16 œ theSun | TUESDAY AUGUST 11 2009

business

Bright lights amid the gloom

Last of two parts
ECONOMIST Anthony Dass has debunked
the myth that the current global crisis is similar
to that of the Great Depression of the 1930s.
In part one of his article yesterday, he gave a
comparison between the current crisis and the
Great Depression. Today, he looks at the policy
responses then and now.
Financial crisis erupted in September last
year following more than a year of financial
turmoil. Both advanced and developing
countries fell abruptly in the fourth quarter
of last year and the first quarter of this year.
But the policy reactions to address the crisis
were swift. Most of the major central banks
intervened aggressively by slashing interest
rates in a coordinated manner and adopted
unorthodox monetary measures.
The objective was to inject liquidity and
curb systemic failures. It contained “systemic
risk” and prevented broad failure amongst fi-
nancial institutions. Also, the policies managed
to cushion global output from collapsing at a
much severe pace.
But this was not evident during the Great
Depression. There was hardly any counter-
cyclical policy in the early stages of Great
Depression. It is due to the “gold standard
mentality” that stressed on traditional policies
like stable gold reserves and balanced budgets.
But over time, countries like Great Britain in
September 1931 and US in April 1933 ended
the gold convertibility and/or changed the
gold parity of their currencies. The move saw
significant monetary expansion which brought
about initial recoveries. In US, the 1933 Emer-
gency Banking Act saw insolvent banks wind
up while solvent banks restructured to rejuve-
nate confidence. The Banking Act of June 1933
introduced federal deposit insurance.
Beneath the worrisome trend,
global outlook is shedding
some bright light
The current policy measures are not cheap.
Fiscal balances should deteriorate this year
by about 3.5% of GDP for advance economies
and 5.5% of GDP for developing countries.
With higher advance economies debt, their
borrowing cost could start increasing. Should
this happen, it may result to “crowding out” by
developing countries’ private and public-sec-
tor borrowers. In particular, low and middle
income countries will feel the strain, plagued
by deteriorating economic activity and weak
capital flows. They will face difficulties to
generate adequate foreign currency from ex-
ports, forcing them to borrow to cover import
demand or drawdown from reserves that was
built during good times. The sustainability of
this strategy remains unclear.
Of concern are the widening current-ac-
count deficits and deteriorating fiscal position.
It is most acute in Europe and Central Asia.
For some of these economies, they are already
operating in “twin deficit” i.e. current-account
deficits (as a share of GDP) and/or elevated
government debt when they entered into
recession. Thus, the possibilities for these
economies to resort to heavy compression of
domestic demand and exchange-rate deprecia-
tion in order to restore internal and external
balances could not be ruled out.
Also, unemployment will remain a threat.
Poverty is set to rise; bringing with it a substan-
tial deterioration in conditions for the world’s
poor and most vulnerable. It will put pressure
on housing prices and bank balance sheets in
many countries. Pressure on asset prices re-
mains. Lending constrained from deleveraging
and widespread lack of confidence still lingers.
Inflation is decelerating rapidly and has dipped
below the zero growth for a number of coun-
tries. It has raised the risk of deflation.
Despite some worries, the worst on the
global scene should be over. What remains
unclear for now is only the timing and strength
of the eventual global recovery. Optimisms
pointing to economic recovery are gradually
brewing. Recovery in stock markets, modest
improvement in exports from some countries,
improving consumer demand and the still-to-
come demand-boosting effects of discretionary
fiscal stimulus measures are among the sali-
ent factors pointing towards the early signs of
recovery.
Also, data from US and China are increas-
ingly suggesting economic revival is on the
way compared with Western Europe and other
developing regions. Looking at the US econo-
my, their latest numbers indicate the wheels
of the US economic train stopped moving in
reverse and started to grind forward. There are
increasing signs of stabilisation and relative
decrease in the flow of bad news. Spending
on infrastructure projects will keep rising in
coming months from the US$787 billion fiscal
stimulus package. Lower home prices and
mortgage rates are beginning to boost sales,
spurring residential construction and bringing
an end to the worst housing slump in seven
decades.
China is back with strong vengeance as the
policymakers have ample muscles to imple-
ment fiscal and macro-economic stimulus
measures to steer the economy beyond 2009.
A clear evidence is their ability to shift from
the policy of monetary easing in 2008 to fiscal
stimulus measures, reflected by the RMB4
trillion (equivalent to US$585 billion) stimulus
package unveiled in November last year.
China’s ability to fare better amongst other
nations is also due to its lack of dependence on
external financing. With its banks unscratched
by the international financial turmoil, they are
in a position to lend after having deleveraged
in recent years. On that note, from a projected
contraction of 1% this year, global economy
should rebound to 2.1% next year.
Anthony Dass is Head of Research at Inter-
Pacific Research. The views expressed in this
article are entirely his own. He may be reached
at anthony@interpac.com.my.

M’sia aims to be among top 10 Industrial output in

in ease of doing business
KUALA LUMPUR: Malaysia aims to
be among the top 10 nations in terms
of ease of doing business by 2012
following close public-private sector
collaborations, International Trade
and Industry Minister Datuk Mustapa
Mohamed said yesterday.
This would be an improvement
from the 20th ranking the country
achieved in terms of ease of doing
business this year in the World Com-
petitiveness Year Book 2009 by the
Institute for Management Develop-
ment.
“It’s tough to achieve the top
10 ranking but we need to have
a target,” he told reporters after
delivering his keynote address at
the Conference on Competitiveness
themed “Enhancing Competitiveness
Through Creativity and Innovation”
hosted by the Malaysian Productivity
Corporation.
Implement global mechanism to manage
capital inflows, says Najib
KUALA LUMPUR: Malaysia has asked
capital market players to implement
the global mechanism to manage the
impact of sizeable capital inflows into
the country’s financial stability.
In making the call, Prime Minister
Datuk Seri Najib Abdul Razak said
there was more than sufficient
evidence indicating that unhindered
global capital flows are de-stabilising
not only small open economies but
also the larger ones.
“Governments have legitimate
mandates to maintain domestic fi-
nancial stability but in doing so, they
Mustapa said although the pri-
vate sector innovates to maintain or
increase profit to survive in a highly
competitive global economy, the
public sector too make changes in
the face of rapidly-changing environ-
ment and increased public expecta-
tion towards the government delivery
system.
There was also a need for mind-
set change to internalise a sense of
urgency not only in the public sector
but also in the private sector, he
said.
“It’s our target to be the top 10 for
ease of doing business and various
focus groups represented by both the
public and private sectors have been
established to ensure improvements
in terms of time, processes and
costs,” he said.
Mustapa said benchmarking
against other countries too is be-
may create conditions that can be
taken advantage of, by international
investors and financial intermediar-
ies in search of higher returns,” he
said when opening the World Capital
Markets symposium yesterday.
Najib, who is also finance minister,
said: “This creates a problem as the
size of these capital inflows can
overwhelm the capacity of a country
to insulate its financial system and
economies from large and sudden
movements of external funds.”
“The problem is compounded
when global financial intermediaries
coming more important as a tool for
foreign investors to gauge Malaysia’s
efficiency.
For the more than 20 million
population category, Malaysia has
improved its competitiveness ranking
to 6th position among 29 economies,
beating even China (7th), United
Kingdom (8th), Taiwan (9th), Thailand
(10th) and South Korea (11th).
However, the demand for
Malaysia’s products and services are
affected in the context of the global
crisis as noted by the Institute for
Management Development, he said.
Besides enhancing efficiency
and productivity through public and
private sector collaboration to reduce
costs of doing business, he said
Malaysia must continue to strengthen
economic growth through innova-
tion, investment and new sources of
growth. – Bernama
and market centres facilitate capital
leveraging to magnify the size of
funds entering and withdrawing from
a domestic economy,” he said.
Najib said the global reform
agenda must ensure there was
more balanced and equitable
decision-making process and not a
regime that favoured global financial
institutions.
“Global regulators should also err
on the side of investor protection and
financial stability rather than rely on a
buyer beware regulatory regime,” he
said. – Bernama
June drops 9.6%
KUALA LUMPUR: The Industrial
Production Index (IPI) in June
2009 decreased 9.6% compared
with the same month last year.
This followed a decline in two
indices, manufacturing and min-
ing, the Statistics Department
said in a statement yesterday.
The manufacturing index
fell 13.1% while that for mining
declined by 3.48% during the
month, the department said.
However, the index for elec-
tricity posted a 2.5% increase.
The output for May was
down by 15.6% (revised), the
department said.
Month-on-month, the IPI
marginally increased 0.2%.
The cumulative index
from January to June this year
declined 12.7% as against the
Benitez
faced with
Petronas foreign-currency
defensive issuances attract interest
crisis
pg 29
KUALA LUMPUR: Petronas’s
landmark issue of an Emas dol-
lar bond and Emas dollar sukuk
has attracted significant interest
from a wide investor base.
Bank Negara Governor Tan
Sri Dr Zeti Akhtar Aziz said the
Petronas issuances, which com-
prised a US$3 billion bond and
US$1.5 billion sukuk, were highly
successful amid the challenging
global financial markets.
The Petronas dollar and bond
issues, Zeti said, is the largest
US dollar issuance by an Asian
entity outside Japan this year.
same period last year.
The contraction in manu-
facturing output was due to
decreases in electrical and
electronics products (27.5%),
non-metallic mineral products,
basic metal and fabricated metal
products (12.8%) and petroleum,
chemical, rubber and plastic
products (4.6%).
The manufacturing output in
June this year, however edged
up 2.9% compared with May.
The department said growth
for manufacturing during the first
six months this year was lower
by 16.9% as compared with the
same period last year.
For mining, the output in
June fell due to decreases in the
natural gas (8.7%) and crude oil
(1.2%) indices. – Bernama
“The issuance showcases
Malaysia’s credentials as a
centre of origination not only for
ringgit bonds and sukuk, but also
for issuance of foreign-currency
denominated bonds and sukuk,”
Zeti said during a press confer-
ence in conjunction with the
inaugural issuance of the Emas
US dollar sukuk and Emas US
dollar bond by Petronas.
The “Emas” designa-
tion of the bond and sukuk,
she said, would be given to
foreign-currency denominated
issuances. – Bernama

No third party for BSN’s Micro Finance facility
PETALING JAYA: All loan applica-
tions for Bank Simpanan National’s
(BSN) Micro Finance Scheme has to
be channelled through its network
of branches and micro finance cen-
tres throughout the country.
There are parties claiming to be
its agents or representatives to get
the loan applications on its Micro
Finance Scheme processed and
approved, said BSN in a statement.
The bank stressed that it has
never engaged any third party to
act on its behalf to process and
approve any application for its
micro finance loans.
“The bank will not be account-
able and held liable for any loss
resulting from arrangements done
with any third party for the appli-
CPO production up 3% in July
KUALA LUMPUR: Malaysia’s
cations and approvals,” said BSN crude palm oil (CPO) production
credit management and business in July surged 3.02% to 1.489
support deputy chief executive million tonnes from 1.446 million
Winston Emmanuel. tonnes in June.
For further queries on the In a statement yesterday, the
loan applications, contact BSN’s Malaysian Palm Oil Board (MPOB)
customer service at 03-2142 5258 said palm kernel production was
or visit bsn.com.my for the list of also higher at 381,429 tonnes
BSN branches and micro finance in July compared with 353,356
centres in Malaysia. tonnes in June and crude palm
kernel oil rose to 178,424 tonnes
from 162,723 tonnes previously.
It said palm kernel cake
increased to 197,324 tonnes
from 179,846 tonnes.
The board said CPO stocks,
however, fell to 656,825 tonnes
from 720,928 tonnes in June
and processed palm oil stocks
dipped 2.29% to 671,615 tonnes
from 687,389 tonnes previously.