THIRTY-FIRST NATIONAL ECONOMIC BRIEFING

Official Opening by

YB Datuk Johari bin Abdul Ghani Minister of Finance II

Parkroyal Hotel Kuala Lumpur Plaza 1, Lower Lobby

26 July 2016

MALAYSIAN INSTITUTE OF ECONOMIC RESEARCH

Malaysia's ability to adjust to Global Oil's new normal of low prices The fall in crude oil prices have greatly impacted the global economy and exchange rates of most nations. It has also adversely affected Malaysia's trade balance. Ironically this global phenomenon tested the resilience of Malaysia's economic structure while exposing its weaknesses. Balance of trade and external reserves were the most vulnerable and susceptible to external vagaries. Why did this happen and subsequently what steps can be taken to mitigate the aftereffects and repercussions? Oil and Natural gas are the precursors of petroleum-based products and petrochemicals. Even electricity is generated from fossil fuels. As an upstream product, petroleum has a high commercial value. This not surprisingly, is referred to as 'black gold' that flows. Role of Oil & Gas in Economic Development Oil & Gas plays a crucial role in the Malaysian economy. This commodity contributes to approximately 15% of export value and 30% to Federal Government’s revenue. Broadly speaking, there are two main categories, which are refined petroleum (downstream) & crude petroleum (upstream). A quarter of Oil & Gas exported is in crude form, the remainder refined. Malaysia is net exporter of crude petroleum, however she is a net importer of petroleum products. Emerging markets begin to experience a situation of both declining commodity prices & exchange rates, since August 2014. In the case of Malaysia it is important to understand the structure of the market and structure of production to clearly understand how crude oil prices impact the national economy. Crude Oil is quoted in US Dollars as with other commodities, the implication being that some quarters allege that this benefits the United States, as its own currency (i.e., the US dollar) has become the de facto international reserve currency. One of the major obvious benefits is that the US would not face a balance of payments crisis, because it purchased imports in its own currency. This is referred to as “Exorbitant privilege”, the term was first coined in the 1960s by Valéry Giscard d'Estaing, then the French Minister of Finance who served under Charles de Gaulle. A common question among those in geopolitics is when China’s GDP overtakes that of the US, will the US Dollar share the fate of the sterling and Britain's historic economic dominance. There was a time when Britain was the world's largest economic power and her currency the global reserve currency. Some, however, do not think the dollar is about

to be vanquished as sterling was, rather, a “multipolar” system of international currencies may emerge. This inspired Barry Eichengreen who teaches at the University of California to write the book “Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System” in 2011. Impact of crude oil prices on Malaysian Economy In the case of Malaysia and other emerging economies, the Balance of Payment is affected. Falling global crude oil prices will impact our economy, for example we will have to produce more oil if we want to maintain the same output value. The magnitude of the impact on GDP is determined by the structure of the Economy. To be more specific, how is everything technically related to each other and how much value addition will be generated for each unit of output? We have experienced a somewhat prolonged balance of trade surplus and this was a relief. However of late this surplus is declining and this declining trend will affect Balance of Payment. In addition, remittances of funds by Foreign Workers in Malaysia will also put heavy pressure on Balance of Payment. This is because though they number many, most of the Foreign Workers in Malaysia are actually not very skilled or productive. Changes in oil prices will exogenously affect the US Dollar and subsequently exchange rates of all currencies including the Malaysian Ringgit. Our external reserves are managed by Bank Negara Malaysia. Because reserves are in dollar-denominated assets, it is subject to exchange rate volatility. Fortunately, the Strategic reform initiatives (SRI) undertaken as part of the New Economic Model (NEM) have somewhat mitigated the severity. In the final analysis, the current global malaise exposes whatever weaknesses there are in our economic structure and makes it even more pressing for us to transform our economy. MIER's National Economic Briefing is a forum for discussing these and other issues of concern to the Malaysian economy. We will be presenting the results of the second quarter 2016 Business Conditions and Consumer Sentiment Surveys during the briefing. The results of MIER's other four industry surveys covering automotive, residential property, retail trade and tourism will also be presented. Targeted at senior management and industry captains, the briefing provides a platform for frank discussions and debates. Come join us and keep abreast of the latest happenings in the Malaysian economy. Attendance is limited and will be on a first-come, first-served basis.

PROGRAMME

Tuesday, 26 July 2016 8.30 a.m. – 9.00 a.m. Registration 9.00 a.m. – 9.30 a.m. Opening Remarks

Emeritus Professor Dr Zakariah Abdul Rashid Executive Director, MIER Address and Official Opening YB Datuk Johari bin Abdul Ghani Minister of Finance II 9.30 a.m. – 10.00 a.m. Refreshment 10.00 a.m. – 11.30 a.m. National Economic Briefing

National Economic Outlook, Business Conditions, Consumer Sentiments , Automotive Industry, Residential Property, Retail Trade and Tourism Market Perspectives Emeritus Professor Dr Zakariah Abdul Rashid

Executive Director, MIER 11.30 a.m. – 12.00 p.m. Q & A 12.00 p.m. – 12.30 p.m. Special Topic: The Economic Impact of Lower Oil Prices on Retail Price of Food Dr Khalid Abdul Hamid, Senior Research Fellow (INTAN) & Associate Research Fellow (MIER) 12.30 p.m. – 1.00 p.m. Q & A 1.00 p.m. – 2.00 p.m. Lunch (Chatz Brasserie)

Registration Fees : RM 530.00 each for MIER Members Inclusive of 6% GST RM 636.00 each for Other Inclusive of 6% GST

THIRTY-FIRST NATIONAL ECONOMIC BRIEFING

26 July 2016, Lower Lobby, Plaza 1, Parkroyal Hotel, Kuala Lumpur

REGISTRATION FORM

Fees : HRDF claimable GST No : 001938624512 HRDF: myCOID 149064U

* RM 530.00 each for MIER Members Inclusive of 6% GST * RM 636.00 each for Other Inclusive of 6% GST

The fees include presentation material, refreshment and lunch. All registration must be received by MIER not later than 22 July 2016. Cancellations and refunds will not be made after that date. However, substitution will be allowed if made at least 72 hours before the Conference.

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(If there are more than one participant from the same organisation, please attach a separate list). Please tick ( √ ) at the appropriate box: ❑ MIER Member ❑ Others Payment details: ❑ Please invoice accordingly ❑ Enclosed is a crossed-cheque (No) _______________________ for the amount of MYR_____________made payable to the MALAYSIAN INSTITUTE OF ECONOMIC RESEARCH _______________________ _____________________________ Date Signature of contact person and company stamp (RSVP (603) 2142 0091/21425895/21425897, Fax: (603) 2141 0131, e-mail: isnani@mier.org.my, faizah@mier.org.my (Attn: Ms Isnani Ismail/Ms Faizah by 22 July 2016)