Malaysia: Jomo warns on CPTPP and asset bubbles

PROMINENT economist Prof Dr Jomo Kwame Sundaram has warned of looming threats arising from escalating tensions between two of the world’s largest economies, vulnerabilities in emerging markets (EMs) and the rise of digital monopolies.

The worsening US-China trade war is expected be a drawn-out affair with many countries looking to push for multilateral trade deals to rebuke anxiety over a potential global economic fallout.

However, Jomo said regional partnerships, such as the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP), tend to benefit a small number of international firms and have limited benefits for emerging economies like Malaysia.

The latest report by the United Nations Conference on Trade and Development (UNCTAD) titled “Trade and Development Report 2018: Power, Platforms and the Free Trade Delusion” argued that heightened anxiety in developed countries has led to some questioning of the official story of shared benefits of trade.

In the case of the CPTPP, Jomo said certain provisions such as the strengthening of intellectual property rights would see developing economies like Malaysia coping with higher costs of medicines.

“We are entering a period of likely protracted trade conflict. Malaysia has to prepare for this, not by simply signing up for trade agreements which do not give us much advantage, but instead take proactive measures to promote new areas of investment and production. We should try to take advantage of the manner in which these trade conflicts are being developed.

“This is because the focus of the US administration is on bilateral conflicts. We are not involved in those bilateral relations. So, there are opportunities for us,” he told a media briefing on the UNCTAD report on Wednesday.

Meanwhile, Jomo said the change in international monetary policy, particularly the flow of funds into US markets due to higher interest rates, will see many EMs under a great deal of stress and become more vulnerable to financial investors.

“This is especially true in areas where there is an asset price bubble like the property market which is financed by debt. The authorities must be prudent and perhaps be unpopular to prevent the bubble from turning into a crisis,” he said.

Local think-tank Institute for Democracy and Economic Affairs is already expecting the Malaysian real estate bubble to burst sometime next year as the property market overhang has not been resolved.

Jomo also cautioned the rise of digital monopolies and the manner in which data is used to enhance profits of big tech players globally.

“In this situation, Malaysia has to think very carefully about appropriate policies so that we can also benefit from the further development of the digital economy.

“We should learn from the recent European Union’s restrictions on Google Inc and how they may be relevant to our situation in Malaysia, given Prime Minister Tun Dr Mahathir Mohamad’s emphasis on the Multimedia Super Corridor.

“We cannot expect the development of the digital economy will benefit all of us,” he said.

European antitrust regulators fined Google €4.34 billion (RM21.09 billion) in July after the US tech firm required smartphone manufacturers to preinstal Google’s search and browser apps on devices using its Android operating system. Manufacturers that refused Google would not be allowed to use its Google Play online store and streaming service.

Source: The Malaysian Reserve