In the 1990s, when Malaysia was going through frenetic pace of development and growth, one of the key drivers was credit expansion. Banks were rolling loans like nobody’s business. On many counts, that helps to keep the economy pumping and keep the growth rates in the double digit range. Off course, when the Crisis hits us, the credit expansion stops and begins years of credit crunch until the recent years when credits gradually expand, and economy started to grow again (albeit at a much slower pace compared to the 90s).
The fact remains that credits are essential to a growing economy like Malaysia. However, the banking reforms post the Crisis, has created a banking system that are larger in size, and much more conservative and also bureaucratic in nature. While that may save the banks from the current financial crisis, it is still at risk in the face the economic downturn. The natural reaction by the Banks (learning from the pains of the past – if there are any real learning, of which I am so doubtful), is to reduce credits and becomes even more conservative.
Therefore, what will happen is another problem of sort: self fulfilling prophecy. Banks expecting a crisis, rolled back credits and loans, further precipitate the crisis and make the crisis to be real. Therefore, banks will be a party that contribute to the crisis, even though they were not part of the crisis to start with. This is what we called as the “Self Fulfilling Prophecy”.
This is the exact reversal of the case in the United States, whereby the banks are the original source of the crisis, and the Government in turns forcing them to reverse the whole thing by buying their toxic assets so that they can go back into credit expansion again and gets the economy moving, coupled with the deficit spending on part of the government via stimulus package. As the Obama team is saying to their banks – this is the time that you should lend, rather than started to pull back on the brakes.
So in comparison – we are doing neither of the two things. No clear large enough fiscal stimulus, and no credit expansion.
What I am trying to allude to is as follows – I have no confidence in the Government and their actions; if they do, they lack the credibility to do so, and hence won’t be effective even if they tried; furthermore, I don’t agree with them taking risks with tax payers money given their track record has been extremely lousy. The better way is for the banks to expand credit, and if the Government really sincere, they should be spearheading the calls for it. This will be much more effective in combating the current crisis. Money expanded by lending will reach private sector hands, which are generally more efficient in generating the economic activities. The money will be immediately spent, and creates the multiplier effects in the economy at a much faster rate – compared to waiting the bureaucracy of the Government (which are endemic with corruptions and nepotism).
One fact that we have overlooked is that over the last ten years since the 1998 crisis, the private sector has grown out of it at a much better rate than the Government. I have seen many Malaysian entrepreneurs are making great strides in all over the World such in China, Indonesia, the Gulf States, Sudan, Iran and so on. I do not see the Malaysian governments keeping up with that pace (and even the so called GLC’s do not excel as much as these individual entrepreneurs). The truth is the private sector has already outgrew its dependence on the Government contracts (save for those few “new Malay” businessmen who are still in the same doldrums).
However, the government leadership either fails to see this, or they feel that it is necessary to keep the private sector to continue to be dependent on them. Let me give you some example: Malaysian Government fails to export Protons (its cars), but the private operators who produces spare parts are already exporting them all over the region. All the Government efforts to create palm oil plantation in Indonesia has not bear real fruits, but a number of Malaysian businessman has managed to operate large scale plantations there (and now I heard that Felda wants to open palm oil plantation in Brazil, which makes me laugh even more). Many GLC contractors fail to perform in the Middle East, whilst few privately owned contractors thrive and grow well. Probably, you as readers have better examples than those mentioned above, from your own experience.
In a nutshell, if we want Malaysia to grow, the best bet is to let the private sector to expand. And for this, the best help is to extend them credits. They are the real engine of growth, and the most efficient and effective in terms of money utilization. They are at the heart of our export engine, and also at the same time the largest employers of human resource. Any money thrown to them will immediately flow down to the base and strata of the society.
Therefore, my plea is: please get the Malaysian banks to be more aggressive in these current bad times, instead of rolling back their credits. At the same time, if the Government still want to exercise a fiscal stimulus, please consider the facts that I have said above. The most important thing of all is “confidence” and it can’t be overcomed if there is no transparency. And when I meant transparency, it shall not be as cosmetic promise (as in the past), it has to be real and believed by the public.
Lastly, beside the credit expansion by banks, there are few other areas that can be accomplished in the face of the current crisis. However, they require a bit of technical data of which I am not well equipped for now, and the discussions of them are rather tedious, of which will be beyond the scope of just an article like this. However, I hope that this writing give the readers a bit of what’s required under the current circumstances.