Three major steps taken by the Government, with far reaching consequences for the economy, have been largely ignored.
The first of these concerns the frenzy of borrowings. Petronas floated a large external bond issue on terms that are less than favourable as the rates paid are well above those paid by other major borrowers in the crisis-affected countries. Despite the rhetorical statements about recovery and the return of foreign market confidence, the price paid does not speak well about the restoration of market confidence in the economic management capacity of the Barisan Nasional Government. Markets are also taking account of the political risk factors. Petronas has borrowed against its future cash flows to raise funds for its involvement in bailouts of the Prime Minister’s cronies and pet projects, the latest being the Proton bailout.
These actions affect all Malaysians as these national assets of the future are being pawned to foreign lenders. It is thus highly irresponsible of the Prime Minister to claim that the Barisan Alternative would sell the country to foreigners when it is the Barisan Nasional Government which is indulging in such irresponsible actions.
The economic crisis was in part brought about by the bubble that had been built on the back of a huge debt burden which was weighing down the economy. The total debt to GDP ratio of 150 percent was one of the largest of such ratios in the global economy. This burden reflected the fact that Malaysia as a nation was mortgaged to the hilt.
The insolvency of many of the crony corporations was a reflection of the foolish policies of allowing these corporations to borrow and borrow as if there was no tomorrow. The Non-Performing Loans (NPLs) of the banking sector were the collorary of these borrowings urged upon the banks at the direction of the Barisan Nasional powers-that-be. What Danaharta has done is basically absorb this debt. The total debt has not changed – its been merely shuffled from private debtors to become the people’s burden.
Recent actions are now compounding the problem as more debt is being created to add to the existing mountain, e.g. the issue of RM16 billion zero coupon bonds to "save" Renong and UEM. The zero bond issue is essentially an interest-free loan to these over-indebted entities. It has not escaped notice that the RM16 billion bond issue represents close to 40% of total corporate debt. It is legitimate for Malaysians to ask : why is a single corporate empire being given such favoured treatment?
How will Renong and UEM repay these loans along with compounded interest when the bonds mature in 7 years? To suggest that this would be done from "profits and growth" is nonsensical as the long-term future of these entities given their past management track record makes such claims dubious. It is most significant that the powers-that-be have refused to disclose whom the lenders are that subscribed to the bond issue. The people have a right to demand full disclosure --- it is their deposits in financial institutions that are being given away. It is they who have their money at risk when the borrowers are unable to repay. What is being done is to burden the next generation as well if there have to be further bailouts seven years down the road.
The announcement by the Securities Commission that it has approved
the Renong-Telecoms offer for acquiring CLOB shares follows on the heels
of this bailout of Renong. Renong in essence is using some part of the
borrowed funds to hijack the CLOB shares. This is brazen abuse. It is akin
to giving drugs to an addict in an officially sanctioned manner.
The borrowing binge does not stop with Renong-UEM. Telecoms,
Tenaga and a host of others are lining up to borrow and borrow. The net
effects of these deals are to add to the mountain of debt and thus laying
the foundations for the next financial crisis.
The latest U-turn by Bank Negara on the modification of the exit taxes on foreign funds leaving the country again raises questions about the wisdom of the capital control measures imposed last September. After having loudly proclaimed for the past year the "success " of capital controls, the world can now see clearly that with controls even in limited forms, foreign fund managers have been unwilling to return to the KLSE, as illustrated by the fall in the KLSE indexes from well over 800 to just over 710 earlier this week.
The adjustment of the exit taxes is therefore a belated admission that controls are an obstacle to inflows on a sizable scale. Mahathir should acknowledge as much and stop making wild statements about foreign colonizers and that he will not bend to reasoned calls for lifting controls altogether.
All Malaysians ought to be concerned. How firm and sustainable is the economic recovery. A greater economic storm is looming on the horizon and it will have devastating effects on all Malaysians unless an effort is made to stop the frenzy of economic mismanagement, cronynism, corruption and nepotism.
(22/9/99)