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.