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Sakmongkol ak 47

ariff.sabri@gmail.com

Thursday, 4 December 2008

Some cautionary notes to the Finance Minister

We're being suffocated by a clique of irresponsible, innumerate charlatans. Politicians of various shades who know little of economics, and even less about responsibility are running their mouths around the country. Under cover of the current global crisis, they've let rip an economic agenda that threatens the whole country. And just as worrying is the opposition’s ' woeful reaction – long on rhetoric, but shamefully lacking in the resolve needed to rescue us from this mess. They are more interested in debating the cancelled purchase of puma helicopters; Anwar Ibrahim has even done us more damage preferring to deflect our attention by giving excuses on the failures of his putsch. We are not interested in your fairy tales Dato Seri.

Only a few months ago, ministers, bankers and economics illiterate politicians told us Malaysia was "well placed" to deal with the global slowdown. I remember one prominent banker thanked God we are insulated. Now we're seeing measures that throw any notion of prudence, or sound financial management, to the wind. After the budget, the Government hastily presented as a fait acompli, a stimulus package.

It was announced but not yet implemented. As with the main budget, where does the government look for this RM7 billion? Will it borrow somewhere or will it again dip its fingers into the EPF fund? Maybe it would be better for the government to cancel its promise to lend EPF money to Valuecap and apply that fund instead to the economy as a whole, particular helping out those in the real economy- who are actually producing some goods and putting the money where it matters most- in the hands of consumers.

Suddenly things went the other way. The government announced a RM7 billion stimulus package which as yet to be formally incorporated in the 2009 budget as an amendment. Any moneys appropriated must be debated in parliament. But the stimulus package amounts to little more than a miniscule percentage of GDP. I hope the government is not using this crisis as cover – and to indulge in the high-tax fantasies the profligate politicians nursed their entire adult life.

What is the magnitude of our public-sector debt? I hope our national debt has not been creatively hidden away by intrepid accountants by doing an off-balance sheet caper. Suppose liabilities relating to pensions and the private finance initiative are included, what would be the extent of our national debt? I am sure it would be a jaw-dropping percentage of GDP.

Banks must reveal sub-prime exposure

I would certainly want to see this happening. During the 1997 financial crises, there were rumours that some prominent bankers were responsible also for the financial crises. Do we have our own sub-prime lending horror story? Is the government willing to expose who the big borrowers are and whether they have defaulted on their loans. Is Valuecap one of them and because of that, we have to lend them money? Why cant they borrow from the open market?

Probably because we actually have our own sub-prime lendings, it is important for the finance minister and the Bank Negara governor tell the bank to start lending normally again. That's more important than anything else at present. If credit lines to firms and households are still iced-up, it will drag Malaysia deeper into a slump.

The inter-bank market is locked as the banks don't trust each other. That's because nobody knows how much sub-prime toxic debt is out there - and which bank could be next to fall.

The Government needs to get tough. The nation's top bankers must be called to a private room and be forced to put their cards on the table – fully disclosing their exposure to sub-prime liabilities in Malaysia and elsewhere. It should be made clear that any executive who withholds information, which it can later be proven they knew, will be subject to criminal prosecution.

Once the exposures are clear – or clearer – we need further consolidation. The weaker banks that have made the worst decisions must be subsumed by stronger, more prudent institutions. That's how capitalism works, or is supposed to work. Full disclosure won't be pretty. Recriminations will fly. Many banking careers will be wrecked. But the frozen inter-bank market is wrecking our economy, driving thousands of otherwise viable firms to the wall. Across the world locked credit markets are causing the biggest economic meltdown for decades.

What’s happening to Inter-bank rates? I hope they have fallen. Some say it's just a matter of time before the money markets recover. Credit has loosened a bit lately but only because banks have effectively been lending someone else's money (emergency funding they've received from central banks in return for low-quality collateral). We'll see what happens when that bail-out money ends.

If only our leaders have the guts.

7 comments:

Anonymous,  4 December 2008 at 10:33  

Dear Datuk,

I do hope our government (via Khazanah or other GLCs) did not invest in any of the US sub prime main players.

Temasek did just that (in Merril Lynch) and that is why they are divesting just to recover the losses.

Thank you.

JMD-

Nasirudin Anjud 4 December 2008 at 12:31  

Tok,

You are on same page with Bill Gates.

When asked yesterday whether the government should invest into the distressed auto industry which employed 10% of american employees, mr. Gates had this to say (more or less),

If the supposedly cunning & intelligent Private Sector doesn't want to invest and bail out the auto industry why in the hell should the moron government would ever want to invest and bail out a blind organisation who doesn't even know where they are at the moment and where they are heading to...

as i said Datuk, more or less.....

Hantu Laut 4 December 2008 at 13:18  

Dear sakmongkol,
I am with you on this.I have written numerous articles telling the government not to hide the fact and only give us the fiction.

They keep harping on statistics like the growth rate this year as a barometer that the economy is safe and sound.

As far back as January I wrote an article in Asia Sentinel that Malaysia will not escape the contagion of the US recession while the PM and DPM kept saying we should be spared because we are soo.. strong financially.

Most disheartening is the Governor of Bank Negara who had become a politician instead of an economist, explicitly saying there would be no recession in Malaysia.

You must have read that the investment income of EPF for the 3rd Qtr felled 60.4% compared to same period last year.We are just entering the recession and things will get worse by 1st Qtr next year.It will get so bad those politicians would have their tails in between their legs.

There is no sub-prime in Malaysia in the real sense.The sub-prime are with the big boys, the darlings of the financial/banking community.

The lender's headache will start when they start defaulting on their loans.

Ridzzy 4 December 2008 at 15:12  

Good day Sir,

Can someone please explain to me how an export based country like Malaysia can fall within the category of being "insulated" ?

Salam

Dhahran Sea,  4 December 2008 at 17:32  

Salam Tok S-AK47,
I wish your posting or the gist of it (and the article from Hantu Laut on the topic as well) would be published in the mainstream media so that the public would be "prepared" for the "financial tsunami" that will inevitably come our way. BUT, as usual, DPM/Finance Minister and his so-called "4th Fl Oxbridge [a.k.a. Moron-bridge] advisors" would tell the rosy bedtime stories to the rakyat... I'm beginning to feel that Malaysian politicians are fast becoming fairy tales brokers... always in the dream world, just like the ultimate dream-maker PM... one day soon enough we all would wake up to a real nightmare!!

Malaysian Tigress 5 December 2008 at 09:36  

Dato,

Najib is more worried about dirty laundry hanging out of highrises it seems (than the facts that we are facing a potentially HUGE crisis), and wants to implement a new ruling without caring/considering the facts first: that many lifts are broken down, many aged will have problems taking the stairs to hang their clothes in a common area, not to mention that there is NO place for a common drying area in most flats and also the fact that many can't afford a dryer nor is there any place to put a dryer in the pigeon hole flats (lepas tu nak bayar bill dengan apa??)

Just shows how far detached these over-rich, overfed and over ozone-ated (a new fountain of youth treatment) politicians are.

I am trying to verify this piece from yesterday's NST in the business times, but I can't find it yet:

“If projections are accurate, Malaysia could in fact expect a total negative growth of 25 per cent for the next three years…”

Isn't that scary? Could it be 2.5 percent?

Add to that the softening demand leading to Petronas cutting production due to softening demand and the falling exports of E & Es (even to China which is supposed to be doing much better), the official recession of major trade partners and the people's dwindling savings with EPF income down by 60percent already (tolak bailout loans from that too)

MAS is now looking for "partners", Khazanah has screwed Telekom, and Maybank...wonder what Maybank is up to now:

Business Times:
"Wee said the US$600-odd million for HSBC is very small relative to their asset size and earnings base.

"It's a risk they can well afford to take and HSBC has the funds. But for Maybank, it has to gear up because of the high price it is paying, and it is hard for it to shore up the capital with cheap fundings in today's market," Wee said.

Moreover, Maybank, which has gone on a shopping spree to commit about RM11 billion for both BII and Pakistan's MCB Bank Ltd shortly before the global crisis worsened, has took on significantly higher risks than HSBC, Wee said.

"The sum was huge relative to Maybank's balance sheet, market cap, earnings and shareholder's fund," Wee said.

In contrast, HSBC's abandoned US$6 billion (RM21 billion) purchase of Korea Exchange Bank last month has given the banking giant more room to scoop up assets, he added.

Maybank shares have lost 42 per cent this year, outpacing the 37 per cent slide in the Kuala Lumpur Composite Index.

"What Maybank is doing (to expand) is not wrong, just that the timing is bad. Although the BII purchase will pay off after five years or so, the market is jittery and we only take a 12-month view," Wee said.

With inflation remaining high in Indonesia and a potential short-term funding problem that the country may face amid the financial crisis, he foresees more headwinds in banking operations there."

Ok, I must go tanam sayur now in my front yard and prepare for the worst. No place for ayam though...

DR.SARAVANAN R 6 December 2008 at 00:52  

Sak,
nice piece. They should have an opinion column in the msm and start publishing these kind of good opinions and suggestions to educate people.
Malaysians in general were already bracing for a global economic crisis when **** hit the fan in the U.S. There were many tell tale sign that was rather apparent to the naked eye, i.e:
- the steep drop in crude oil price
- U.S and EU going into recession
- the drop in Malaysian exports and the lost of revenue from the drop in crude oil price
- the CPO and other commodity price crash
- Singapore going into recession
- the shrinking of our reserves by billions of ringgit
- the government suddenly becoming all generous and big hearted with incentives and encouraging the people to spend more.
-reducing EPF contributions for people to have more money in their pockets.
- the downsizing of factories and plants in Malaysia,Singapore & around the world
- the last give away was the denial of a pending financial crisis by the government and central bank.

What irks me even more is the continuous non-chalant usage of public funds to bail out their GLCs, leaving the common man on the street with no options other than to ride the wave of economic melt down when it starts hitting their pockets. Malaysians must have done plenty wrong to end up like this. And i have to agree with you that the Pakatan is more pre-occupied playing politics.
Sak,
You asked: "Do we have our own sub-prime lending horror story? Is the government willing to expose who the big borrowers are and whether they have defaulted on their loans. Is Valuecap one of them and because of that, we have to lend them money? Why cant they borrow from the open market?"

Why do i get the feeling that you are trying to prompt/enable your readers with those questions? :)
I'm quite sure that by now, you already have the answers to those questions. Wanna share some insight with us in another posting maybe?

-cheers & have a good weekend-

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