I welcome Deputy Prime Minister and Finance Minister, YAB Dato Sri Najib Tun Razak's comments that there will be a gradual liberalisation of some of the elements of the New Economic Policy. I urge the government to again seriously consider liberalizing the economy by relaxing the 30% Bumiputera quota to make Malaysia attractive to both domestic and foreign investors. We just have to ask ourselves two questions. First, in the current global market, do we want to encourage local investors and attract foreign investors. Second, do we want to make Bursa Malaysia the premier regional bourse? If the answer to both questions is YES, then we have to seriously remove any restrictions and hindrances, including the removal of the 30% Bumiputera quota. Can we force any local company to list on Bursa Malaysia? Obviously not. We must not forget that in this days of globalization, companies have a choice to list on other regional bourses like Singapore, Hong Kong and even London, if there are restrictions. So, unless the government prohibits companies from listing overseas, which is impossible, we should look at relaxing all conditions to make Bursa Malaysia attractive.
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Friday, October 31, 2008
Wednesday, October 29, 2008
Wednesday, October 22, 2008
Package of Economic Incentives a Timely Move
The package of economic incentives announced by the Deputy Prime Minister and Finance Minister, YAB Dato Sri Najib Tun Razak is indeed a very good and timely move by the government. It reflects the government's seriousness in cushioning the impact of the current global recession. Among the measures announced by YAB Dato Sri Najib is a relook at incentives to attract foreign investments. As part of the package, I urged the government to relax, if not abolish, the Foreign Investment Committee guidelines. Other countries have opened up their countries to attract FDIs and we should look at removing any requirements that can be viewed as obstruction or hindrances by foreign investors. Also, I urge the government to seriously introduce further measures to expedite the approval of licenses for the setting up of new businesses by both domestic and foreign investors as well as work permits for expatriates to work in Malaysia.
Furthermore, the government should also look at removing the Bumi quota for housing projects. The quota increases cost and delay in implementation of housing projects. The 30% quota for companies that which to be listed on Bursa Malaysia should also be abolished. The quota is not consistent with global developments and it will push companies to chose to be listed on other regional bourses instead of Bursa Malaysia.
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Furthermore, the government should also look at removing the Bumi quota for housing projects. The quota increases cost and delay in implementation of housing projects. The 30% quota for companies that which to be listed on Bursa Malaysia should also be abolished. The quota is not consistent with global developments and it will push companies to chose to be listed on other regional bourses instead of Bursa Malaysia.
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Sunday, October 19, 2008
I Will Continue To Serve The Party
I wish to thank all party comrades who had given me their support during the just concluded Party Election. I accept the decision of the delegates and I pledge to work closely with the newly elected Party leadership to further the cause of the Party. I will continue to serve the Party to the best of my ability and will continue to give my utmost as a Member of Parliament.
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Friday, October 17, 2008
Government's Move to Guarantee Deposit 100% Should be Lauded
I commend the government's move to guarantee all bank deposits placed with financial institutions with immediate effect. This move is consistent with regional initiatives to preserve confidence in the country's financial systems, which have been affected by the global financial crisis. I urge the government to review the interest rates structure with a few of lowering interest rates to make it consistent with global developments.
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Sunday, October 12, 2008
How the turmoil started
Q&A with Datuk Seri Dr Fong Chan Onn
Please explain in simple terms the financial crisis now strangling America.
The cause of the turmoil had its beginning in the aftermath of Sept 11, 2001. After the incident, consumers were in a state of gloom and there was loss of confidence. The Federal Reserve (Fed), in order to stimulate the economy, went on a policy of a low-interest rate regime.
Before Sept 11, the Federal Reserve discount rate (interest rate that banks pay to borrow directly from the Fed) was 3.7%, with cost of fund for prime rate (a reference interest rate used by banks) at 6.5%. By the end of 2002, the federal discount rate was 1%, with the prime rate for loans at 4%. This low interest rate regime went on until mid-2005 and, because of these low-cost funds, banks were aggressively lending, especially for housing.
Mortgages were given to those without good record — no employment, no credit rating and no stable income. The banks were doing that because by 2005, there was a steady appreciation in house prices. Banks were treating houses as very good collateral; in case of foreclosure, the price of houses were more than the mortgages. Unfortunately, inflation went up. By 2006, the Federal Reserve had to increase the rates. In June of that year, the federal discount rate was 4.95%, and the cost of funds for prime rate was 8%. This resulted in heavier mortgage payments for many house owners and they could not pay. Many had to forego their properties. The banks took over the houses and this created a slump in the market. By 2007, banks were facing difficulties, including Citibank and UBS, which sought injection of funds. That was the initial stage. The property market kept on slumping and even good paymasters couldn’t pay. This escalated and Lehman Brothers as well as Fannie Mae and Freddie Mac, the primary organisation for housing loans, were in deep trouble. It must be noted that Fannie Mae and Freddie Mac had packaged their loans and resold them to buyers, including sovereign countries like China and Japan.
For the foreign countries, buying these financial products were akin to buying US treasury bills because they were implicitly guaranteed by the US government. As for AIG, it became problematic because it provided insurance for many mortgaged properties. In a nutshell, even the final protector also collapsed.
Some say the current American crisis is akin to the Great Depression. The Great Depression was also due to loss of confidence. Investors lost faith in the stock market back then. But there is a major difference: in 1929, the US government did not have the power to spend because laws restricted them from overspending, so it had no capacity and no hindsight to act. Although the effect this round is considered not as severe as the Great Depression, there is only a small consolation - the Depression took 10 years and the Second World War to stimulate the economy.Is the Government doing enough to minimise the impact of the crisis?Competition vis-a-vis the regional countries is tough. Singapore, Vietnam and Thailand are trying their upmost best to attract the slowing foreign investments. And for the past seven months since the general election, the perception is the Government is not making concerted efforts to resolve issues because they are too caught up with politics.
But the Cabinet has been proactive in reacting to the high oil prices, preventing a runaway inflation, and making sure the poor and the public get some relief. The hike in oil price was also external in nature, but the Government got blamed too.The small- and medium-scale industries, for instance, are still facing difficulties when seeking co-operation from local municipalities. MCA recently had a dialogue with fishermen as well, and they complained about a host of problems. As for other issues - simple things like the recent road tax rebate for cars: it excluded certain cars, such as those with 2000cc engines because they were deemed for commercial use, or owned by a wealthier class of folks. But many are not.These are things that bog the public down and make them feel as if the Government is not looking at their problems in totality. As for the onslaught of this economic crisis, we do not see the Government coming out to clearly explain to people the source of the problem and how we can withstand the negative impact. On foreign investment, what is not being done is to further liberalise the economy - fast. For example, are there improvements in processing of work permits for foreigners and their spouses? Has the Government made it more attractive for them to work here? In a ministerial statement made during the 9th Malaysia Plan mid-term review, Deputy Prime Minister Datuk Seri Najib Tun Razak said the Foreign Investment Committee guidelines would be announced. This is the crucial information that investors want to know.Until now, though, there is no word yet. We have not made any clear policy statement to announce to investors that we want their investment. This is a glaring aspect that we have not done.
More...
Please explain in simple terms the financial crisis now strangling America.
The cause of the turmoil had its beginning in the aftermath of Sept 11, 2001. After the incident, consumers were in a state of gloom and there was loss of confidence. The Federal Reserve (Fed), in order to stimulate the economy, went on a policy of a low-interest rate regime.
Before Sept 11, the Federal Reserve discount rate (interest rate that banks pay to borrow directly from the Fed) was 3.7%, with cost of fund for prime rate (a reference interest rate used by banks) at 6.5%. By the end of 2002, the federal discount rate was 1%, with the prime rate for loans at 4%. This low interest rate regime went on until mid-2005 and, because of these low-cost funds, banks were aggressively lending, especially for housing.
Mortgages were given to those without good record — no employment, no credit rating and no stable income. The banks were doing that because by 2005, there was a steady appreciation in house prices. Banks were treating houses as very good collateral; in case of foreclosure, the price of houses were more than the mortgages. Unfortunately, inflation went up. By 2006, the Federal Reserve had to increase the rates. In June of that year, the federal discount rate was 4.95%, and the cost of funds for prime rate was 8%. This resulted in heavier mortgage payments for many house owners and they could not pay. Many had to forego their properties. The banks took over the houses and this created a slump in the market. By 2007, banks were facing difficulties, including Citibank and UBS, which sought injection of funds. That was the initial stage. The property market kept on slumping and even good paymasters couldn’t pay. This escalated and Lehman Brothers as well as Fannie Mae and Freddie Mac, the primary organisation for housing loans, were in deep trouble. It must be noted that Fannie Mae and Freddie Mac had packaged their loans and resold them to buyers, including sovereign countries like China and Japan.
For the foreign countries, buying these financial products were akin to buying US treasury bills because they were implicitly guaranteed by the US government. As for AIG, it became problematic because it provided insurance for many mortgaged properties. In a nutshell, even the final protector also collapsed.
Some say the current American crisis is akin to the Great Depression. The Great Depression was also due to loss of confidence. Investors lost faith in the stock market back then. But there is a major difference: in 1929, the US government did not have the power to spend because laws restricted them from overspending, so it had no capacity and no hindsight to act. Although the effect this round is considered not as severe as the Great Depression, there is only a small consolation - the Depression took 10 years and the Second World War to stimulate the economy.Is the Government doing enough to minimise the impact of the crisis?Competition vis-a-vis the regional countries is tough. Singapore, Vietnam and Thailand are trying their upmost best to attract the slowing foreign investments. And for the past seven months since the general election, the perception is the Government is not making concerted efforts to resolve issues because they are too caught up with politics.
But the Cabinet has been proactive in reacting to the high oil prices, preventing a runaway inflation, and making sure the poor and the public get some relief. The hike in oil price was also external in nature, but the Government got blamed too.The small- and medium-scale industries, for instance, are still facing difficulties when seeking co-operation from local municipalities. MCA recently had a dialogue with fishermen as well, and they complained about a host of problems. As for other issues - simple things like the recent road tax rebate for cars: it excluded certain cars, such as those with 2000cc engines because they were deemed for commercial use, or owned by a wealthier class of folks. But many are not.These are things that bog the public down and make them feel as if the Government is not looking at their problems in totality. As for the onslaught of this economic crisis, we do not see the Government coming out to clearly explain to people the source of the problem and how we can withstand the negative impact. On foreign investment, what is not being done is to further liberalise the economy - fast. For example, are there improvements in processing of work permits for foreigners and their spouses? Has the Government made it more attractive for them to work here? In a ministerial statement made during the 9th Malaysia Plan mid-term review, Deputy Prime Minister Datuk Seri Najib Tun Razak said the Foreign Investment Committee guidelines would be announced. This is the crucial information that investors want to know.Until now, though, there is no word yet. We have not made any clear policy statement to announce to investors that we want their investment. This is a glaring aspect that we have not done.
More...
Weathering a financial storm
The Star - 12 Oct. 2008
In the context of a global financial meltdown and fears of a recession, the guiding principle for now should be capital preservation - how do I protect what I have? IT is said that when America sneezes, the rest of the world will catch a cold. Now, America is sick and the rest of the world “could end up in the intensive care unit (ICU) if no steroid injection is given urgently”. Expressing his concern, Datuk Seri Dr Fong Chan Onn, MCA economic policy bureau chairman, says that “Like it or not, America is the bedrock, the ground zero - the world’s financial institutions evolved from Wall Street and the Federal Reserve.” He believes that the current economic turmoil had its beginning in the aftermath of Sept 11, 2001, and that we are heading for choppy times because the severity of a global financial meltdown has not been fully played out yet. Despite announcements of government intervention across the US and Europe and bailouts amounting to trillions of US dollars, the world saw stock markets tumbling down and falling for seven consecutive days in anticipation of a global recession. The message is the same everywhere: investors do not think the end of the problem is in sight yet and what is plaguing the markets is a “loss of confidence”.
The question Malaysians are asking is not whether the financial tsunami will hit us but when and how badly. Are our deposits in our banks safe, what about our jobs and our businesses, and our investments in the stock market? Last week, it was reported that the US lost 160,000 jobs.
“This is another indication that the economy is in stress. If the economic downturn is severe, consumption will be reduced and the US will import less from Asia,” says Dr Fong in an interview. The former Human Resources Minister and dean of Universiti Malaya’s Faculty of Economics and Administration adds that Malaysia exports a high volume of electrical items and other goods to the US. When America tightens its belt, investments to other countries will slow down. Although Malaysia has diversified its investment sources to other countries, the Middle East, for instance, America and Europe remain the major markets for world production.
“We cannot underestimate their effect on us,” says Dr Fong.
Dr Fong: 'Malaysian banks too should offer 100% guarantee'
“Unfortunately, the Government and the public have not taken cognisance of how severe this economic tsunami can be,” says Dr Fong. “In 1997-1998, investors lost confidence in the Asian currency but we had the US and China to support us through. “Now, it is the apex, the rock of Gibraltar, that is in trouble. The epicentre in New York is spreading to Europe and other markets have also tumbled. “It is also going to affect China because China has US$520bil locked in US treasury bills. So do Japan (US$600bil); Hong Kong (US$60bil) and even Thailand (US$32bil). “For a massive loan mortgage of US$2.5tril, more than a few banks will be involved. Unless all declare their bad loans, we will not know the extent of the problem.
“In the Lehman bankruptcy filing, for example, it was disclosed that Citibank owed US$1.5bil. Another example: HSBC headquarters in London has an outstanding obligation of US$20bil within six months. “My personal feeling is we are heading for choppy times because the severity has not been fully played out yet. “It will take a much longer time to recover. Our exports would slow down, orders may reduce, and factories may have to reduce staff, freeze new employment...”
Everyone agrees that the good that came from the 1997 crisis is that the Government imposed a lot of instruments and regulations on our financial institutions. They need to be locally incorporated; are compelled to abide by guidelines on the amount of investment they can make overseas;have to get Bank Negara clearance for investment overseas; and are generally limited to 10% of their deposit.
“On the whole, our financial institutions are not that adversely affected. However, many individuals are affected by this turmoil because they have invested in shares and many other financial products offered by these financial institutions,” says Dr Fong.
In this region, Malaysia’s coverage per depositor per bank is one of the most comprehensive, eclipsing that of even Singapore (US$13,808) and Hong Kong (US$12,872).One way around this RM60,000 insurance limit for the man on the street is to spread his deposits around the 36 member banks or set up a range of joint accounts in a bank or several banks. “But banks also should make it a point to tell customers that their deposits are guaranteed up to RM60,000 only, to allow depositors to make appropriate decisions to safeguard their capital. Ireland offers 100% guarantee and Germany has pledged to do the same. Malaysia should also look at doing that,” says Dr Fong. If our deposits are relatively safe, how do we nevertheless prepare for the hard times ahead? Says Dr Fong: “The guiding principle for now should be capital preservation. This is the time for folks to think ‘what steps should I take to preserve what I have?’ It is definitely not the time to think of how much profit one can make.“This is not the time to be foolhardy and enter the stock market, this is my opinion. Do not use borrowed money hoping to go in and making a killing within a year.“We still do not know and understand fully the exact nature of damages from this mega crisis.“It is too risky to venture into the unknown. Even the smartest professional investors can make mistakes, what more individual investors with their hard-earned money.”He cites the example of the Government of Singapore Investment Corp, which bought a slice of UBS for 10bil francs in December only to find a few months later, that it was holding on to merely half its value.“It has the financial strength to hold on to the shares but many individual investors do not,” he says.“If one really wants to pick up stocks, look at the dividend yield. At the present price, if it gives a dividend yield of 10%, which is higher than for fixed deposits, one can consider. Also, make sure the stocks are recession-proof, such as counters in health, education and food.“As for properties, well, if you need a home, you need to buy. But in any economic situation, people will look at locality. Properties in good locations can easily be resold or rented out. You can look around but again, the principle should be capital preservation.”Good foundations: The Malaysian banking sector is expected to be stable in 2008 despite the global financial crisis as the old-style model of conservative banking is now holding us in good stead.
More...
In the context of a global financial meltdown and fears of a recession, the guiding principle for now should be capital preservation - how do I protect what I have? IT is said that when America sneezes, the rest of the world will catch a cold. Now, America is sick and the rest of the world “could end up in the intensive care unit (ICU) if no steroid injection is given urgently”. Expressing his concern, Datuk Seri Dr Fong Chan Onn, MCA economic policy bureau chairman, says that “Like it or not, America is the bedrock, the ground zero - the world’s financial institutions evolved from Wall Street and the Federal Reserve.” He believes that the current economic turmoil had its beginning in the aftermath of Sept 11, 2001, and that we are heading for choppy times because the severity of a global financial meltdown has not been fully played out yet. Despite announcements of government intervention across the US and Europe and bailouts amounting to trillions of US dollars, the world saw stock markets tumbling down and falling for seven consecutive days in anticipation of a global recession. The message is the same everywhere: investors do not think the end of the problem is in sight yet and what is plaguing the markets is a “loss of confidence”.
The question Malaysians are asking is not whether the financial tsunami will hit us but when and how badly. Are our deposits in our banks safe, what about our jobs and our businesses, and our investments in the stock market? Last week, it was reported that the US lost 160,000 jobs.
“This is another indication that the economy is in stress. If the economic downturn is severe, consumption will be reduced and the US will import less from Asia,” says Dr Fong in an interview. The former Human Resources Minister and dean of Universiti Malaya’s Faculty of Economics and Administration adds that Malaysia exports a high volume of electrical items and other goods to the US. When America tightens its belt, investments to other countries will slow down. Although Malaysia has diversified its investment sources to other countries, the Middle East, for instance, America and Europe remain the major markets for world production.
“We cannot underestimate their effect on us,” says Dr Fong.
Dr Fong: 'Malaysian banks too should offer 100% guarantee'
“Unfortunately, the Government and the public have not taken cognisance of how severe this economic tsunami can be,” says Dr Fong. “In 1997-1998, investors lost confidence in the Asian currency but we had the US and China to support us through. “Now, it is the apex, the rock of Gibraltar, that is in trouble. The epicentre in New York is spreading to Europe and other markets have also tumbled. “It is also going to affect China because China has US$520bil locked in US treasury bills. So do Japan (US$600bil); Hong Kong (US$60bil) and even Thailand (US$32bil). “For a massive loan mortgage of US$2.5tril, more than a few banks will be involved. Unless all declare their bad loans, we will not know the extent of the problem.
“In the Lehman bankruptcy filing, for example, it was disclosed that Citibank owed US$1.5bil. Another example: HSBC headquarters in London has an outstanding obligation of US$20bil within six months. “My personal feeling is we are heading for choppy times because the severity has not been fully played out yet. “It will take a much longer time to recover. Our exports would slow down, orders may reduce, and factories may have to reduce staff, freeze new employment...”
Everyone agrees that the good that came from the 1997 crisis is that the Government imposed a lot of instruments and regulations on our financial institutions. They need to be locally incorporated; are compelled to abide by guidelines on the amount of investment they can make overseas;have to get Bank Negara clearance for investment overseas; and are generally limited to 10% of their deposit.
“On the whole, our financial institutions are not that adversely affected. However, many individuals are affected by this turmoil because they have invested in shares and many other financial products offered by these financial institutions,” says Dr Fong.
In this region, Malaysia’s coverage per depositor per bank is one of the most comprehensive, eclipsing that of even Singapore (US$13,808) and Hong Kong (US$12,872).One way around this RM60,000 insurance limit for the man on the street is to spread his deposits around the 36 member banks or set up a range of joint accounts in a bank or several banks. “But banks also should make it a point to tell customers that their deposits are guaranteed up to RM60,000 only, to allow depositors to make appropriate decisions to safeguard their capital. Ireland offers 100% guarantee and Germany has pledged to do the same. Malaysia should also look at doing that,” says Dr Fong. If our deposits are relatively safe, how do we nevertheless prepare for the hard times ahead? Says Dr Fong: “The guiding principle for now should be capital preservation. This is the time for folks to think ‘what steps should I take to preserve what I have?’ It is definitely not the time to think of how much profit one can make.“This is not the time to be foolhardy and enter the stock market, this is my opinion. Do not use borrowed money hoping to go in and making a killing within a year.“We still do not know and understand fully the exact nature of damages from this mega crisis.“It is too risky to venture into the unknown. Even the smartest professional investors can make mistakes, what more individual investors with their hard-earned money.”He cites the example of the Government of Singapore Investment Corp, which bought a slice of UBS for 10bil francs in December only to find a few months later, that it was holding on to merely half its value.“It has the financial strength to hold on to the shares but many individual investors do not,” he says.“If one really wants to pick up stocks, look at the dividend yield. At the present price, if it gives a dividend yield of 10%, which is higher than for fixed deposits, one can consider. Also, make sure the stocks are recession-proof, such as counters in health, education and food.“As for properties, well, if you need a home, you need to buy. But in any economic situation, people will look at locality. Properties in good locations can easily be resold or rented out. You can look around but again, the principle should be capital preservation.”Good foundations: The Malaysian banking sector is expected to be stable in 2008 despite the global financial crisis as the old-style model of conservative banking is now holding us in good stead.
More...
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