Thursday, March 12, 2009

RM60 billion Stimulus or RM73 billion Bail-out?

I am reading all the available analysis on the stimulus interesting write-up below:-

A Shocking Revelation - A Massive RM73 Billion Bailout or A Quantum-Leap Stimulus?
Prepare For Very Bad News By End of 1st Quarter

By Matthias Chang
Thursday, 15 January 2009 08:08

When certain financial information which should come from official sources gets announced through a private vested interest, it is an indication that we must prepare for a national security alert, to be precise a FINANCIAL RECKONING that will send a shiver down our spines!

In the last quarter of 2008, our listless government announced that it had provided a RM7.5 billion stimulus to overcome the effects of the global financial crisis which had impacted on our economy.

Some quarters have indicated that this is a pittance and is a reflection that the government is still in a state of denial and or at a lost as to what remedies need to be adopted.

Be that as it may, it is clear that the RM7.5 Billion stimulus is insufficient as the Prime Minister was quick to declare within weeks that further stimulus would be required.

I waited a week before writing this article to see whether any financial analyst would pick up on this staggering revelation. But nothing, absolutely nothing was written in any of the business / financial dailies.

Judge for yourself - how can anyone not comment on this piece of revelation:

Wednesday January 7, 2009 Business Times (NST)

“Govt likely to sell RM73b worth of bonds: CIMB

“Malaysia will sell a record amount of bonds this year to fund economic stimulus spending and may offer its first foreign-currency bonds since 2002, according to CIMB Investment Bank Bhd.

“The Finance Ministry will probably sell a record RM73 billion of securities as revenue trails spending for an 11th straight year, said Lum Choong Kuan, head of bond research at CIMB, a unit of Bumiputera Commerce Holdings Bhd, the second largest banking group.

“… ‘A wider deficit will necessitate a bigger bond sale,’ he said in a phone interview…”

One can look at this unusual revelation from two perspectives bearing in mind that the Group CEO of CIMB is the younger brother of the Deputy Prime Minister and Finance Minister and maybe the next Prime Minister if one believes that Badawi would in fact relinquish power!

Firstly: The economy must be in a real shit state to require such a massive RM73 billion stimulus, a record sale of securities by the government. It follows that all this while, we were lulled into believing that all is well and that Malaysia will not be affected by the global financial tsunami. The person most responsible for this fairy tale is none other than the Governor of Bank Negara (our central bank). This is almost ten times the original stimulus of RM7.5 Billion announced recently.

Secondly: This RM73 Billion sale of securities is not a stimulus to spur the economy but a massive bailout of financial institutions as well as a desperate measure to shore up our declining liquidity as our foreign exchange reserves have plunged from a massive US$124 Billion in August 2008 to US$96 Billion in December 2008 – a loss of US$28 Billion in a mere three months. In the coming months, our reserves will decrease further!

There is also the added problem that as the US$ depreciates, our dollar reserves’ purchasing power will decline proportionately! In simple layman’s terms, if US$100 can buy ten pairs of shoes in 2007 and if the dollar has declined by 30 per cent, the US$100 dollars that we have will now buy 7 pairs of shoes.

This is a double whammy – an absolute decline on US Dollar reserves as well as a decline in its purchasing power!

I take the view that the RM73 Billion is earmarked for a massive bailout of our financial institutions. This is because, a few months ago, Bank Negara announced that it would follow Singapore’s lead in exempting banks which have transferred off-balance sheet “assets” back on their books from the statutory requirement to mark-to-market the value of such “assets”. This means that these assets which may be worth almost nothing are allowed to retain their “original value” thereby hiding the losses suffered by our banks.

Other than Bank Negara and the Finance Ministry, no one actually knows the extent of our banks’ exposure notwithstanding the repeated declarations that our banks are healthy and resilient. If in fact they are well capitalized, there is no need to waive the requirement to mark-to-market the off-balance sheet “assets”. If these “assets” are worthless, they should be written off, if our banks are able to absorb such huge write-offs.

Additionally, with the crude prices hovering around US$40, Petronas is bleeding and our 2009 budget as well as the 9th Malaysia plan is totally screwed up. We just don’t have the money to finance the 2009 budget and the 9th Malaysia Plan.

Our economy will contract substantially after the first quarter of 2009. We will be lucky if we achieve 1% growth. But I doubt it.


Wall Street’s bull is already dead. What can we expect from our water buffalo?


ahmadnizamhamid said...

sdr fudzail,saya mengikuti blog sdr samada disini atau di laman marhaen.saya sedikit tertanya sdr menebut pernah tinggal di Chenor,jadi bila?dimana?dll.saya anak Chenor tetapi sekarang tinggal di Temerloh.terima kasih


rascal r us said...

Surely you can find better analysis of the state of oureconomy than Mathias Chang who to me sounds more like a witch doctor after a bottle of Bacardi.

The 60 Billion stimulus plan , I thought was carefully thougt out and spans over two years. It injects the money into industries which really needs the boost

Mathias harps on rumours which has no basis and uses assumptions of asset values owned by banks as being worthless.

The truth of the matter is this time around, our banks are relatively healthy but the external storm may be beating on future income of our industries. There fore the financial stimulus will act like a buffer zone to offset this storm

My prediction is that there is plenty of money on the sideline that is staying off the field for now. When confidence is restored it will flood back into the market. Remember the sharp short recession of 1989-1990, I'm sure its the same this time around.

Mathias go and eat your shoes!