Is Malaysia in a position to offer US$1 billion as part of an IMF-initiated international loan package to bail out Indonesia when Malaysia is herself undergoing unprecedented financial and economic crisis?

Media Statement
by Lim Kit Siang

(Petaling Jaya, Tuesday): Malaysians have reacted differently to news that Malaysia is offering US$1 billion in assistance as part of an IMF-initiated international loan package to bail out Indonesia, compared to Malaysia’s commitment of US$1 billion towards an IMF-initiated US$17.2 billion international aid package for Thailand, including $3.9 billion from the IMF.

When it was announced in the second week of August that Malaysia was taking part in the IMF-initiated international aid package by contributing US$1 billion, Malaysians generally felt that it was right and proper for the country to go to the aid of a regional neighbour in grave financial straits, although Malaysia’s financial position was itself coming under pressure.

This is no more the case after the ravages of the twin currency and stock market crisis in the past two months. In the first place, a US$1 billion commitment to the aid of Thailand in the early part of August would have meant a commitment of RM2.6 - RM2.7 billion, as the volatility of the Malaysian ringgit had already started, but today, a US$1 billion commitment to the aid of Indonesia would mean a commitment of some RM3.4 billion.

It is not yet known what would be the amount of the IMF-initiated loan package for Indonesia. The $17.2 billion loan package for Thailand is the largest loan package to a single country since the International Monetary Fund and donors, led by the United States, made nearly $40 billion available to Mexico in 1995.

It is significant that the United States did not pledge individual aid to Thailand, but supported the rescue package through its participation in the International Monetary Fund. Aside from the $4 billion each pledged by the International Monetary Fund and Japan, Australia, Malaysia, Singapore and Hong Kong had pledged to contribute $1 billion each to the effort. Indonesia and South Korea each pledged to give $500 million.

Is Indonesia still committed to a $500 million assistance to Thailand?

On October 8, Indonesia approached the IMF, the World Bank and Asian Development Bank (ADB) for assistance following the free fall of the rupiah, which had lost over 30 percent of its value against the U.S. dollar since July. Malaysia’s ringgit is also in the same position, falling at one point by some 35 per cent and the country has not emerged from the economic and financial turmoils rocking not only the country, but the regional economies.

What worries Malaysians is that the economic turmoils are not over, that more could come in the coming months and the road ahead is going to be a hard and rocky one.

The Singapore Business Times today reported that Colliers Jardine’s Australian office had forecast that real estate markets in Thailand, Malaysia, Indonesia and the Philippines would be the hardest hit by the financial fallout arising from the region's currency depreciation.

Elaborating on the report, Colliers' Asia-Pacific research director David Jackson said: "Thailand, in particular, has borrowed vast amounts from overseas banks for property. Now with the currency devaluation, servicing these loans is becoming extremely onerous. Thai banks and finance companies are having to be a lot tougher with borrowers, and this will mean a great many distressed properties -- half-built developments that will be very hard to offload."

Colliers Jardine expects overall prime real estate values to come off 15-20 per cent in Bangkok over the next 12 months, 10 per cent in Kuala Lumpur and 5 per cent in Jakarta as economic growth will slow in South-east Asia, causing a drop in demand for offices and industrial premises.

With these gloomy forecasts, Malaysians question the prudence and the judgment to commit US$1 billion assistance to Indonesia in the IMF-initiated international loan package, not because Malaysians do not want to help Indonesians in the way the the country went to the assistance of Thailand, but because of the very changed economic and financial circumstances for Malaysia raising the question whether Malaysia could afford such US$1 billion assistance to another country at this stage of our economic crisis.


*Lim Kit Siang - Malaysian Parliamentary Opposition Leader, Democratic Action Party Secretary-General & Member of Parliament for Tanjong