Avalanche of bad news proof that NEAC has failed in its first fundamental task to restore confidence

(Petaling Jaya, Wednesday): There has been an avalanche of bad news and adverse reports about the Malaysian economy which is proof that the National Economic Action Council (NEAC) has failed in its first fundamental task to restore confidence as the NEAC Executive Director, Tun Daim Zainuddin said in February that the country’s "greatest challenge is to bring back the confidence of Malaysians first and then, the world economic community".

Confidence has become such a scarce commodity that repeated assurances by the Deputy Prime Minister, Datuk Seri Anwar Ibrahim that the Asset Management Corporation is not a bailout agency and that the government will not let it be one lacks credibility after a series of bail-outs which the government has refused to admit as bailouts, such as those   involving the UEM, KUB and Konsortium Perkapalan Bhd.

The Hong Kong-based Political and Economic Risk Consultancy Ltd, for instance, in its latest update on its Malaysia Country Risk Report, commented:
 

"Bailouts, or asset reshuffles that look very much like them, are continuing to be announced in Kuala Lumpur, thereby contributing to a general atmosphere of cynicism within the business community. Dr. Mahathir, however, has strongly defended the moves as necessary to stave off the collapse of the nation’s major companies. As long as the tactic produces its desired effect without appearing to damage the economy he is unlikely to meet serious opposition. However, should the government be seen to be using pension funds and other public assets rather too obviously, a popular backlash could result."

The Fortune magazine, in its May 11, 1998 issue, carries a series of articles entitled "The Great Emerging Markets Rip-Off", focussing on Malaysia and in particular on the UEM-Renong case,  describing it as "a symbol in the international investing community for all that was wrong with the country, and with Asia in general", quoting one American mutual fund manager as saying: "Malaysia went past a turning point where it became very obvious to global investors that the government was going to save itself first at the expense of the foreigners, and that no rule is safe, no law is safe."

Time magazine of  May 18, 1998, in its report on "Asia’s Bad News",  started with the following passage:
 

 "There it stands in the center of Kuala Lumpur - Asia’s mega-monument of hubris.  The Petronas Towers, whose 88-story twin spires just eclipse Chicago’s Sears Tower as the world’s tallest building, were meant to cap Malaysia’s mad dash to modernization.  Instead they’ve become outsized symbols of the overly ambitious, debt-fueled drive to development that has saddled Asia with a 10-month financial crisis that is only to get worse. Malaysia, the region’s latest trouble spot, is headed towards recession as its banks and corporations struggle under a national debt equal to about 170% of the country’s GDP.  Yet in a further, grand gesture of denial, the country last week threw a party to celebrate the opening of part of the dizzying towers. Concluded Peter Churchhouse, Hong Kong-based managing director of Morgan Stanley Asia: ‘The Malaysians have their head in the sand.’"

Yesterday, Singapore Business Times reported a United Kingdom research house forecasting that Malaysia’s economy next year would contract by 1.4 per cent this year in contrast to the government’s latest forecast of 2 to 3 per cent growth this year.

Today, the Singapore Business Times reported that private economists are forecasting that Malaysia's Q1 growth will come in at between minus one per cent and plus 2 per cent.

Even those whose Q1 predictions lie in positive territory agree that Malaysia is entering the first throes of recession.

The gloomy economic picture is very different from the one that government leaders had been painting that the worst of the economic crisis is over, when it is clear that the worst is yet to come - and the continued refusal of the government to be frank and truthful about the economic situation is a basic cause as to why it has failed to bring back confidence of the people and the world economic community.

(27/5/98)