(Petaling Jaya, Thursday): For the past three days, the Swiss-based World Economic Forum held its seventh annual East Asia Economic Summit in Singapore but Malaysia’s participation was most minimal, although the Prime Minister, Datuk Seri Dr. Mahathir Mohamad was formerly one of the guest-stars of the annual WEF conferences in Davos.
This is probably in keeping with Dr. Mahathir’s new posture in the international market-place when he announced exchange controls on Sept. 1: "Malaysia has chosen to become a heretic, a pariah if you like."
The International Monetary Fund (IMF) Asia-Pacific director Hubert Neiss made the forecast at the WEF conference in Singapore that the crisis in Asia will bottom out by the first half of next year, and the affected economies would be out of recession by the second half of the year.
He said: "The timing isn't very precise, because it depends on many external factors. But most economies will bottom out by the first half of 1999, and return to positive growth by the second half."
Last week, Mahathir expressed confidence that Malaysia would be among the first South-East Asian countries to recover from the regional economic crisis, especially after the capital and foreign exchange control measures introduced last month.
Not everybody share this optimism and confidence. A consultant
economist on the global economy, David Hale, said in Singapore that he
picked Thailand as the country that would lead the way in Asian economic
recovery.
To him, Malaysia’s prospects of economic recovery remain uncertain
because of its recent imposition of capital controls.
He said: "It is possible that Malaysia could pursue capital controls successfully in the short-term because of the current conditions in her economy….Malaysia needs foreign capital this year to restore health to her financial system, not finance new investment.
"But if her switch to expansionary monetary and fiscal policy produces a recovery, the capital controls will create numerous challenges. They will inhibit her ability to finance a new current account deficit with a renewal of foreign capital inflows."
The biggest problem facing Malaysia in iniatiing an economic recovery after 15 months of the worst economic crisis in the nation’s history is still the basic challenge of confidence-restoration, which was admitted by the National Economic Action Council in its National Economic Recovery Plan (NERP), where it said that "restoring confidence is as much a matter of perceptions and social psychology as of realities and economic fundamentals. It is imperative to quickly address the underlying problems - both real and perceived - that had set off the crisis."
It is unfortunate and tragic that 15 months after the worst economic crisis in the nation’s history, the government is still grappling with the problem of confidence-restoration which has in fact become more intractable as a result of a full-blown political crisis.
The NERP made many recommendations to restore confidence, but many of them have not been implemented or heeded.
For instance, Chapter 4 of the NERP on the confidence-building measures called for the establishment of rules for assisting industries and companies.
It called for distinction to be made between assistance to troubled companies that involve only privately owned companies and assistance that involve the government. As for private sector transaction, they should proceed without hindrance so long as they meet the legal requirements and other relevant guidelines of corporate transactions.
The NERP recommended that assistance granted by government to troubled companies be guided by three criteria, namely, national interest, strategic interest and equity considerations under the New Economic Policy and the National Development Policy.
The NERP recommended that as a matter of principle, there should be no bailout of individual investors or lenders using public funds, "except in respect of industries and corporations in key, strategic sectors of national interest".
In cases of "government or central bank intervention in supporting banks or companies facing difficulties", the NERP stressed:
"For any such action, the transparency of action plans is of paramount importance so as not to have adverse impact on the credibility of the authorities and, therefore, public and investor confidence. Any corporate transactions of this nature should be accompanied by immediate disclosure of the financial details of the deal".
It added: "In the event of a rescue involving public funds, private investors and lenders must take their appropriate ‘hair-cuts’. Except for the most extreme extenuating circumstances, promoters, controllers and management of rescued entities must be seen to be relieved of their control and involvement. The proof of viability should also be established before commitment of rescue funds’.
The Government has failed to adhere to these rules of transparency recommended by the NERP in the RM1.1 billion bail-out of Bank Bumiputra (the third bail-out in 12 years) and RM11.3 billion bail-out of Renong, and DAP calls for the fullest transparency of these two government bail-outs in keeping with the recommendations of the NERP so as to avoid adverse impact on public and investor confidence.
For instance, what are the causes for both Bank Bumiputra and Renong being landed with such colossal bad loans and have the managements of Bank Bumiputra and Renong been "relieved of their control and involvement" as part of the price of the government bailouts as recommended by the NERP.
In compliance with the NERP recommenations on rules for government bailouts of troubled banks and companies, the government should present a White Paper in next week’s Parliament to provide for the fullest transparency of its bailout actions - especially as there seems to be a long list of politically well-connected companies awaiting government bail-outs, starting with MAS.
(15/10/98)