A very tough and rough time ahead

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!!.

27 Comments (+add yours?)

  1. A true Malaysian
    Oct 21, 2008 @ 14:44:27

    If I am the Finance Minister, pumping money into share market to boost up prices is the last thing I will do as it is as good as ‘dumping’. The money that pumped into may be ‘evaporated’ overnight.

    The 5 billion ringgit should rightfully used as soft loans to businesses to boost up their productivity and competitiveness.

    Like

  2. Peter Yew
    Oct 21, 2008 @ 14:58:21

    Right on, Dr Hsu. The scary picture you painted is so ominous that it can send us into taking extreme measures to survive this tough times. But even in recession there are opportunities and not everyone will be badly affected by recession. For instance, hawkers and economy rice sellers will do well as more customers flock to buy cheaper food. Pasar malam operators will also do well as people go for cheaper vegetables, fruits and food than shop at supermarkets and malls. Businesses dealing in necessities will not be badly affected. Healthcare services are unlikely to be trimmed as people still need to visit doctors and take medication when sick. In other words, while one segment of business will be hit, other segments may prosper. Conmen will be more visible to convince unwary people to get rich quick. Overall I don’t believe the economy in our country will collapse. Like a person falling sick, he will be himself again once he recovers.

    The government has not been truthful in saying that things will not be as bad as we imagine. Then again they are dispensing hope, like a doctor never reveals the utter truth to a patient who is very sick, in the hope that the people will not over-react. I guess it is up to us, reading the news, listening to the gossips, etc to each take our own corrective actions to shield ourselves and our families from any side effects.

    Those of us who are debt-free and are in steady employment in a recession-proof job should have little worry. It is those who have take loans to buy houses and cars and have unsteady income and a large family to feed, they are the ones who worry more. They are the ones the government, and political parties, should target to help tide over the next few years.

    Will we see a resurgence of more Ah Longs? Will there be more suicides? Will more people get religious? Buy more 4 Ekor? Go to Genting Casino hoping to strike a big winning? Can we expect more burglaries and robberies? Will we be under siege from desperate people who will put lives at risks? Can the police rise up to protect us?

    I suppose in a recession people will be more selfish and protective. But I hope that charity will not be thrown out as people in orphanages, old folks homes, disabled centres, etc still need assistance.

    Like

  3. Dr Hsu
    Oct 21, 2008 @ 15:03:06

    Peter Yew, well said.

    Like

  4. CYC
    Oct 21, 2008 @ 15:12:26

    See how brilliant our finance minister is. He totally could not comprehend the actual scenario yet he is labeled as an economist. Institution dealers must be his No. 1 supporters as they will earn more commission. Bolehland, you are truly incredible !

    The market though sluggish but it is not dead yet. Perhaps his own counter was pressured with margin call.

    We should facilitate business operation by easing credit availability, preserve jobs opportunity and contain inflation instead. Idiot minister orchestrated idiotic move. And where the money come from if not EPF. That’s our hard earned money, brother.

    Hell, where have our economists gone to. May be Tan Sri Dr. Zeti should be appointed Finance Minister instead.

    Like

  5. A true Malaysian
    Oct 21, 2008 @ 15:30:31

    Just hope that when a government leaders say something is ‘ok’ means it is really ‘ok’.

    From the past experiences, we hear something is ‘ok’ but turn out to be ‘not ok’. That is why most of us have reservations on whether to believe or not when a government leader said, ‘our economy is not affected’.

    It is important for a leader to be ‘truthful’ and ‘nothing to hide’ when imparting news or information to the rakyat.

    I had a chance to see a telecast in Singapore TV on PM speech on National Day Rally. I was impressed by PM Lee Hsien Loong where he gave a talk to live audiences and TV viewers on the direction that Singaporean need to go. The talk was supported by graphs and statistics that form the basis on the decision on what steps need to be taken, instead of just ’empty’ talks.

    This is one good example that our leaders need to emulate for good governance, transparency and accountability.

    Like

  6. CYC
    Oct 21, 2008 @ 15:35:22

    Again i wish to ask all the BN component parties, do they have their own economic think-tank? At this crucial trying period, all these think-tank suppose to pour their resources together and formulate policies and strategies to keep our economy moving with minimum adverse effect. The answer must be a BIG NO ! They only have political research team aim principally to win election.

    So, vision 2020 is all empty talk as the political party structure is not even well structured. No wonder all the party president /chairman’s speech sounds so hollow during the recent concluded meeting of MCA + Gerakan.

    Like

  7. Dr Hsu
    Oct 21, 2008 @ 15:40:12

    one of the most worrying aspects of our banking system is the credit card loans. Banks station their staff in supermarkets and hpermarkets and any Tom, Dick and Harry can apply for a card even with minimal earning power.

    Credit card holders tend to spend more than if spending is by cash, this is human psychology. ANd using credit card to spend is like spending future earnings. When at then end of the month, the cardholder cannot pay what he spends, the debt will accumulate . Until one day, he finds that he is unable to service his loan.

    When many people are in the same boat, the bank will get affected.

    So , at this juncture, perhaps, Bank Negara should come with stricter guidelines for credit card loans, since this type of loan does not really have any boosting effects on the economy.

    Like

  8. jamesloh
    Oct 21, 2008 @ 16:19:17

    i was having dinner with a friend,,,and as we were about to pay our bills..a long queue ..seemed the long row most are paying by credit cards ..even for less then rm 100…here its a trend i suppose or we are living on credit…?

    Like

  9. Looking for Hockey players for TVC
    Oct 21, 2008 @ 16:48:59

    Dr + friends

    We see a living Socialist economy + an honest government in action in the Republic of Singapore. Might be just pure coincidence, but the current Casinos / Theme Park / F1 project will help to cushion some impact of these credit crunches.

    If you notice, most of their major national projects are done during bad time, in order;

    1) To pump money + confidence into the market.
    2) To get the project completed at a lower cost.

    Having said that, Temasek suffer a lot as well in these atmospheres, lately.

    —————————–

    “But even in recession there are opportunities….” – Peter Yew

    *Great note from Mr Yew.
    For a lot of creative + brave folks, these are the most profitable time.

    —————————–

    As for our Kerajaan? To have plan to help the rakyats ? Don’t dream lah.

    Like

  10. clearwater
    Oct 21, 2008 @ 16:56:13

    Cannot help but concur with your prognosis on the politics and the economics of this country right now. Another issue is the deteriorating security situation. A poor economy will cause crime to spiral. It’s bad enough as it is but it will be worse next year if many workers in the construction and manufacturing sectors lose their jobs as industries slump. It is gloomy with so much global wealth in financial assets destroyed. How can 2009 be anything else but challenging?

    Like

  11. petestop
    Oct 21, 2008 @ 17:08:22

    Before one issue resolve, another one came up

    Now they trying to make “social contract” part of the curriculum. Really, they can rewrite history as they wish

    (Like change Jalan Alor to Jalan Kejora on their whim and fancy or changing the fact that KL was open by Yap Ah Loy).

    http://www.thestar.com.my/news/story.asp?file=/2008/10/21/nation/20081021162507&sec=nation

    See the rebuttal:
    http://www.malaysiakini.com/news/91681

    I would really like to hear what is Koh Tsu Koon take on this “social contract” that is suppose to guarantee Malay political power.

    I for sure did not sign up to this contract, neither would Sabah and Sarawak. Why would they, from being colonised by British, switch to be colonise by UMNO.

    It just amaze me how MCA, Gerakan and MIC can continue to be blind.

    Like

  12. Peter Yew
    Oct 21, 2008 @ 17:21:10

    I forgot to add the biggest recession opportunity: save up cash to buy good blue chips stocks.

    Like

  13. klm
    Oct 21, 2008 @ 18:56:27

    My forecast is gloomy weather ahead

    The next 12-24 months will be tough. The global economy will take this long to start moving. We will see increased job loss.

    In the aftermath, we will see emergence of new economic order.

    If Obama wins the us election, we will see the re-structuring of us economic order. This include energy, jobs, cost of doing business etc.

    In 5-10 years, we will see the impact in the global order.

    Malaysia must start adjusting itself. We must restructure the economic order to prepare for the future challeneges. Failure to do so will see us in the failed heap – like Zimbahwe.

    Like

  14. Steven
    Oct 21, 2008 @ 19:58:05

    Dear Dr Hsu, yes but we are just so helpless right now, aren’t we? Here you have the government announcing a MYR10 billion of the rakyat’s money to invest in low-performing shares! Can you believe this logic??? Isn’t this what the US had done, to spend US$700 billion of their citizen’s money to bail out troubled financial institutions, when their executives are still enjoying high perks and all. And has the rescue package been effective? It’s just ludicrous that this government is doing exactly the same. Who are they trying to bail out this time? More of their cronies? Can they not think of more practical ways of reviving the economy by assisting small and medium sized enterprises by ensuring that they can obtain loans to sustain their businesses, lower fuel prices and taxes to ensure the common people are getting more in their pockets so that they will have the means and confidence to spend more which will invariably help the local economy to grow. Appoint intelligent and fair-minded people to lead the government in devising fair and favourable terms to attract foreign investments. Right now, all their care about is political back-stabbing and power clamouring. And the rakyat are left to fend for their own survival in the face of the biggest and worst financial crisis seen in years! Already, factories and companies are either bankrupted or closing down in droves in China and Hong Kong. Korea is not far behind with huge problems with their business enterprises. Perhaps only third world economies will somehow survive this onslaught fairly mildly and ours too if we consider our economy third world status that is!

    Like

  15. Justin Choo
    Oct 21, 2008 @ 20:34:17

    Dr Hsu,

    I am puzzled. On the one hand when oil price escalated, the Govt would go bankrupt if it keeps on subsidizing petrol prices.

    Now that oil price has returned to US$70 the govt is in trouble bec it’s an oil exporting country.

    Looks like whichever way, it’s a losing scenario.

    Maybe you can explain further.

    Like

  16. Dr Hsu
    Oct 22, 2008 @ 11:12:11

    Justin, as a net exporter, we will sell more when price is up. even though the subsidy will be higher, the net inflow of money will be more. Our National coffer will be richer.

    But since oil is a depleting substance , it is good to gradually do away subsidy, but to do it so fast and so much is hurting the economy. I have mentioned then that since we are an net exporter, we are in no hurry to raise the pump prices by so much then…. Now that the oil price has come down, our actual revenue is much less, and even though subsidy is less, we as a nation is gettig less income on this.

    What they should have done then is to raise pump prices a little bit, and then wait and watch. To have such high price for oil (140 a barrel), it is going to cause a recession, and sine in a recesion, demand for goods will come down, the demand for oil will come down too. So in fact when the world oil price shoots up too fast, we should have anticipated a reduction in oil prices ultimately.

    The economic advisors to the PM must have given wrong advice then.

    Now that the oil price has coe down, this is actually the right opportunity to do away with subsidy , since goods prices have already adjusted to the level of pump prices at 2.70.

    We can reduce pump prices , but perhaps not at the same rate as the drop of world oil prices, so that our subsidy (still a 30sen per litre) can be done away . This is to ensure that next time, when our oil runs out, we do not have to subsidy petrol from tax players pockets.

    Of course, overall, if we can reduce wastages and corruption we ca save billions of rinnggits, and which ca be used for stimulating economy by spending on productive sectors and educating our workforce. With better knowledge, then only we can move up the economic and technological ladder, to a more sophisticated and hence higher earning economy.

    Like

  17. Vincent Ho
    Oct 22, 2008 @ 11:34:08

    It’s time to spend prudently and be trifty in all our spending.

    Recycle and manage your waste properly…save the environment.

    Use public transport if possible, if not carpool. Use lesser fuel and save the environment for the generations to come.

    Satu Hati.

    Like

  18. Justin Choo
    Oct 22, 2008 @ 11:45:15

    Dr Hsu,

    Thanks for your explanation.

    “So in fact when the world oil price shoots up too fast, we should have anticipated a reduction in oil prices ultimately.”

    Just like the share market. When it’s up people anticipate more. When the oil price was 140, the doomsayers anticipated 200. So what are the “experts” for?

    From your explanation, it looks like the higher the oil price is, the better Malaysia will be; at least so long as there is still oil underground!

    Beats me.

    Like

  19. Dr Hsu
    Oct 22, 2008 @ 12:00:19

    As long as there is oil underground , the higher the price the more income we will get, and that is true.. as long as we remain a net exporter..

    Venezuela is also a net exporter of oil. But look at the economy.. there is so much of corruption and wastages. Same as Ajerbajan many years ago. This is called the curse of oil.. When the wealth comes too easy, it will corrupts the power-to-be to spend and spend like noboby’s business.

    So , what should we do? For one things, we have not used any reduction in subsidy, billions of RM for your info, to improve public transportation.

    Penang needs a LRT. I have mentioned before that saving from the Pulau Indah fiasco in Port Klang would have enabled us to build a second Penang bridge plus a monorail plus some changes left to beautify the whole city..

    KL needs not have 3 LRT systems as we are having now , as a result of giving out contracts to different “well-connectors”. They can still be integrated into one.

    We can provide for free inner city looping bus services, where inner city travellers can hop in and out of a open bus. This would have reduce inner city traffic. Both in Penang, Kuala Lumpur, or even other big cities.

    So much can be done with a few billions dollars. Instead we spend almost 3 billions to buy some helicopters… Are we in an arms race?

    Like

  20. CYC
    Oct 22, 2008 @ 12:18:41

    Evading from the real issue should be the last thing to do for a real politician. Why are we still debating the economic issue in an amateur way. Professional economists and financial experts view should be sought instead. But, where are the economic and financial think-tank of the respective political parties? I am amaze how could these political parties trumpeting their great ideology when they don’t even possess the basic economic think-tank as their spine. Of course they may argue such work could best left for the government to address. Just look at the US presidential debate, how could Obama and McCain deliberate all those economic issue without input from expert within the parties.

    We are here debating how to influence the party to stand firm on certain political, social and economic issue. But could it be done if we are not equipped with comparative data and research done to support the case. Policy and law cannot be change by just shouting “Satu Hati” slogan.

    Perhaps too much time was spent on arguing whether to stay or quit BN. In reality it make no difference. As the generation Y no longer think in the same fashion as those over 40 or 50 years of age, the political landscape has change tremendously. They no longer strictly wants to have any affiliation with any political parties. They most probably become independent voters who will vote for representative or party that live up to their expectation in terms of ideology, track record and perhaps candidates own charisma. Holding hard into the party emblem will only make your sore and numb. Wake up and or better still do an up stand with your head down and leg up as advocated by Jack Ma of alibaba.com. He says you will able to see things differently and clearer as your head is flushed with blood that flow into it.

    When we live in a world of diversity, purely satu hati will only kill off our creativity. Generation Y don’t like to be stereotyped and restricted with their diversification in thinking process.

    Like

  21. Dr Hsu
    Oct 22, 2008 @ 12:18:52

    When the oil pirces come down too rapidly, due to the decrease in demand, expect a rebound once the opec countries cut production. It is just like the stock market.

    My advice to younger people is to spend within your means, save up your money, and reduce your borrowings. For companies, reduce your overhead and gearings.

    That is how to ride out the economic storm that is going to hit us hard next year.

    Like

  22. Justin Choo
    Oct 22, 2008 @ 15:14:38

    Dr,

    “We can provide for free inner city looping bus services, where inner city travellers can hop in and out of a open bus. This would have reduce inner city traffic. Both in Penang, Kuala Lumpur, or even other big cities.”

    Actually right there down south, our neighbour, we can just learn from there and implement. Why can’t we? The reason is obvious. Now is not the time to do any analysis as to why we are in this sad state of affairs. We only need to change the Govt. This does not mean a guarantee for the better; but at least we get rid of the known devil first.

    Like

  23. Dr Hsu
    Oct 22, 2008 @ 15:46:28

    at the rate we are going, Justin, we will need another 4 yrs.

    So during these 4 years, what do we do?

    Like

  24. Justin Choo
    Oct 22, 2008 @ 17:58:08

    Dr Hsu,

    Since you asked, leave BN.

    Like

  25. romerz
    Oct 23, 2008 @ 02:20:40

    Dear Justin,

    Doc is but 1 man. Granted his leaving BN may precipitate others to follow suit but wouldn’t it be more helpful if he could bring his entire party out?

    As long as he is within the CC of the party his continued arguments for leaving BN will undoubtly help in some ways.

    I’m sorry to say that you have let your impatience get the better of you since doc did say that his patience is not unlimited.

    Let us assume that the delegate turnout of the recent Gerakan agm is indicative of the membership.

    Assuming that there are 200,000 members of Gerakan and the turnout of delegates was 75% (according to Jeff Ooi) there are still 150,000 people who have not left yet. Now wouldn’t it be nice if these 150,000 people left collectively to oppose UMNO?

    Dr Hsu,

    I’ve written a piece similar to yours in my blog.

    Are we from this planet?

    http://romerz.blogspot.com/2008/10/are-were-from-this-planet.html

    Like

  26. Dr Hsu
    Oct 23, 2008 @ 11:55:07

    Dear Justin, I understand your frustration, aren’t we all?

    We have waited patiently and expectantly for September 16, nothing happened.

    Dates come and Dates goes, nothing happened.

    If 916 is even 20% as successful as what was claimed, (or even if there was no 916 claim in the first place), those of us in componenet parties would have a easier task to convince members to move the parties out of BN.

    But as it is, it looks like BN is going to have another 4 years. So during these 4 years, do we not voice out against bad governance, while of course still trying to influence the party to leave BN?

    What would I contribute if I alone leave? I am a nobody, a small fry, but in Gerakan, at least many members listen to my views, and my views are the same as yours, and romerz and many others in the civil society… To have a better world, better tomorrow.

    Believe me, component parties in a coalition are different entites altogether; thus DAP is not same as PAS, and GErakan is not same as UMNO.. Gerakan has failed the people by not speaking out, and for that, we as grassroots have bombabrded our leaders left and right, and myself ever since 2006.. Most Gerakan members do not mix with UMNo and are just ordinary citizens, as ordianry as you andme and romerz. Even in coalition in Geramany and Japan, aligment changes frequently and different entities formed different coalition during differet times due to different requirements. Havig siad so, I still think Gerakna would place a more significant role to achieve its ideology by beig the third force, apart from the 2 big coalitions. We should look 10 to 15 years ahead.

    Dr Toh left, but what was the impact? And Dr Toh was hundred times more potent than me. If I just pack and go, what would be the impact? But if I can convince the party to go, it could change Malaysian political landscape in 10 to 15 years time.

    That is why my friends and myself have a long discussion before I decided to offer myself as a candidate for CC. It would have been easier to just pack and leave the party and quit politics,; that way at least I would not be insinuated against, like some of the twisting comments posted in your blog.

    At least now I can voice out directly to the top leadership now, even if they do not share my views. Before, I can only hope they read my blog. Now , during meetings, I can directly argue my points.

    I was also disappointed that UMNo culture is still present in PKR. Do you know that of those 20 members from KL that crossed over to Pakatan, they were offered overseas trips and promises of projects? I would have thought only UMNO resort to this…. And to date, only abot 500 members have left in the whole country, out of about 200,000.

    Even if I can influence one or two leaders to see my points, the seed will be sown , just like I have helped sow the seeds among the grassroots to push for Gerakan to be a third force..I was the first to voice out in my blog as well as in the blog ” a matter of choice” after March 8 about the third option, , and now, many members are talking about the third force.

    But in the meantime, while we argue among ourselves to stay or to go out of BN, we can still voice out to help correct whatever bad policies that are in place.
    Because another 4 years of the same thing, the country would be ‘dead’.

    At least if we can voice out and push our leaders to help correct 10 % of the bad things, at least the people would be 10% better off… If we asked for 40 changes and even if we get 3, that would have helped a wee bit in the life of the ordinary people…And we help sow the seed of change.

    And if we are unable to do correct 10% after certain time frame, then the leadership would have to concede to me that I was right all along, and my voice would be much louder to ask the party to leave. Believe me, there would be a time frame.

    Our aims are the same, maybe we are taking a different approach. Political parties are just tools for achieveing ideology.

    Different people have given me different advices, but they all agree on one thing. I should continue to voice out, within the party CC as well as outside in my blog. Whether what I do will bring any effect or just a futile effort is secondary,; at least i have tried my very best.

    At the end of the day, if I cannot achieve anything fruitful, i will just fade away from politics.

    Like

  27. THE TRUTH
    Oct 23, 2008 @ 13:50:49

    The only reason Malaysia is a peaceful country is because the minority people in Malaysia is Non-Muslim !

    Like

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