Make environment our 2018 priority

Our Environment is Our Life - YouTube

THE year has barely started, and already we have so many reports of weather and climate-related events.

Heavy wind, snow storms and below-freezing temperatures paralysed cities in the United States’ East Coast. New York’s John F. Kennedy International Airport was in chaos with hundreds of flights suspended.

Yet, just weeks previously, big fires linked to a heat wave were sweeping through parts of California on the West Coast, burning 112.000ha of forest and threatening lives and homes.

Colder weather in one place and hotter temperatures in another are signs of global climate change, which can also cause heavier rainfall and drought in different regions.

While it is difficult to pin down any particular incident as a direct result of climate change, it is recognised scientifically that climate change generally exacerbates extreme weather events and may cause some of them.

We can expect the weather, and more broadly the environment, to figure prominently this year.

The alarm bells sounded long ago on the environmental crisis. But it is not easy to achieve a continuous high level of concern among political leaders.

After a calamity and public outrage, there are pledges to correct the situation. However, the interest fades after a while, and not much action is taken, until the next disaster happens.

In Malaysia, people are now looking at the sky constantly to anticipate whether it is going to rain.

Heavy rainfall has been causing floods in Kelantan, Terengganu, Pahang, Johor, Negri Sembilan, Kedah, Selangor, Sabah and Sarawak.

In Penang, severe state-wide flash floods seem to be occurring every few months, with localised flooding in several areas in between. The mud brought down from eroded hill-slopes into overflowing rivers and then into houses, makes floods an even worse nightmare for those affected.

For some unlucky ones, hardly have their houses and furniture been cleaned than they are under one metre of water again through a new flood.

Heavier rain and more floods is the new normal in Malaysia. There has been an increase in rainfall for most parts of the country in 2000-2009 compared to 1970-1999, with the major increase in 2005-2009, according to a 2012 paper by Yap Kok Seng, then the head of the Malaysian Meteorological Depart­ment (MMD), and his colleagues.

The global temperature increase has led to changes in weather including major wind patterns, amount and intensity of precipitation, and increased frequency of severe storms and weather extremes, according to the paper, Malaysia Climate Change Scenarios.

In Malaysia since the 1980s, there had been increasing number of days of extreme rainfall events, extreme wind events and annual thunderstorm days, added the paper.

Unfortunately the situation will worsen. A study published on Jan 10, whose authors are affiliated with Germany’s Potsdam Institute for Climate Impact Research, predicted that millions more people will be affected by river flooding as global warming increases severe rainfall in the next 20 years.

In Asia, the most affected region, people at risk from floods will rise to 156 million from the present 70 million in the next 20 years.

Global warming increases the risk of flooding because rain during an extreme downpour “increases exponentially” as temperatures rise, the institute’s Anders Levermann told Reuters.

“We have to adapt to global warming. Doing nothing will be dangerous,” he said.

Countries will have to act urgently and make major investments in flood protection to boost their flood defences, according to the report.

This advice surely applies to Malaysia as one of the countries already being affected by heavier rainfall and extensive river flooding.

Flood mitigation measures must be increased, including de-silting, widening and deepening rivers, improving urban drainage, strengthening river banks, redirecting water flows, constructing tidal gates, and pumping excess water into ponds.

Even more important is flood prevention. A main cause of the floods is deforestation, leading to the loss of the forests’ valuable roles in soil and water retention and climate regulation.

It is really short-sighted and irrational to damage and destroy forests, especially forest reserves and water catchment areas.

Exposed soils are swept by rain into rivers, clogging up streams and drains with mud and causing floods downstream in the towns and villages, while also depriving us of much-needed water supply.

There is a great deal of public concern over recent developments that threaten forests and hill lands in the country.

These include the de-gazetting of the Ulu Muda water catchment area in Kedah; the de-gazetting of hill lands in Penang that previously were protected under the Land Conservation Act and which are now being “developed” with the aid of higher permitted density ratio; the conversion of 4,515ha forest reserve to cultivate oil palm plantations in Terengganu (being opposed by WWF-Malaysia); and protests over the imminent loss of a forested park in Taman Rimba Kiara in Kuala Lumpur to make way for housing.

Federal, state and local governments should give priority to environmental rehabilitation of damaged forests and hills, prevent damage to the coastal ecosystem including mangroves, and take comprehensive flood prevention and mitigation measures.

They should stop approving environmentally harmful projects in ecologically sensitive areas.

They must make major financial allocations to protect and rehabilitate the environment, and implement finance measures to prevent and manage the floods.

As so many scientists are warning, and as more and more local communities and citizen groups are demanding, the time to act on the environment is now. Let us hope that in 2018 these calls will be heeded.

Global trends by Martin Khor

Martin Khor is executive director of the South Centre. The views expressed here are entirely his own.

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Era of financial vulnerability

 The stock market crash in China and around the world shows how developing countries like Malaysia are increasingly vulnerable to financial shocks, including outflows of foreign funds


THE year 2016 started with a big bang, but the kind we would rather avoid. The Chinese stock market plunged for several days, causing panic around the world, with the markets also falling in many countries, East and West.

This is another wake-up call to alert us that finance has become inter-connected, indeed much too inter-connected, globally.

Many developing countries like Malaysia have been drawn into the web of the global financial system in manifold ways, and that has made them more vulnerable to adverse developments and shocks.

We are now in an era of financial vulnerability, which easily turns into vulnerability in the real economy of GDP growth, trade and jobs.

An immediate issue is whether the rout in China’s stock market will affect its real economy, in which case there will be serious effects.

One view is that it would contribute to a “hard landing” as the Chinese economy already has many problems.

Another view, more realistic in my view, is that the spillover to the real economy will not be significant. A paper by Brookings-Tsing­hua Centre shows that the inter-connection between the stock market and the economy is limited in China.

In the United States, half the population own stocks and corporations rely heavily on funds raised in the stock market, but in China less than 7% of urban Chinese invest in the stock market and corporations rely much less than American companies on the stock market to raise funds.

Nevertheless, China’s economy is expected to slow down this year. Other factors also add to a pessimistic outlook for developing countries.

These include continuing weak conditions in Europe and Japan, that may offset the US’ more steady recovery; the expected interest rate rises in the US, which will draw portfolio funds out from developing countries; and weakening of commodity prices.

Already many developing countries are suffering on the trade front. In Malaysia, exports in November 2015 grew only 6.3% from a year earlier. More worrisome, Malaysia’s industrial production, also in November, grew by only 1.8% from a year earlier.

Other Asian countries fared worse. Korea’s exports for the whole of 2015 fell 8%. Taiwan’s exports are also expected to have fallen 10% last year and Singapore’s manufacturing sector declined 6% in the most recent quarter.

China’s exports in December fell 1.4% from a year earlier but imports fell more, by 7.6%, which is bad news for other countries as China has less demand for their exports.

But of equal if not more concern is how, in the financial area, emerging economies like Malaysia have in new ways become more dependent and vulnerable in recent years.

Foreign presence in these countries’ domestic credit, bond, equity and property markets has reached unprecedented high levels, and thus new channels have emerged for the transmission of financial shocks from global boom-bust cycles, according to a South Centre paper by its chief economist Yilmaz Akyuz. (http://www.southcentre.int/research-paper-60-january-2015/)

During a boom, there is a rush by yield-seeing investors to place their global funds in emerging economies. But when perceptions or conditions change, the same funds can exit quickly, often leaving acute problems and crises in their wake.

Malaysia is among the vulnerable countries. Firstly, the fall in the prices of oil (on Jan 12 reaching below US$30 a barrel) and other commodities has affected export earnings.

The balance-of payments current account used to enjoy a huge surplus, but this has been shrinking.

In 2010–13 there were very high inflows of foreign funds into Malay­sia, averaging over 10% of GDP. But by 2015 there was a sharp reversal, with foreign funds flowing out from the equity and bond markets.

Malaysia is vulnerable to large outflows as foreigners in recent years have built up a strong presence in the domestic bond and equity markets. Foreign holdings of bonds (public and private) peaked at RM257bil in July 2014. And the share of foreign holdings in the stock market was 23.5% at the end of 2014, indicating a foreign-holding value then of around RM400bil.

Many billions of ringgit of foreign-owned bond and equity funds have been leaving the country in the past couple of years, especially 2015.

Due partly to this, Malaysia’s foreign reserves have fallen from US$130 bil in September 2014 to US$95.3bil at end-December 2015.

Although the present reserves are adequate to cover imports and short-term external debt, they are also vulnerable to further outflows of foreign-owned funds in equity and bonds.

Debt held by Malaysians is also high compared to other countries, according to another paper by Akyuz. Debt by households was estimated at 86% of GDP in first quarter 2015 by Merrill Lynch. Public debt is near to 55% of GDP (compared to an average 40% for developing countries covered in a McKinsey report). And corporate debt is estimated to be about 90–96% of GDP.

The overall local debt is thus very high, probably exceeding 200% of GDP, one of the highest ratios among developing countries. Thus, the country has financial vulnerabilities at both the external and domestic fronts.

What the country faces is part of a trend among emerging economies that is likely to last for some time. Many other countries are in far worse shape than Malaysia.

In an article last week, Martin Wolf of the Financial Times highlighted the important shift in perception by investors of the prospects for emerging economies, that has resulted in capital flowing out.

Global investors withdrew US$52bil from emerging market equity and bond funds in the third quarter of 2015, the largest quarterly outflow on record. The most important reason for this is the realisation of the deteriorating performance of the emerging economies, according to Wolf.

Thus, developing countries are in for a tough time this year. Of course the vulnerabilities may not translate into actual adverse effects, if global or local conditions improve. But it is better to prepare for the probable difficulties ahead.

By Martin Khor Global Trends

Martin Khor (director@southcen tre.org) is executive director of the South Centre. The views expressed here are entirely his own.