Category: Finance

by Gary Kleiman
Asia Times
August 3, 2015

Malaysia’s stock market was down over 10 percent at end-July after Prime Minister Najib Razak, fighting to extend his six-year tenure in the wake of the 1MDB debt and campaign funding scandal, sacked his deputy and other cabinet members openly challenging him.

His public approval rating at 45 percent has suffered since the United Malay party won re-election last year, despite the opposition getting a larger vote total.

His predecessor Mahathir Mohamed did not think he deserved another term for lack of economic and political vision, as the household debt burden, which soared to 85 percent of GDP through government programs to boost consumption, is no longer sustainable to offset falling oil exports.

Foreign investors, with respective one-third and one-quarter ownership in the local bond and equity markets, were once enthusiastic about early promises to change the state-dominated business and financial sector model. But the results were meager and with the currency now at a 15-year low as the region’s worst performer, aversion is spiking as in the Asian financial crisis aftermath. Continue reading “Malaysia’s overdue housecleaning clamor”

— William Pesek
Malay Mail Online
Tuesday July 21, 2015

JULY 21 — Asian leaders could be excused a degree of exasperation over the ongoing Greek mess. China’s slowdown and stock-market chaos are worry enough; the last thing the export-dependent region needs is a Europe in chaos. Worse, European leaders seem intent on misreading or ignoring lessons from Asia’s own brush with collapse.

Greece’s financial odyssey

Of course, the circumstances in 1997 were quite different. Where Greece is insolvent, Asia then was illiquid. As capital fled, Thailand, Indonesia and South Korea suddenly couldn’t pay foreign-currency debts, much of it short-term. Still, there are at least three lessons officials in Athens and Brussels can learn from Asia’s post-crisis repairs.

One: The debate over austerity is a distraction. Pundits quarrelling over Greek Prime Minister Alexis Tsipras’s motivations, or whether German Chancellor Angela Merkel has a heart, are missing the real issue: structural reform. Continue reading “What Europe should learn from Malaysia and other Asian crises”

The Edge
Bloomberg
July 10, 2015

(July 10): Less than two weeks after Fitch Ratings refrained from downgrading Malaysia, the cost of insuring the nation’s debt is at a six-month high amid a graft probe involving Prime Minister Najib Razak.

Five-year credit-default swaps protecting sovereign notes climbed as much as 12 basis points in July to 148 after the Wall Street Journal reported last week that $700 million of a state investment company’s funds may have ended up in Najib’s bank accounts, a claim he is disputing. The contracts could rise toward 200, a level last seen in 2011, according to Macquarie Bank Ltd.

Heightened credit risk is lifting bond yields, raising funding costs to build railways, roads and power plants as Najib presses ahead with a $444 billion development program. It’s also weighing on the ringgit, which has led losses among Asian currencies this year as lower oil prices hurt Malaysian exports. Brent crude is down 7.2 percent this month and is 49 percent cheaper than it was from its high a year ago.

“Everything seems to conspire against Malaysian bonds and the ringgit in the last couple of weeks,” said Nizam Idris, head of currency and fixed-income strategy at Macquarie Bank in Singapore. “The political scandal involving the prime minister was a big surprise that hit market sentiment” and the CDS price could surpass 160 and head toward 200, he said. Continue reading “Default risk climbs for Malaysia as Najib probe outweighs Fitch”

— Mohamed A. El-Erian
Bloomberg
July 6, 2015

JULY 6 — By heeding their government’s advice and voting “No” in the referendum on Sunday, Greek citizens sent an unambiguous message. Much like the fictional Americans portrayed in the movie “Network” who threw open their windows and shouted out, “I’m as mad as hell and I’m not going to take this anymore,” the Greeks are demanding that the rest of Europe acknowledge their distress.

At this stage, however, only a handful of European leaders seem willing to listen; and even fewer appear willing to deliver the sort of relief that Greece desperately needs. The implications will be felt primarily in Greece, but also in Europe and beyond.

Here are 10 consequences of the vote that could unfold in the next few days:

1. The victory of the “No” camp—with more than 60 per cent of the vote, according to preliminary returns—will initially lead to a general selloff in global equities, along with price pressures on the bonds issued by Greece, other peripheral euro zone economies and emerging markets. German and US government bonds will benefit from a flight to quality.

2. Having been caught off guard, European politicians will urgently seek to regain the initiative: Chancellor Angela Merkel of Germany and President Francois Hollande of France will meet in Paris on Monday to work on a response. In a perfect world, these leaders would move quickly and effectively with the Greek government to get past the conflict and acrimony that preceded the referendum. This is likely to be difficult, given the mistrust, bad blood and damaging accusations that have poisoned the relationship. Continue reading “Ten consequences of Greek referendum’s ‘No’”

1Malaysia Development Bhd (1MDB) has lost out in the public argument with DAP MP for PJ Utara, Tony Pua over whether there is a government guarantee amounting to US$4.71 billion (RM17.8 billion) to Abu Dhabi’s International Petroleum Investment Corporation (IPIC) with regard to IPIC loans in the latest bailout of IMDB.

This is also the judgment of the founding editor of KiniBiz, P. Gunasegaram who, in his article “A new RM17.8 bil twist in 1MDB ‘guarantee’” on Monday, concluded:

“On all accounts, Pua is right and 1MDB is wrong – it is 1MDB which is misleading the people, not Pua.”

Gunasegaram fully agreed with Pua that IPIC’s statement to London Stock Exchange on 10th June meant that the Ministry of Finance now also assumes the obligation together with 1MDB to transfer assets totalling US$4.71 billion, which means “the MOF is effectively undertaking to fulfil the obligation, not just 1MDB”.

Even Gunasegaram asked: “Why was such an important point not disclosed?” Continue reading “Cabinet Ministers must individually and collectively explain when and why they had approved a further US$4.71 billion (RM17.8 billion) government guarantee for IPIC loans as latest bailout for 1MDB”

Larry Elliott and Jill Treanor in Davos
The Guardian
25 January 2015

Davos delegates fear possibility of minority government and second poll, as well as uncertainty over EU membership

The general election risks exposing the UK to a “cocktail of political risks” that could threaten growth and force the country out of the European Union, according to business leaders.

The growth of minority parties such as Ukip and the Greens and the fall in popularity of the Liberal Democrats are forcing bosses to prepare for the possibility that a second poll may have to be called months after the one scheduled for 7 May.

The Conservatives’ pledge to call an EU referendum in 2017 if they are in government is also causing anxiety. Doubts over Britain’s political future were voiced openly by executives at the World Economic Forum in Davos.

Speaking on the sidelines at the gathering of political and business leaders in the Swiss Alps, John Cridland, director general of the CBI, said: “Britain is no longer a two-party system, it is a six-party system, and it looks like it won’t be until 5am on the morning after the election until we know what the result is going to be. The UK could end up with a minority government and a repeat of 1974, when there were two elections in swift succession. Continue reading “Business leaders fret over ‘cocktail of political risks’ as UK election nears”

Larry Elliott
The Guardian
23 January 2015

Thomas Piketty wasn’t there but they were talking about his ideas: they’re committed to progress as long as nothing changes

Committed to improving the state of the world. That’s the motto of the World Economic Forum, which wraps up in Davos tomorrow with the rich and powerful pondering whether to listen to Mark Carney’s views about the global economy or head for the ski slopes.

Many will opt for the latter, not because they have anything against the governor of the Bank of England. On the contrary, the former Goldman Sachs banker picked by George Osborne to run Threadneedle Street is very much part of the Davos family. It is simply that one of the reasons the WEF is held in Davos and not in Atlantic City or Blackpool is that it has plenty of black runs available for those who, after four days, have had enough of hearing Christine Lagarde warn about the risks of rising inequality.

All of which raises a couple of obvious questions: is Davos simply an excuse for the 1% to have a big bonding session in which they convince themselves that we are all in it together? And does it actually do any good? Continue reading “Is Davos just an excuse for the 1% to have a bonding session?”

By P Gunasegaram
Malaysiakini
Jan 22, 2015

QUESTION TIME Granted we have lots of problems in the country and tonnes of wastage. We overpay for contracts, we have a strategic investment fund which has gone amok and is investing willy nilly with borrowed money, we have a looming disaster in the form of RM30 billion at risk in a private finance initiative gone wrong and we have loads of patronage.

Does this necessarily mean that the economy is in crisis if we put all this together with a weakening ringgit and oil prices which have fallen off a cliff? Does this mean this year will be a disaster and one of gloom and doom for Malaysia?

It is tough to do but this is when we need to be rational about things and assess economic conditions with a cool head, separating this to some extent from the sad state of politics in the country which leads to a whole host of economic concerns.

Let’s just take a couple of the most serious concerns and examine them in some detail to see what gives. First, the weakening ringgit which was at its lowest levels in six years. But why was it low six years ago – early 2009 to be precise? Continue reading “Is the economy in crisis now?”

Liz Ford
Guardian
19 January 2015

The countdown has begun to September’s summit on the sustainable development goals, with national governments now discussing the 17 goals that could transform the world by 2030

What are the sustainable development goals?

The sustainable development goals (SDGs) are a new, universal set of goals, targets and indicators that UN member states will be expected to use to frame their agendas and political policies over the next 15 years.

The SDGs follow, and expand on, the millennium development goals (MDGs), which were agreed by governments in 2000, and are due to expire at the end of this year.

Why do we need another set of goals?

There is broad agreement that while the MDGs provided a focal point for governments on which to hinge their policies and overseas aid programmes to end poverty and improve the lives of poor people – as well as provide a rallying point for NGOs to hold them to account – they have been criticised for being too narrow. Continue reading “Sustainable development goals: changing the world in 17 steps”

Larry Elliot
Guardian
January 19, 2015

Oxfam warns of widening inequality gap, days ahead of Davos economic summit in Switzerland

Billionaires and politicians gathering in Switzerland this week will come under pressure to tackle rising inequality after a study found that – on current trends – by next year, 1% of the world’s population will own more wealth than the other 99%.

Ahead of this week’s annual meeting of the World Economic Forum in the ski resort of Davos, the anti-poverty charity Oxfam said it would use its high-profile role at the gathering to demand urgent action to narrow the gap between rich and poor.

The charity’s research, published on Monday, shows that the share of the world’s wealth owned by the best-off 1% has increased from 44% in 2009 to 48% in 2014, while the least well-off 80% currently own just 5.5%.

Oxfam added that on current trends the richest 1% would own more than 50% of the world’s wealth by 2016.

Winnie Byanyima, executive director of Oxfam International and one of the six co-chairs at this year’s WEF, said the increased concentration of wealth seen since the deep recession of 2008-09 was dangerous and needed to be reversed. Continue reading “New Oxfam report says half of global wealth held by the 1%”

The question the Prime Minister, Datuk Seri Najib Razak must answer is why he is not convening a special meeting of Parliament to present the restructuring of the 2015 Budget.

As it is Parliament which approved the RM273.9 billion 2015 Budget, it is only right and proper, fully in accord with the principle of parliamentary democracy, that Najib should convene a special Parliament to present the restructured 2015 Budget because of the weakening of ringgit and the plunging oil prices.

It is not too late for Najib to do what is right, and convene a special meeting of Parliament to present the revised 2013 Budget as a special Parliament can be convened even within 48 hours. Otherwise, Najib would be showing utter contempt to Parliament and the principle of parliamentary democracy. Continue reading “It is not too late for Najib to convene a special meeting of Parliament to present the revised 2015 Budget”

Rash Behari Battacharjee
The Malaysian Insider
17 January 2015

It is as plain as daylight that Budget 2015 must be revised in the wake of plunging world oil prices, given that some 30% of government revenue comes from petroleum. In addition, it has been noted, the unprecedented ferocity of the year-end floods which will require a multi-billion ringgit reconstruction effort means that development expenditure must be reallocated to rehabilitate damaged infrastructure and restore normalcy to the victims’ lives and the economies of the affected regions.

Last week, Prime Minister and Finance Minister Datuk Seri Najib Razak indicated, not a day too soon, that an announcement about a possible restructuring of the budget to address these challenges would be made this week.

Analysts have noted that a confluence of external and internal factors in recent months – including the oil price shock, capital outflow, flood devastation and 1MDB’s performance, besides corrosive political developments – have heightened concerns about the prospects for the Malaysian economy, both in the immediate future and the longer term. Continue reading “To rescue the economy, put national interests before self-interest”

The Cabinet tomorrow should do what it should have done at its last Cabinet meeting for 2014 on Dec. 17 – to convene a Special meeting of Parliament this month to present a revised Budget 2015.

When the Budget 2015 was drawn up, it was based on the oil price assumption of US$100 (RM357) per barrel.

Since the Prime Minister, Datuk Seri Najib Razak presented Budget 2015 on Oct. 25, Brent crude prices had fallen from US$100 to a six year-low of US$47.36.

Oil and gas-related income is a backbone of the Malaysian economy as it currently accounts for 30% of the government’s total revenue.
With the plunge in crude oil prices, the Government is duty-bound to revise the 2015 Budget and seek parliamentary approval for revision of the 2015 Budget.

The Cabinet should decide on convening a Special Parliament before the end of January now that Prime Minister who is also Finance Minsiter has finally conceded today on the need to restructure the 2015 Budget. Continue reading “Call on Cabinet tomorrow to convene a special Parliamentary meeting end of this month to present a revised 2015 Budget”

Samantha Pearson in São Paulo
Financial Times
January 7, 2015

Fears are growing over the systemic impact of the corruption scandal at Petrobras, Brazil’s state oil producer, as one of the construction firms linked to the allegations edges closer to default and the country’s credit rating comes under pressure.

OAS, which is building the world’s third-largest dam and revamping São Paulo’s international airport, has missed two debt payments over the past week after the scandal restricted its access to funding, forcing it to preserve cash to pay for operations.

Analysts said that similar difficulties across Brazil’s construction and oil industries could have knock-on effects on the world’s second-largest emerging market economy, especially if Petrobras itself cannot regain access to capital markets.

“The risk is that the government would have to provide financial support to Petrobras in the event of an acceleration of debt,” Mauro Leos, Moody’s sovereign analyst for Brazil, told the Financial Times. Such a scenario “could lead to a credit event”, affecting Brazil’s sovereign credit rating, he added.

The warning comes as President Dilma Rousseff is battling to protect Brazil’s coveted investment grade rating with a series of market-friendly measures — efforts that could be obscured by the prospect of bailing out Petrobras, Mr Leos said.

With more than $139bn in total debt, Petrobras ranks as the world’s most indebted oil producer, but it retains an investment grade credit rating. Continue reading “Fears grow over fallout from Petrobras corruption scandal”

by Anisah Shukry
The Malaysian Insider
3 January 2015

As Putrajaya responds to falling global oil prices by prioritising domestic spending and investments, a leading economist has warned that the national budget for 2015 was unsustainable if it is not revised to account for the price drop in the commodity, of which Malaysia is a net exporter.

Tan Sri Dr Kamal Salih, an adjunct professor of Economics and Development Studies at Universiti Malaya, said no amount of tax increase could compensate for Petroliam Nasional Bhd’s (Petronas) lower revenue contributions to Putrajaya.

“Of course, the government has to revise the budget. The assumption of the oil price was quite high and now it must be reduced to a realistic level, especially as the price may go down for a long time,” he said.

“The current budget is not sustainable now.” Continue reading “Putrajaya must revise budget in light of oil slump, says economist”

2015 New Year Message

It is so easy to give way to despair at the tides of adversity Malaysians have to go through in 2014 and to write off the future for Malaysia – the unprecedented three air disasters in a year (MH370, MH17 and QZ8501) which no other country had ever had to experience, the worst floods disaster in recent decades and the rise of bigotry and extremism putting to the ultimate test the Merdeka and Malaysia national compacts of 1957 and 1963 to be an oasis of multi-racial, multi-lingual, multi-religious and multi-cultural harmony, tolerance and co-existence in an increasingly troubled and fractious world.

Every cloud has a silver lining and this holds true for the adversities Malaysians had to undergo in 2014 – the air disasters and the worst floods disaster in decades galvanizing Malaysians to stand in sympathy, support and solidarity with the victims and the aggrieved and the rise of moderates, best exemplified by the Open Letter by 25 Eminent Malays to the Prime Minister and the snowballing of support by ordinary moderate Malaysians regardless of race, religion, politics or region to save Malaysia from the bigots and extremists.

Malaysians must stay strong, hopeful and confident despite a year of great adversities with three air disasters, the worst floods disaster in decades and the rise of bigotry and extremism to build a common, united, moderate and prosperous future for all Malaysians. Continue reading “Malaysians must stay strong, hopeful and confident despite a year of great adversities with three air disasters, worst floods disaster in decades and the rise of bigotry and extremism to build a common, united, moderate and prosperous future for all Malaysians”

By Andy Mukherjee
Reuters
December 3, 2014

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Just when Malaysia was beginning to plug the holes in its public finances, the prospect of a sharp reduction in oil revenue is threatening to undermine fiscal progress and weaken the currency.

Petronas is playing spoiler. The state energy company recently warned that its contribution to the government’s exchequer – in the form of dividends, taxes and royalties – could slide 37 percent next year from an estimated 68 billion ringgit ($20 billion) in 2014.

Such a shortfall in the main source of government’s oil-and-gas revenue would easily exceed 2 percent of GDP. That would wipe out the 1.7 percent of GDP in annual savings the government hopes to achieve by scrapping domestic fuel subsidies from Dec. 1.

The fiscal hit could be even larger if oil prices next year remain below the $75 a barrel on which Petronas based its forecast. That would threaten the government’s target of reducing the budget deficit to 3 percent of GDP, from an estimated 3.5 percent this year.

The finance ministry is refusing to give up on the 2015 target just yet. It may hope that Petronas can be persuaded to make a less drastic cut in its dividend payment. Continue reading “Oil slide threatens Malaysia’s fiscal progress”

Terence Gomez
KiniBiz
22 July 2014

Malaysians were informed on July 10, 2014 that a major bank consolidation was in the pipeline, involving CIMB Group Holdings, RHB Capital and Malaysian Building Society. With this union, CIMB will emerge as Malaysia’s largest banking enterprise, in terms of assets, as RHB Capital owns RHB Bank, currently the country’s fourth largest bank.

According to media reports, the merger will enhance CIMB’s goal of becoming Southeast Asia’s leading Islamic finance institution with the capacity to expand its interests in this sector to other parts of the world. However, one core issue remains unmentioned in the press: this consolidation will tightly entwine the interests of political and business elites in the banking sector. Continue reading “The politics and business of bank mergers”

— Koon Yew Yin
The Malay Mail Online
June 29, 2014

JUNE 29 — Every now and then we will get statements from government on how much it is spending on subsidies for the poor.

This message is especially loud and clear during vote canvassing in elections or by-elections; or when there is an intended rise in the price of goods and commodities.

A few days ago, the Najib administration announced that it will increase electricity prices by an average 7.12 per cent from 1 June so as to trim the subsidy.

Natural gas prices will also rise by RM3 per mmBtu every six months until it reaches market levels.

So far there has been little public reaction to this price increase partly because it has not been factored yet into the monthly bills of the public.

But be warned that this increase in electricity bills will affect all households — poor, middle class and rich. Even the poorest households spending less than RM20 will be affected as the free service to them will be discontinued at the end of the year. It looks like the children of poor households will have to read by candle light in the night. Continue reading “Subsidies for the poor or Umno-putras, part 1”

by Eileen Ng
The Malaysian Insider
9 June 2014

Malaysia risks seeing its economy contract and losing its global market share in key export sectors if it fails to tackle its high levels of public and rising external debts, a United Kingdom-based economist has warned.

Sarah Fowler from Oxford Economics said while the nation’s shrinking current account surplus was not a major concern as it was expected to stay in excess in the next few years, there are worries over Malaysia’s capital account due to rising external debt, which has shot up close to 40% of its gross domestic product (GDP) in recent years.

The country’s public debt-to-GDP ratio has been hovering at an all-time high of more than 50% since 2010 because of large fiscal deficits incurred when an aggressive stimulus package was launched to bolster the country’s economy during the global financial crisis.

“Addressing the concerns would enable Malaysia to achieve a higher growth path, reaching a higher per capita income sooner. We expect the economy to grow by just more than 4% over the next five years but if the concerns were addressed growth could exceed 4.5%,” she told The Malaysian Insider in an email.

Fowler, who produced a report on “Why Malaysia is now a more risky prospect than Indonesia” which was highlighted by global financial news site Bloomberg’s columnist William Pasek last week, used 17 indicators to develop a scorecard to assess emerging market vulnerability to external economic and financial shocks. Continue reading “Rising debts will rob Malaysia of its competitive edge, warns economist”