21Mac2019

A USEFUL CUE FROM APEC

While attending the Asia-Pacific Economic Cooperation summit in Peru, Prime Minister-in-waiting Datuk Seri Mohd Najib Abdul Razak admitted that he had his job cut out for him and that sharpening the country’s competitive edge and regaining the ruling party’s two-thirds majority in Parliament were priorities. He could start by eradicating money politics Umno.

 

The most encouraging news to come out of the Asia-Pacific Economic Cooperation (Apec) summit in Lima, Peru, was the assurance that the current global financial crisis could be quelled in 18 months.

In a communiqué issued on Nov 23, the leaders of 21 countries and territories that together account for half of the world’s economic output also pledged not to erect new protectionist barriers and jump-start the stalled World Trade Organization (WTO) talks.

Malaysia was represented at the summit by Deputy Prime Minister and Minister of Finance Datuk Seri Mohd Najib Tun Razak.

According to news reports, the summit also pledge support for the Washington Declaration made a week earlier by major economies to maintain free trade despite pressure to protect domestic industries.

The leaders voiced confidence that the crisis could be resolved by mid-2010, although they did no go much beyond the steps outlined in the Group of 20 Summit in Washington.

Given the severity and extent of the growing crisis, the assurance, though not accompanied by detailed plans, was important in the sense that it was the first major conference to involve the developing and economies after the onset of the crisis.

But 18 months is a long time, given the uncertainty about the extent of the effects of the US-originated crisis on individual member states.

We can only hope that Mohd Najib and the officers who accompanied him bring home some useful inside information and intelligence to help us further buttress the economy.

One of my early conversations with Datuk Seri Abdullah Ahmad Badawi when he became Prime Minister in November 2003 was to impress upon him the importance of economic intelligence.

That was the time when Malaysian economy was is good shape, having almost altogether recovered from the 1997/98 Asian financial crisis, thanks to the bold and unorthodox measures taken by his predecessor, Tun Dr Mahathir Mohamad.

In fact, the stability of the domestic financial and banking system as being widely claimed by ministers and officials today is the result of the tough measures initiated by Dr Mahathir and the –then Finance Minister, Tun Daim Zainuddin, with the help of the high-powered National Economic Action Council (NEAC).

These included the re-capitalization of troubled banks by Danamodal, the assumption of non-performing loans (NPLs) by Danaharta and the consolidation of the banking system via mergers and acquisitions to produce larger and stronger banks. The financial system has also been greatly liberalized since then.

Some of Dr Mahathir’s measures, in particular, the limited exchange controls, which included the pegging of the ringgit, were widely criticized and assigned to failure.

Today, governments around the world – from the US to the UK and Switzerland – are spending hundreds of billions of dollars to save their banks and financial systems.

I am not particularly sure if our government is fully prepared for crisis, although there have been warning about the likely impact of the US subprime crisis.

In an interview with the China Press newspaper some months before the march 8 general election, Daim explained the crisis and warned of its dire global consequences.

The editors of the Chinese language newspaper decide to play down his warning out of fear that it might affect the stock market.

In the same interview, which was later picked up by other newspaper and wire services, Daim, who is now an international banker operations in Indonesia, Africa and Europe, predicted that the Barisan Nasional (BN) might do badly in at least four states. As it turned out, the BN lost five states plus the Federal Territory of Kuala Lumpur.

The task ahead for Mohd Najib is not going to be easy. He needs an NEAC, which has to be many times better than during the last crisis, given the global nature and magnitude of the current meltdown.

Already, he has the bitter task of having to lower the growth forecast for the coming year to 3.5% after months of defending the higher original expectation of above 5%.

Tough task ahead for Najib

For the investors – both corporate and individual – the crisis is a cruel cut. Many have yet to recover fully from the devastating effect of the 1997/98 crisis.

With the current gloomy outlook and the near collapse of the global bourses, their chances of fully recouping their 1997/98 losses have all but been dashed.

Even recovering the losses of the last one year looks bleak. For the last 10 months or so, Bursa Malaysia has decline by 30% to shave off RM330 billion in value.

I still think that Mohd Najib’s best hope of buttressing the economy and avoiding a full-blown recession in to seek the advice and guidance of the people who were involved in managing the 1997/98 crisis and the crisis of the mid-1980s, and to empower the NEAC.

An immediate action would be to ensure that the banks continue provide loans and advances for productive purpose, especially for the export sector, while managing the NPLs more diligently.

According to news reports, the 18-months Apec timeline fits with a calculation by International Monetary Fund, which forecasts that developed economies would grow barely 0.1% in 2009, and that the world would emerge from the crisis the following year.

Mohd Najib acknowledged these challenges in an interview with the French news agency, AFP, in Lima and vowed to sharpen the country’s competitive edge and regain the ruling party’s two-thirds majority in Parliament.

‘It is going to be tough. I’ve got my hands full,’ he told AFP, adding that while Malaysia has solid fundamentals, what was hurting the country were falling commodity prices and the lack of foreign direct investments.

The US does a Malaysia

The next two months is critical to the global economic recovery plan, given the changeover from President George W Bush to President-Elect Barack Obama on Jan 20, 2009.

Who Obama eventually picks to sit in his Cabinet and lead the key economic and financial institutions will determine the level of confidence that is so badly needed not just in the US but around the world.

Even as we speak, the US government is reported to be weighing plans to rescue Citigroups Inc, whose stock has been hammered down on worries about its financial health.

According to news, the Treasury Department and the Federal Reserve have been in discussion to devise a strategy to stabilize the company.

The plans sound familiar because much of what they are proposing to do had been done by use during the 1997/98 crisis.

One option being considered is taking some of the risky assets held b Citigroup off its balance sheet, a move that would give the company more breathing space and put it in a better position to raise capital.

It was unclear, however, exactly how that option might be structured. Another option would be for the government to make another cash injection into the company- a Danamodal-type operation.

The company has seen its shares lose 60% of their value in the past week, reflecting a crisis of confidence among skittish investors.

They are worried all the risky debt on Citigroup’s balance sheet will turn into losses as the economy worsens and the markets stay turbulent – losses that could be nearly impossible to reverse.

Citigroup is such a large, interconnected player in the financial system that it were collapse, it would wreck havoc on the already fragile financial and economic conditions. The company has operations stretching around the globe in more than 100 countries.

Analysts consider Citigroup the most vulnerable among the major US banks – especially after it failed to nab Wachovia Corp – which was bought instead by Wells Fargo & Co, adding that the banking giant needs to get its hands on much-needed US deposit that would bolster its cash position.

Citigroup was especially hard hit by the meltdown in risky, subprime mortgages made to people with tarnished credits standing or low incomes.

Foreclosure on those mortgages spiked, leaving Citibank and other financial companies racking up huge losses on the soured investments. The company has failed to turn in a profit during the past four quarters.

Stop money politics now!

While in Lima, Mohd Najib, who is Umno President-Elect, also told accompanying Malaysian journalists that Umno would come out with more measure to combat money politics.

The Deputy Prime Minister had won the post uncontested when his sole challenger, Tengku Razaleigh Hamzah, failed to get the required number of divisional nominations.

Although money politics affects all politics parties at varying degrees, the corrupt practice has become a scourge to Umno due, in part, to its patriarchy of the ruling coalition.

Speak to any Umno leader and he or she will tell you that the problem is serious. Some would privately venture to opine that unless it is eradicated, it would be the cause of the death of the party.

Mohd Najib said what was needed was political will and commitment. I say needs courage. Having won the president’s post, Mohd Najib should be courageous enough to stay above the fray and take the bull by the horns.

If the allows money politics to continue, he may not have team needed to assist him in running the country and party come March when he takes over from Abdullah.

The outcome of the divisional nominations shows clearly that there are many unsavory and unscrupulous characters on a roll and they may yet win over the better candidates.

Yes, we have to be realistic – to quote Mohd Najib in his Lima interview – but that should not preclude any early to curb this corrupt practice and stop the money-throwing candidates from winning.

Better still if these corrupt candidates are identified and stop from contesting. Or their identities are made known to the delegates. It’s difficult to remove them after they have won.

Either Umno rids itself of money politics and regains the confidence of the people or expect the bloggers and independent news portals to have a field day making allegations, which could cause more people to drift away from it.

At a Nov 19 function organized by several Umno-related non-governmental organizations, a handful of attendees handed to Dr Mahathir complaints of money politics that allegedly occurred during the divisional elections.

The complainants told the gathering that they had made similar reports to the Umno Disciplinary Committee, and some went even a step further by lodging reports with the Anti-Corruption Agency.

Dr Mahathir said he would try his best to highlight their complaints to the relevant authorities, failing which he might consider publishing the name of the alleged culprits in his hugely popular blog.

This had led to the Higher Education Minister, Datuk Seri Mohamed Khaled Nordin, and one of the front-runners in the vice-president’s contest, to appeal to him not to do so, saying it would be unjust to the wrongly accused.

Dr Mahathir has said that money politics will continue to ‘haunt’ Umno even after Mohd Najib takes over the party presidency in March, and doubts if he will be able to get rid of this corrupt practice.

Whether he can or cannot is really not the matter. What matters is that scourge, unless stopped, will accelerate the party’s downfall following its poor showing in the last general election.

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