Paul, Thread
<<to take a page out of Malaysia's book,>>
Just as you are talking about a page in Malaysia's book they are busy writing another one. Hope this book has a happy ending but I suspect we have several more chapters of suspense to go before we get there.
Reprinted For Personal Use Only:
WRAP: Malaysia's 6.8% GDP Slide Fuels Even Looser Policy
By JAMES HOOKWAY
Dow Jones Newswires
KUALA LUMPUR -- Malaysia's policy-makers Thursday said the economy shrank 6.8% in the second quarter, confirming what many had suspected: that the country's economy was falling off a cliff and monetary policy will be further loosened to jack it back up.
It's worse than the 6.6% second quarter slump which South Korea also reported Thursday, but still better than Thai officials' projected 9.4% second quarter shrinkage, reported in the Bangkok press.
Malaysia's central bank, Bank Negara, also revised the first quarter gross domestic product figures to a 2.8% contraction from the original estimate of 1.8%. It's a far cry from the 8%-plus growth rates Malaysia has been basking in for the past decade, and the country's leaders are now stepping up their new, expansionary policy to fend off worsening decay by cutting benchmark interest rates.
"The degree of the second quarter contraction will be seen as validation that the IMF policies were wrong," says Desmond Supple at Barclays Capital Asia. And that could further damage the influence of beleaguered Finance Minister Anwar Ibrahim, who, until Malaysia's move to pump up government spending by 20% and loosen monetary policy in July, had been preaching austerity to weather the darkening storm.
That stance, although not a formal International Monetary Fund program, was worked out in close consultation with the Washington suits. But Prime Minister Mahathir Mohamad balked at that earlier this year, blaming tight-money policies for bringing recession.
"The writing's been on the wall for Anwar for some time," one economist says. "He's been marginalized, and the new policy shows that."
Coffee shop talk in Kuala Lumpur even suggests the severe GDP figures could be a pretext for Anwar's removal as both finance minister and deputy premier, despite his increasingly frequent affirmations of support for his boss, Mahathir.
Politically, the tide has turned for the premier's one-time blue-eyed boy, and even Anwar's supporters are now being sidelined. "They are certainly out to nobble him," one Malaysia-watcher said, highlighting the way Malaysia's political establishment seems to be clipping the ambitious Anwar's wings.
Indeed, Mahathir stole the show Thursday, spilling the beans on the GDP slide at a political rally ahead of the central bank's embargo. He also pledged that fast action will be taken.
"It hasn't happened to us yet but has already affected our neighbors where some 24 million people are out of jobs...their banks and companies have gone bankrupt and the people have lost their sources of income and are unable to buy even necessities," Mahathir said. "We cannot wait until we are in such a plight. We have to act now and work out strategies, for what has happened to our neighbors can also happen to us."
And Bank Negara has responded. Already well on the way to shrugging off its former monetary stiffness, the central bank said it's lopping another 50 basis points off benchmark interest rates, bringing them down to 9.50%. The amount of money commercial banks have to leave with Bank Negara has also been cut to 6% of total deposits from 8%.
The rationale behind that is to get the banks lending, and the private sector borrowing. Special economics minister Daim Zainuddin singled this out as the biggest hurdle to recovery Thursday.
"The private sector has lost total confidence," Daim told a roundtable. "Many (companies) don't want to tell us the truth of their situation...I think most of them are in trouble."
He went on to say that the government has no intention of bailing them out, but noted that ways can be found to help troubled companies. Again, the banking sector was at the root of the problem.
"Today the banks, in most cases, refuse to lend. And the private sector, in most cases, refuses to borrow," Daim said. "If interest rates are around 15%, why should they do business?"
With two new agencies about to start recapitalizing the banks and buying up their nonperforming loans, Daim believes that Malaysia's economic decay will ease, and there may even be some growth next year. He stressed some realism, though.
"We don't aspire to 8% growth in the future. Those were the good old days," Daim, a former finance minister, said. "Now we are happy when the ringgit appreciates one sen."
The currency did a bit better than that against the dollar Thursday, trading at 4.2103 ringgit (MYR) late in the day compared with MYR4.2120 Wednesday. Dealers suggested that growing speculation that Malaysia may soon impose further capital controls helped damp any selling pressure.
That's something economists are keeping a close eye on, even though Daim has ruled it out.
"They are clearly easing policy," says SG Asia economist Neil Saker. "But they can only do it with capital controls to protect the ringgit."
He argues that the kind of rapid policy easing now in effect could undermine the ringgit still further, and curbing ringgit trade is one way of preventing that. The ringgit's already lost around 40% of its value against the dollar since the Asian currency tsunami broke in July last year.
Some commentators are now encouraging trading restrictions. Influential U.S. economist Paul Krugman said in Singapore earlier this week that with capital controls, countries "can de-link the domestic economy from the sentiment of investors. I don't like what I'm proposing, but I don't see a way out."
Krugman, it should be noted, is also advocating expansionary policies to revive Asia's bruised economies. |
