i do not agree with the statements by some ministers including the DPM saying that Malaysia would not be affected much by the current world financial crisis.
Crude oil prices has come down to around $70 per barrel, almost half of 140 just 3 months ago. As a net exporter of crude oil, we are losing valuable revenues to the tunes of Billions of ringgits.
As world economies slow and dip into recession, demand for commodities such as palm oil and rubber will be less. Commodities prices are in fact much lower now than a few months ago.
We are a trading nation. A big chunk of our exports go to the States and Europe which are now badly affected by the financial woes. When these countries reduce their purchases, our exports will be affected. .
So if we are earning less, are we really immune to the external financial woes? We will have less money to spend on development. We have less money to implement our projects. Our factories will be manufacturing less goods since demand will be less as world economies grinds to a halt, and some companies may go under. Transportation sector will also be affected since there is less goods to be transported, and tourism sector will see much less tourists coming over from the West , as people stay home to save money in a recession.
And because of the damage done by the sudden hike of our petrol pump prices just 3 months ago, our inflation has touched 7-8% (conservative estimate, but in reality may be more). Even if petrol pump prices can revert back to RM1.92, the goods are already costlier and it will not come down to the level prior to the increase of pump prices.
So what we are having is a slower economy, lesser earnings and higher inflation. With this combination- I call this a financial C4- banks will come under pressure as non performing loans will go up, as companies go under and individuals are unable to pay for mortgages. Bankruptcies will also go up.
We may not be as bad as in the West (then again we may be worse as the West has deeper pockets ), where the proportion of “Ninja” Loans (loans without strong collaterals or earning power) may be much more than us, causing the subprime fiasco, but ultimately, our banks are going to be under pressure and some of them may even fail….
One good thing is that Bank Negara, which is one of the few government institutions that are still functioning well, comes out with a statement to guarantee our depositors’ money in banks, till the end of 2010. This would have preempted any runs on the banks. No bank, however strong , would be able to stand a bank run, when nervous depositors try to withdraw money all at the same time. With the guarantee, at least people will have more confidence and a run on bank is more remote.
So our economy is definitely going to be affected. I only hope our leaders can see this and come out with better planning to forestall any severe downturn of the economy. Pumping an extra 5 billions to rescue share market is like adding a tin of salt to a big lake; it is not going to have much effects, except to save a few of those well connected companies.
The political scene is full of gloom. Now the economy is going to be bleak in the near future. Malaysians are going to have a tough time, and this time, because of the lower commodities prices, even rural folks are going to be affected.
The leaders, however, are still kidding themselves that we will be insulated against the external woes. Most , if not all, are spending their time politicking instead of concentrating on the problems of tackling these financial woes. Looking around, I do not see any dark knight coming to the rescue.
Not that I am a pessimist, but I am sorry to say that we will have a tough and rough 2009 ahead!!.