EIA2004 CRITICAL THINKING IN ECONOMICS

SEMESTER 2

SESSION 2021/2022

LECTURER : DR. GOH LIM THYE

SUMMATIVE ASSESSMENT

NAME : NABILAH BINTI TALIB

MATRIC NO : 17204258
1. An executive summary is a thorough overview of a research report that synthesizes
key points for its readers, saving them time and preparing them to understand the
study's overall content. Based on the definition above, in no more than 150 words, briefly
transcribe an executive summary for the above article (20 marks)

Russia's invasion of Ukraine will have a ripple effect on the global economy, resulting in slower
growth and higher prices. There will be three primary effects: rising commodity prices, disruption
of trade, supply chains, and remittances in adjacent countries, as well as decreased business
confidence. Expenses are rising, and the number of refugees is surging across Europe. Food
and energy costs are expected to rise, while global financial conditions are expected to tighten.
About 80 percent of Egyptian wheat imports come from Russia and Ukraine. ASEAN countries,
India, and frontier economies would bear the brunt of the current-account consequences.
Russian aggression in Ukraine has already reverberated across the region and the globe, and
the need for a global safety net and regional mechanisms to protect economies has never more
clearer.

(130 words)

2. As highlighted in the article “Beyond the suffering and humanitarian crisis from
Russia’s invasion of Ukraine, the entire global economy will feel the effects of slower
growth and faster inflation.”

a. Illustrate FOUR (4) possible impacts of the said conflicts on a developing country
like Malaysia.

The conflict between Russia and Ukraine, which has been predicted to have an impact
on the prevailing economic trends in Malaysia, is in the process of really materialising as
a fact. The country seems to be in the middle of a "war" of price spikes, which results in
a rise in food inflation and has never happened before in the history. In the wake of the
COVID-19 pandemic disaster, which is still in the endemic transition phase, the food
inflation crisis that followed skyrocketing commodity prices in the public market
encourages a new burden to be placed on the populace. This new burden is being
encouraged by the fact that the public market witnessed skyrocketing commodity prices.
According to the Malaysia Nanban, a Tamil daily newspaper, Malaysians have been
spending quite a bit more money than normal on food and beverages since the previous
year as a direct result of the substantially increasing prices of commodities. This is in
comparison to the typical amount. The rise in costs of commodities, especially those
relating to products found in the food and beverage industries, is largely responsible for
the weight of inflation that is now being experienced in the food industry. Because of this,
there has been a rise in costs equal to 89.1 percent of the total amount.

According to a recent announcement made by the Department of Statistics Malaysia

(DOSM), the consumer price index (CPI) rose to 125.9 in April 2022 from 123.1 in the
same month in 2021. This is a 2.3 percent increase. The rise was higher than the
average rate of inflation for the period beginning in January 2011 and ending in April of
the previous year, which was 1.9 percent. During this time, there was also a rise in the
availability of raw food products, particularly vegetables, meat, fish, and shellfish. The
rise in cost of vegetables of 4.5 percent has significant repercussions for the spending
habits of individuals.

As a direct result of the conflict between Russia and Ukraine, prices of food throughout
the world have increased, placing underdeveloped countries at greater danger of
experiencing food shortages. Even before the commencement of hostilities in Ukraine,
food insecurity throughout the world had been steadily increasing. Both Ukraine and
Russia contribute significantly to the production of wheat and sunflower oil on a
worldwide scale; correspondingly, Ukraine accounts for 62 percent and Russia for 29
percent. As a consequence of this intrusion, food prices may increase in some of the
world's most impoverished and vulnerable countries, which might have a domino effect
on other aspects of those nations' economies.

The conflict between Russia and Ukraine, for example, presents a threat to
Bangladesh's recent gains in this area. Despite having a population of 165 million people
in 2021, 38% of workers were worked in agriculture and fishing, as the economy grew,
the number of people who were undernourished declined from 16% in 2000 to only 9.7%
in 2019. Food insecurity was exacerbated by the COVID-19 outbreak, yet the country
exhibited amazing resiliency in a variety of ways: The IFPRI found that the proportion of
rural households experiencing moderate or severe food insecurity increased from 15% at
the beginning of 2020 to 45% in January 2021, but by the end of 2021, it had returned to
the levels it had been at before the epidemic. As a result of a record-high price increase
for basic necessities in Bangladesh in March 2022 and fluctuating fertiliser market
circumstances, that comeback in 2021 is now at risk.

Moreover, disruptions in global supply chains are having an influence on companies

operating in Malaysia, both those that are locally owned and those that are owned by
international corporations due to impact of this conflict.Before Russia invaded Ukraine,
the world was already striving to find a means to respond to the constant interruptions in
global supply chains that were created by the Covid-19 virus. This was before Russia
invaded Ukraine. As an illustration, the cost of global container freight, which is the
amount paid to transport a container from one location to another via a maritime route,
has more than doubled over the course of the previous year due to a number of reasons
related to Covid-19. In other words, the price of global container freight has skyrocketed.

The continuing crisis in Ukraine will not make it any easier to fix the interruptions that
have occurred in the global supply chain. These disruptions have been caused as a
result of the conflict in Ukraine. For instance, since airlines are being compelled to adjust
their flight patterns in order to avoid the areas that are touched by the conflict, the prices
of air freight may need to be raised. This is because of the greater risk of cargo being
lost or damaged as a result of the war. If Russian aggression threatens to spill over into
states neighbouring Ukraine, there is a larger possibility for even more severe
disruptions to global supply chains. This is because of the increased likelihood that
Russia will cross over.

Even though our direct exposure to the economies of Ukraine and Russia is limited, the
negative impact of these disruptions on the cost of doing business in Malaysia will
definitely be felt, particularly by businesses that are a part of the global manufacturing
supply chain in the country. Because Malaysia is a nation that encourages open trading,
even though our direct exposure to the economies of Ukraine and Russia is limited, the
cost of doing business in Malaysia will increase as a result. Despite the fact that our
direct exposure to the economies of Ukraine and Russia is very low, this will be the case
nevertheless.

An further consequence of Russia's invasion of Ukraine is it could affect interest rates

around the world, particularly in emerging countries like Malaysia. Even before the crisis
broke out in Ukraine, there was already a lot of pressure being placed on central banks
all over the world to increase their interest rates in order to battle the increasing danger
of inflation. This was done in order to combat the rising threat of inflation. Because of
this, the Federal Reserve, the European Central Bank, and other central banks are
under significantly more pressure to raise their interest rates than they were already
under because of the rise in the price of oil and other commodities. This is in addition to
the pressure that they were already under.

As soon as this takes happen, there will unquestionably be a lot of pressure put on Bank
Negara to behave similarly and increase our interest rates, especially in order to prevent
a fall in the value of the ringgit. This is because of the importance of maintaining the
stability of our currency. The most recent increase in our interest rates will have a
negative impact on anybody who is presently making payments on a mortgage or any
other kind of bank loan. Enterprises that have taken out bank loans will also face the
repercussions of an increase in interest rates, and some of these businesses may pass
on to their consumers the additional financing expenses that have resulted from the hike
in interest rates.

Recently, despite warning that the situation in Ukraine has become a "key" threat to the
world economy and trade, Malaysia opted to hold its benchmark interest rate at a record
low in order to support the country's nascent economic recovery. The Bank Negara
Malaysia maintained the overnight policy rate at 1.75 percent on Thursday, as expected
by all 22 analysts who participated in a Bloomberg survey. The cost of borrowing money
has been unchanged since July 2020, and experts predict that the normalisation of
monetary policy will begin in the second half of this year. Notwithstanding the domestic
and international economic improvement, the central bank issued a warning that
Russia's invasion of Ukraine constituted a possible threat.

Lastly, in terms of Malaysia's international trade, a decrease in demand from Russia and
Ukraine would have only a minor impact on the country's exports. Malaysia's total
exports to Russia and Ukraine combined accounted for just 0.4 percent of the country's
total exports in 2021. Even though the pandemic was not yet in full swing, this ratio
stayed constant at 0.4 percent of overall exports from 2015 to 2019. Similarly, Russia
and Ukraine accounted for just 0.6 percent of Malaysia's total imports the previous year.
This value is calculated based on imports. Malaysia's trade with Russia and Ukraine
 amounted for less than one percent of total trade in the preceding year. As a result,
Malaysia's total trade with Russia and Ukraine amounted for just 0.5 percent of its total
trade.

Even though the direct impact would be minor, the E&E sector should be concerned
since prolonged supply disruptions will have a chilling effect on both the level of global
output and the number of international trade activities in 2018. Furthermore, weaker
export demand, particularly from European and other regional countries involved in the
global supply chain of the semiconductor business, may have an indirect influence on
the projection for international commerce. In 2021, exports to the EU-27 countries
accounted for 8.4 percent of total trade and 8.1 percent of total trade in Malaysia.

b. Based on the information provided in the article, what could be the best FOUR (4)
policies that you could propose to the policymakers to mitigate the impact of the
crisis from Russia’s invasion of Ukraine on Malaysia?

Because of the war between Russia and Ukraine, it is essential for countries to extend
the scope of their exports in order to boost their exports. This is because of the conflict.
The new approach to analysing variety underscores the need of effectively reducing the
length of the geographical divide between nations by increasing the level of
connectedness between them. This is of utmost significance for governments that have
set their sights on broadening the scope of the different types of trade flows. Improved
transportation logistics, such as those found at seaports, may effectively reduce travel
distance by reducing the amount of time it takes for goods to travel between sites. This
may be accomplished by cutting down on the amount of time it takes for goods to move
between places. Other helpful policies include lowering barriers imposed by trade
policies, increasing the ease with which trade can be conducted, encouraging the
dissemination of technology through educational exchange programmes, and investing
in communication technologies like broadband that are essential to the functioning of the
digital economy. All of these policies will help the digital economy thrive.
It could seem to be difficult to strengthen horizontal policy, particularly for nations with
smaller revenues. On the other hand, a select number of nations have legal systems that
are observably more strict than one would assume given the quantities of wealth that
they possess. With regard to governance, one of these nations is Rwanda; with regard to
educational attainment, Georgia and Ukraine; with regard to infrastructure, Malaysia; and
with regard to tariffs, Mauritius and Peru; and with regard to tariffs, Malaysia. These
nations' economies have the potential to act as examples for others to emulate and
should be considered as such.

This reality does not in any way weaken the potentially value of help that is more
narrowly focused on particular sectors. On the other hand, the levers of industrial policy
may sometimes be less successful or even harmful to their intended purpose. It is
possible that fiscal capacity will decrease, that there will be a "race to the bottom" in
terms of taxation, and that multilateralism would weaken as a result of these trends. In
addition, there is not a single piece of statistical evidence that can be compared across
nations to demonstrate that they are effective. Instead, export diversification and
complexity may be fostered more effectively by diversification programmes that are
based around bigger policies and more connections. These strategies are also less
problematic.

Another policy that should be adopted is a fiscal policy in order to minimise the severity
of the crisis that was brought on by Russia's invasion of Ukraine and its repercussions
on Malaysia. This crisis was brought on by the impacts that the invasion had on
Malaysia. Rice and oil are examples of essential food commodities, and according to the
minister, "in order to minimise the effects of increasing costs, the government has taken
measures to stabilise prices on what we consider to be essential food commodities.".
Through the provision of subsidies and many other types of financial assistance, the
government has made it possible for citizens to acquire food items and other essentials
at prices that are within their capacity to pay, so ensuring that people are able to live
within their means. In addition, it is the responsibility of the government to ensure that
individuals who are qualified for the assistance and subsidies that are already in place.

Examples of this include cash transfers, price subsidies for gasoline and food, and other
forms of assistance that are geared toward people who have low incomes. In a larger
sense, governments should aim to improve their social safety nets in order to decrease
the impact that rising food and energy costs have on those with lower incomes. This can
be done in order to lessen the effect that rising food and energy prices have on people
with lower incomes. For example, the government only recently released a statement
about an additional Bantuan Keluarga Malaysia (BKM) payment of RM100 for the B40
family category and RM50 for those who live alone.

In addition, in order for businesses in Malaysia to be able to weather the disruption, they
will need to ensure that they have access to alternate sources of supplies and diversify
the components of their supply chain. They are able to construct a list of suppliers as
well as businesses that can fulfil orders for each step in the supply chain as well as for
the many different kinds of items or services that are required. In the event that anything
goes wrong with their principal source, firms will have fast and simple access to a choice
of other vendors from which to choose.

The process of ensuring that businesses have the appropriate personnel available in the
appropriate locations in the event that problems arise in a particular location is referred
to as diversifying a company's supply base. This process ensures that businesses are
prepared to deal with any issues that may arise in a particular location. Finding suppliers
that have manufacturers or supplies located in many locations and who themselves have
a varied supply base may assist in mitigating the effects that are caused by disruptions
in the supply chain. For instance, if labour shortages in the Malaysia cause disruptions in
supply chains, a company that is able to locate a supplier that also has plants in other
countries will suffer less severely from the labour issue. This is because the company
will have more options for where to locate its plants.

Last but not least, the government should make it easier for individuals to get food in
order to reduce the prevalence of food insecurity. When it is absolutely required,
providing individuals who are in need with access to nourishing meals via the medium of
humanitarian aid. It should be well supported, and governments, NGOs, and
international organisations should be able to supply it. With immediate effect, the food
export restrictions will not apply to the World Food Program's (WFP) purchases of food
for humanitarian aid. At the 12th Ministerial Conference of the World Trade Organization,
which is scheduled to take place in June 2022, members of the World Trade
Organization will have the chance to officially accept this policy. As soon as it is
accepted, the government of Malaysia need to put it into effect.