura.

Following the reversal of fiscal reforms like goods and services tax (GST) and the removal of fuel subsidies, the new government now faces the tough choice of either cutting spending at the cost of growth, or allowing a larger fiscal deficit and the risk of a sovereign credit rating downgrade in 2019.

According to a Nomura global research report, Malaysia’s Damocles score in July 2018 was 86.9, below the 100 threshold.

The Damocles index by Nomura summarises macroeconomic and financial variables into a single measure to assess an economy’s vulnerability to a currency crisis.

The oil price slump of 2014 to 2016 was a major shock for Malaysia, one of the few net-oil and gas exporters in Asia.

“While Bank Negara initially expanded forex reserves to defend the ringgit, it eventually allowed a sharp depreciation in 2015 which boosted export competitiveness.

“Malaysia has proved resilient and its current account remained in surplus, benefiting from a diversified economy and fiscal reforms,” said Nomura.

Three countries in the region, namely, Thailand, Indonesia, and the Philippines, have a Damocles score of zero, while Vietnam has a moderate Damocles score of 35.

The Bank of Thailand is signalling policy normalisation to build policy space and reduce financial stability risks following a prolonged period of exceptionally low interest rates. This is as headline consumer price index (CPI) inflation returned to within the 1% to 4% inflation target and economy growing at potential.

Thailand’s current account surplus as a percentage of gross domestic product (GDP) has been sizeable since 2015, driven by weak domestic demand and, more recently, growing tourism revenues as well as an export recovery.

“Over this period, forex reserves rose sharply, and they are now at very favourable adequacy levels relative to both imports and short-term external debts.

“The fiscal deficit is expected to widen slightly in 2018, as the government increases spending to support populist policies targeting low-income earners, in the run-up to the election in early 2019,” said Nomura, adding that real interest rates are falling gradually and remain marginally positive, as inflationary pressures have been stubbornly weak.

Over in Indonesia, a negative terms-of-trade shock in 2014 raised the Damocles score in 2014 to 2016, but it has fallen back to zero due to Bank Indonesia’s build-up of forex reserve buffers and government reforms that improved foreign direct investment (FDI) inflows.

While depreciation pressures have risen again in 2018, BI has acted decisively with 125 basis points in policy rate hikes to date.

“We expect another 25 basis points, with the risk of more.

“Bank Indonesia maintains a flexible forex regime and a dual-intervention framework in forex and bond markets, as well as introduced macro-prudential measures, like requiring residents to hedge external exposure,” said Nomura.

The research house added that Bank Indonesia has also strengthened policy coordination with the Finance Ministry, which is implementing policies to reduce the current account deficit, while prioritising a credible 2019 budget despite upcoming presidential elections.

Sword of Damocles hangs over Sri Lanka

PETALING JAYA: Sri Lanka is at risk of an exchange rate crisis mainly due to its still-weak fiscal finances and a fragile external position.

Sri Lanka charted the highest Damocles score of 175, among 30 emerging market (EM) economies.

The Damocles index by Nomura summarises macroeconomic and financial variables into a single measure to assess an economy’s vulnerability to a currency crisis.

A score above 100 suggests a country is vulnerable to an exchange rate crisis in the next 12 months, while a reading above 150 signals that a crisis could erupt at any time.

Sri Lanka has large refinancing needs, with foreign exchange (forex) reserves of less than five months of import cover and high short-term external debt of US$ 7.5bil.

“Political stability also remains an issue, as recent resignations have weakened the government (its term ends mid-2020) and despite retaining a simple majority, complicates the task of continuing to implement International Monetary Fund (IMF)-induced reforms.

“However, without IMF support, the risk of a currency crisis would be higher,” said Nomura in its global research report.

Meanwhile, South Africa, Argentina, Pakistan, Egypt, Turkey and Ukraine are currently vulnerable to an exchange rate crisis, having Damocles scores of more than 100.

“Based on our definition, Argentina and Turkey are experiencing currency crises, while Argentina, Egypt, Sri Lanka and Ukraine have turned to the IMF for assistance, leaving Pakistan and South Africa as the standouts.

“As investors focus more on risk, it is important not to lump all EMs together as one homogeneous group; Damocles highlights a long list of countries with very low risk of currency crises,” said Nomura.

Eight countries, namely, Brazil, Bulgaria, Indonesia, Kazakhstan, Peru, Philippines, Russia and Thailand, have Damocles scores of zero.

It is notable that China’s Damocles index has maintained since dropping to 36.9 in late 2017 from 62.4 in October 2017.

The index far below the 100 threshold suggests that the risk of an exchange rate crisis in China is limited.

Nomura concurred that China’s balance of payment position remains healthy, given it has the world’s largest foreign exchange reserves at US$3.1 trillion, as of July 2018.

“However, we highlight that its pockets are not as deep as they once were, given that current account deficits at minus 0.4% of gross domestic product (GDP) in the first half of 2018 may occur more frequently, net direct investment inflows may moderate further, and external debt has risen significantly.

“Moreover, we see domestic challenges from weakening aggregate demand and other fundamental problems, and external risks from the escalation in China-US trade tensions and trade protectionism,” said Nomura.

As for India, its Damocles score has fallen to 25 in the third quarter of 2018, from 56 during 2012 to 2013.

India’s most recent currency crisis occurred in 2013 and was due to weak domestic macro fundamentals and worsening external funding conditions. Since then, consumer price index (CPI) inflation has moderated to about 4.5% in 2018 from 9.7% in 2012, as has the current account deficit at an estimated -2.5% of GDP, compared to minus 5% in 2012. Furthermore, India’s central bank has a sufficient forex reserve buffer of 9.3 months of import cover versus 6.4 in 2012.

“However, given India runs a current account deficit, it remains vulnerable to bouts of global risk aversion. Higher oil prices and portfolio outflows are its key external vulnerabilities.

“Aside from these, the key risks stem from the government turning more populist ahead of the 2019 general elections (worsening domestic fundamentals) and a sharper-than-expected domestic growth slowdown (triggering equity outflows),” said Nomura.

The Damocles index comprises eight indicators that are found to be the best predictors of exchange rate crises in the 30-country sample, in which there have been 54 crises since 1996. It includes five single indicators which are import cover, short-term external debt or exports, forex reserves or short-term external debt, broad money or forex reserves and real short-term interest rate.

On the other hand, the three joint indicators are non-foreign direct investment (FDI) gross inflows of one-year and three-year, fiscal and current account, as well as current account and real effective exchange rate deviation. To date, Damocles has correctly signalled 67% of the past 54 crises in Nomura’s sample, including the Asian financial crisis (1997 to 1998), Russian financial crisis (1998) and the 2018 EM currency crises in Argentina and Turkey.

“The advantage of Damocles lies in its objective nature in letting the data speak, not clouded by conventional misperceptions or biases based on past experiences. While the results achieved are encouraging, but given the inherent limitations of any early warning system, it would be foolish to make any exaggerated claims.

“For instance, Brazil’s Damocles score of zero implies very low external vulnerability; yet the Brazilian real (BRL) has depreciated more than 10% in August alone due to an uncertain presidential election outlook,” said Nomura. – The Star


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Parents opt for daycare centres with no live-in maids now

The decline in the number – and the rising cost – of domestic maids has forced more young, working parents to send their children to daycare centres.

Daycare Centre

Chris Hong, who runs two kindergartens-cum-daycare centres in Subang Jaya, said she and her staff looked after 40 to 50 children from 8am to 7pm daily.

The centres, which only cater for two-month-old babies to children aged six, provide lunch, homework coaching and other activities in the afternoon after the kindergarten session.

“There are even parents-to-be who register at the centre even when they are in the early stages of pregnancy.

“There is very high demand now and parents are looking for safe and trustable daycare centres,” said Hong, adding that she did not plan to set up more daycare centres as she wanted sufficient quality time with her three children.

A daycare centre operator on Penang island, who wanted to be known only as Sarah, said she and her partner were planning to set up two more centres on the mainland.

She added that she had received many enquiries for her services in Butterworth.

“We’re now working out the extra costs we have to bear for hiring more people and rental,” she said.

Technical services manager M. Manimaran felt that increasing the number of daycare centres was an effective alternative for the shortage of maids.

“After all, parents are looking for a safe and good daycare centre which can work around our working hours.

“The place I send my son to even provides transportation from his school to the centre.He gets proper meals and time to do some reading or his homework.

“We have no worries, even during the school holidays,” Manimaran said, adding that he received constant updates about the whereabouts and condition of his 10-year-old son from the daycare centre through WhatsApp.

Working mum Lim Lee, 46, said she would opt to send her child to a daycare centre and hire a part-time maid if her Indonesian maid could not multi-task.

“There is no way I can afford to get two maids,” she said.

Malaysian Maid Employers Association president (Mama) president Engku Ahmad Fauzi Engku Muhsein urged the Government to encourage more nurseries or daycare centres run by properly trained and certified Malaysians.

Such facilities, he said, would not only ease the burden of having to pay for maids but would also give parents peace of mind while they were at work.

Engku Ahmad Fauzi said the expense of using these centres should be tax deductible, adding that it was the Government’s responsibility to solve over-reliance on foreign workers.

These centres, he added, would also provide the local workforce with jobs, ensuring less capital flight from the country.

Ny Royce Tan The Star

Working mums ‘maid’ to pay sky-high fees for childcare


Back-up plan: With maids becoming a scarce commodity, more are turning to childcare centres

PETALING JAYA: Dr Subhashini Jahanath is highly educated, hard-­working and does 11 calls a month.

Like many other working mothers, she is now facing the added frustration of sky-high fees for domestic help.

“It’s the childcare that’s difficult – what happens if I get called up in the middle of the night? At the same time, I just cannot afford the fees for a new maid,” she said.

Even then, Dr Subhashini, 35, is one of the lucky ones as she can call on her family for help.

The Miri-based doctor’s father has flown in from Selangor to help take care of her four-year-old son Harraen.

“On days he has to go back to Selangor, I have to send Harraen along with him, which means increased cost and Harraen missing school. But it’s the only way.”

Lawyer V. Shoba, 37, is also blessed with parents who help look after her seven-year-old twins, but still needs a maid to help them.

“My parents are both in their early 70s and need some help with the kids. Having domestic help is not a luxury,” she said.

In 2009, she paid RM6,000 in agency fees and a monthly salary of RM650 for her first Sri Lankan helper.

“In 2011, I got another Sri Lankan maid. The agency fee was RM7,500 and monthly salary was RM850. In 2013, I got a Filipino maid. The agency fee was RM9,900 and the monthly salary was RM1,200,” she said.

The agency fee, she added, has now gone up to RM12,000 and the monthly salary to RM1,500.

“I also have to pay for her toiletries, food and utilities used. That is a chunk of money that could be used for education or even holidays.

For those who are away from their families, babysitters and part-time house help provide alternatives.

Not everyone can call in the grandparent squad, and some parents feel that childcare options out there are not good enough to make them viable alternatives to live-in domestic help.

Corporate communications manager Sonia Gomez, 30, said she could not find any childcare options that were both good and affordable.

“Independent babysitters aren’t regulated, so it would be very tough to cope without my helper, Lia. She is reliable and has a very strong bond with my son,” she said.

Some mothers are opting out of the workforce entirely to take care of their kids.

Stay-at-home mum Evelyn Thong, 37, said she had heard too many daycare horror stories to consider it.

“It’s also too much money to risk. If your maid runs away, you cannot recover your money,” she said.

By Suzanne Lazaroo The Star

Maids for specific tasks only 


PETALING JAYA: The days of having a multi-tasking maid who does everything from cooking and washing to caring for the baby and the elderly and even washing the car is as good as gone.

Malaysians must now be prepared to pay more for specialised help.

Source countries such as Indo­nesia want to send upskilled helpers for specific jobs like caregiver, babysitter or nanny, and not the traditional domestic maid.

Malaysian Association of Foreign Maid Agencies (Papa) president Jeffrey Foo said all that was needed now was a mechanism to ensure these helpers were properly trained and certified.

Foo said Papa was ready to work with the source countries to create a win-win situation.

“Local employers will be satisfied if they get what they are paying for, which are skilled helpers who can do the task they are hired for,” he said.

The Star reported yesterday that Malaysia is in a fix because neighbouring countries are not in favour of sending domestic help here.

Foo said Indonesia, where most of the foreign maids are from, is not closing the door entirely.

Instead, it is adopting a more professional approach with its policy to stop sending live-in maids from next year.

A possible solution, according to Foo, is for the Government to license companies to supply part-time domestic maids to households who need them.

These companies could take care of the maids’ lodging and food but this would require a shift in government policy.

Foo pointed out that foreign workers brought in as cleaners were not supposed to be sent to work as domestic maids at individual homes.

Malaysian Maid Employers Association president (Mama) president Engku Ahmad Fauzi Engku Muhsein pointed out that the current system of having maids stay under the same roof as their employers for two years was not always ideal.

“If you’re lucky, there’s harmony. Otherwise, you get two years of disharmony,” he said.

He echoed the view for local agencies to be allowed a supply of part-time maids.

Engku Ahmad Fauzi said there were currently different expectations between local employers and source countries such as Indonesia.

In Indonesia, helpers are hired and trained as caregivers to take care of infants, children and the elderly or as domestic workers who cook, clean and tidy.

M. Sarkuna, a 40-year-old Indonesian maid working here, said those who took care of babies, children and the elderly earned at least RM800 in Jakarta, while those who cooked could take home about RM700.

“The starting pay for those who do household work is only RM500,” she said.

In Malaysia, Engku Ahmad Fauzi said employers often took for granted that maids had to multi-task.

He said the best and most well-trained helpers were not sent here, yet “Malaysian employers want to pay the lowest for the best”.

The way forward, at least in the short term, was to hire maids from cheaper and better source countries besides Indonesia and Philippines, he said.

“But Malaysians need to stop depending on domestic maids in the long run,” he added.

By Neville Spykerman The Star

Engage maids directly instead of costly maid agencies in Malaysia

WHEN put in perspective, if a spouse in a Malaysian household resigns from her job as a substitute for a maid, with a conservative average monthly income of RM3,000, that is RM36,000 less on the household table.

Take into account 300,000 Indonesian maids that used to work here and you have a scenario, where families in this country will be forgoing RM11bil in potential household revenue.

It seems obvious that middlemen are trying to blatantly profit from the urgent need for maids.

On one side of the coin, you have Malaysian maid agencies who used to charge up to RM8,000 for securing a maid and when the Government announced a moratorium on fees chargeable, the Indonesia side immediately claimed the fee was too low (See article below).

Invariably, both the employer and the maid are the victims. In any employment sector, it is very unusual for a potential employee to pay a fee to be employed.

The argument for deductions put forth by maid agencies, that the deduction is for loans given to maids and for training, does not make sense.

Perhaps a holistic solution would be to allow Indonesian agents to open offices in Malaysia and work directly with Malaysian employers.

Create a maid training facility, where maids can arrive and be trained within a short period of 10 working days.

Such a facility can be co-sponsored by the Malaysian Govern­ment. All it should entail is 10 to 20 low- to medium-cost flats that can house 200 to 300 maids, with a common area that allows for training.

Concurrently, increase the maid’s salary to RM800 per month in lieu of any advance payment and no increase in the agent’s fee.

There should be no need for any advance payment with full payment to be made upon final selection, when the employer takes the maid home. Peg the agent’s fee at RM1,500, with reimbursements for other costs, from levy to travel, that must be substantiated with proper receipts.

This is similar to what is charged in Singapore.

The training programme should not cost more than RM1,500. Which means the total cost can be pegged between RM4,500 and RM5,000 at most.

Get agreement with the Indonesian government on the process for direct engagement with maids.

Maids should only be required to go through an orientation programme similar to Singapore’s SIP (Settling-In-Programme) for foreign domestic workers.

Maids should not be allowed to work for more than eight hours a day. If required to work overtime, they should be entitled to a minimum hourly rate of RM8 to RM10 per hour.

Create a toll-free number manned by agencies that will monitor the welfare of maids, to ensure their overall well-being at all times.

Souce: B. J. FERNANDEZ  Shah Alam, The Star views

Maid agencies: Fees are too low?


PETALING JAYA: Maid agencies are adamant that the RM4,511 fee imposed by the Government for Indonesian maids is too low, as the actual cost to recruit a maid is double the amount.

Many described the fee, which was agreed to in the Memorandum of Understanding (MoU) between Jakarta and Kuala Lumpur last year, as “impossible to meet” and said that they have been running at a loss while trying to comply with it.

An agency owner, who declined to be named, said that despite demand, his agency had stopped recruiting Indonesian maids as he would spend up to RM10,000.

He said the fees charged by Indonesian maid suppliers started at RM5,500 including training, medical check-up, transport and recruitment fees, as well as duit susu, which is a contribution paid to the families of the maids.

“If we are being charged RM5,500 per maid, how can you expect agencies to comply with a fee of RM4,511, especially now that the cost has gone up for everything, including air travel?” he asked.

He urged the Government to review the amount and consult both Indonesian and Malaysian agency representatives so that a more realistic fee could be set.

Malaysian employers had previously called for Papa to justify the increase in Indonesian maid fees by agencies by up to RM12,000 and asked for a breakdown of costs.

Some had also urged the association to pressure its members to comply with the agreed fee, saying that the high demand for maids would compensate for it.

A spokesman for another agency said her company was now charging RM9,800 per Indonesian maid.

“We have already lowered the fee, but we cannot do much as our Indonesian partners are charging close to RM6,000 per maid,” she said.

Association of Foreign Maid Agencies (Papa) president Jeffrey Foo said that prior to the morato-rium on maids from Indonesia, employers had no qualms about paying up to RM9,000 for domestic helpers.

“We voiced our disagreement on the RM4,511 fee when the Govern-ment consulted us as it is simply too low, and were shocked when they settled on that price in the MoU anyway,” he said.

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‘China-threat theory’ dismissed


COLOMBO: Chinese Defence Minister Liang Guanglie says Beijing’s increasingly close ties with South Asia are aimed at ensuring regional “security and stability” and are not intended to harm any “third party”.

Liang, the first Chinese defence minister to visit Sri Lanka, did not name India — where he heads to Sunday — but officials in New Delhi have expressed concerns about Beijing’s influence in Sri Lanka, Bangladesh, Maldives, Nepal and Pakistan.

India fears it might be part of a Chinese policy to throw a “string of pearls” — a circle of influence — around regional rival India.

But in a speech released by Sri Lanka’s military on Saturday, Liang said that China had only peaceful intentions in South Asia, while stressing that the Indian Ocean was an important supply route for his fast-developing country.

Beijing is seeking “harmonious co-existence and mutually beneficial and win-win cooperation” with countries in the region, he told a Sri Lankan army staff college on Thursday, according to a copy of the speech.

In New Delhi, the minister will be a guest of the defence ministry, an Indian government spokesman said, without giving details of what will be discussed.

India is warily eyeing growing Chinese clout in what New Delhi regards as its traditional sphere of influence.

Liang dismissed the “China-threat theory”.

“Some people in the international community suspect that China would take the road of expansion with force and have been actively spreading the ‘China-threat theory’,” he said.

“The People’s Liberation Army (China’s armed forces) efforts in conducting friendly exchanges and cooperation with its counterparts in South Asian are intended for maintaining regional security and stability and not targeted at any third party,” he added.

Liang said his trip to Colombo was aimed at further strengthening close ties with Sri Lanka, including military cooperation.

China is a key supplier of weapons to the Sri Lankan military, which in 2009 crushed the Tamil Tiger rebels and declared an end to 37 years of ethnic conflict that claimed up to 100,000 lives on the island, according to UN estimates. – AFP


Respond calmly to ‘China threat theory’

China has won acclaims for its significant economic and social achievements since the reform and opening-up, but at the same time it has been seen as a threat by many countries.

Conflict of interest, an underlying cause of “China threat theory”

The “China threat theory” is caused by the country’s rapid growth in economic and military strength, and is bound to accompany the country’s rise as a great power.

In the eyes of certain Western powers, China’s rise poses a challenge to the traditional Western-led international order and geopolitical landscape. According to the history of capitalism’s rise, the rise of all great powers was accompanied by the use of force and wars. For example, the rise of the United Kingdom, the United States, Germany, and Japan all followed the same old path of wealth accumulation, military buildup, and military expansion. Western international relations theories formed on this basis, be it the Western power shift theory or hegemony transfer theory, believe that China’s rise will cause a shift of power among countries and break the existing international order, which will cause global instability and even wars.

Therefore, the real reason for Western countries to propagate the “China threat theory” is that they are afraid that China will challenge the existing international status when it becomes strong. The western countries hope to restrict the rise of China by means of the “China threat theory.”

“China threat theory” has dual effect of containment and stimulation

In order to curb and interfere with China’s development, the Western countries hype the new round of “China threat theory.” However, the result is counterproductive. The “China threat theory” exaggerated by the Western countries for decades produced a dual effect of containment and stimulation.

On one hand, the “China threat theory” damaged the image of China and deterred the development pace of China. It deteriorated the surrounding environment of China to some extent and made China must face a more complex international environment and withstand more external pressure.

On the other hand, as an imposed power, the “China threat theory” strengthened China’s sense of crisis and stimulated the rise and development of China. According to the “challenge-response” theory of British historian Arnold J. Toynbee, the organism will instinctively produce a series of effective responses in the face of challenges and ultimately promote its development.

Take a calm and initiative attitude in response to “China threat theory”

The “China threat theory” has become a preferred tool in the domestic politics of some countries, and has become a power discourse in the international community. Whenever some countries suffer from relevant domestic political issues, they often take the “China threat theory” as shields. For example, in the currently heated U.S. presidential election, the “China threat theory” is the stock in trade of the Obama administration. Facing the “China threat theory,” we have to be calm and initiative, but also take the following effective methods.

Firstly, have a calm state of mind compatible with other dominant countries. Secondly, continue to promote and intensify international cooperation. Thirdly, actively build a favorable national image. Fourthly, unswervingly follow the road of peaceful development.

Therefore, the fundamental way to offset the negative effects of “China threat theory” is to vigorously develop China’s national strength. Besides, we should concentrate on our own business so as to ride out the current critical period of development. By then, the “China threat theory” as a special historical symbol in China’s development process will naturally fade.

Read the Chinese version at

By Shi Qingren (China Youth Daily)

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