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Friday, March 13, 2009

Stimulus Package or Rescue Package?. Either way we should never trust UMNO

One commentator was asking:

“What happened to he previous stimulus package? The one that Najib refused to let members of Parliament to debate it that resulted in a walk out?”

Good question. We all know what happened to it. At least Rm5billion was used to shore-up ValueCap Sdn Bhd. Of course, it didn’t result in anything as only cronies and connected people benefited. The average rakyat can only look and drool.

(Refer to previous article entitled “RM5Billion EPF Money To Save Valuecap Sdn Bhd, Not Spur Economy ).

So, naturally, instead of spurring the economy, the money was being spent without any effects on the Malaysian economy.

Now, our overarching BN government has announced a new stimulus package. This time the amount of money involved is humongous. It is in the neighborhood of RM76 billion. Although, the government only spends about Rm15 billion, the rest is dished out by the private sector.

Pro government talking heads are going to town with this point. The most of the initiative are coming from the private sector. What these talking heads do not mention that RM29billions of revenue are also lost by the government due to “tax incentive”. Lay man will not realize that there is no such thing as free spending by the private sector. There will always be a catch and now we know what it is.

Despite announcing these measures, the government kept repeating the same “mantra” that Malaysia economy is recession-proof and will be able to overcome the dive of the world’s economy.

Allow me to quote from Jabatan Statistik Negara website:

Current movements of the leading components showed that there is no clear indication for the Leading Index (LI) to grow consistently upward in the months ahead. Supported by continuous decline in the Coincident Index (CI), these provide signals that economy is likely moving towards an economic recession.

In truth, even the Statistics Department of Malaysia has indicated the impendin recession that is about to hit our country real hard.

There is Very Little Room for Fiscal Measures

Malaysia has been operating on deficit budget for the last 10 years in a row. The accumulated debt has raised from RM112 in 1999 to RM289 for third quarter 2008, according to Bank Negara.

Another point we have to raise is that during the commodity boom in the last 6-9 years, Malaysia have been recording deficit spendings when all commodity exporting around the world was recording surpluses.

Now that commodity has nose dived, where can Malaysia generate the necessary revenue to protect Malaysia from the effects of global economic meltdown? There is definitely less room for Malaysia to maneuver now compared to the period of commodity boom.

If Malaysia was able to “plug the holes” and was prudent in their spending in the last 10 years, we will have more leg room to move in mitigating this disaster. The latest budget stimulus will drive our deficit to 7% way above the safe zone of 5%.

In other words, we have no room to prevent another recession hitting our country. We have spent all of our ability and potential and now the people will suffer.

Can This Stimulus Package Generate the Needed Multiplying Effect?

Given Barisan Nasional’s record in the past years, I can safely say that it wont. The Najib’s stimulus package is nothing more than a package to save ailing cronies and family members.

Like my question above, what has happened to the first stimulus package? Where did it go to?

Can we also assume that this stimulus package will suffer the same fate as the first package, into the hands of cronies and connected people?

Quoting Mathias Chang:

I take the view that the RM73 Billion is earmarked for a massive bailout of our financial institutions. This is because, a few months ago, Bank Negara announced that it would follow Singapore’s lead in exempting banks which have transferred off-balance sheet “assets” back on their books from the statutory requirement to mark-to-market the value of such “assets”. This means that these assets which may be worth almost nothing are allowed to retain their “original value” thereby hiding the losses suffered by our banks.

Other than Bank Negara and the Finance Ministry, no one actually knows the extent of our banks’ exposure notwithstanding the repeated declarations that our banks are healthy and resilient. If in fact they are well capitalized, there is no need to waive the requirement to mark-to-market the off-balance sheet “assets”. If these “assets” are worthless, they should be written off, if our banks are able to absorb such huge write-offs.”

We’ve been lied to by Barisan Nasional too many times. Maybe for once, we just don’t believe them.

Any Form of Stimulus Must Involve Spending in Pakatan States

This is the acid test of Barisan Nasional’s sincerity. My sources tells me that Najib and his cronies are still reluctant to spend a single cent in Pakatan states. They’d rather see the people lose their jobs and impoverished than to spend wisely in Pakatan states.

Should the people suffer it will be Barisan Nasional’s fault, because none of their stimulus package will work if it is not spent in Pakatan control states.

So, that further supports the theory that the stimulus package is only for bailing out cronies and nothing more.

The rest of the people will remain in poverty and sufferage, but the connected people will continue to enjoy the country’s wealth. This has always been the cornerstone of Barisan Nasional economic policies.

Tulang Besi

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  1. Statutory Reserve requirement reduced 3 times in the space of 4 months. The process of “money creation” is not done by the mint printing money. It is done when banks loan out money. By reducing the SRR to 1%, banks can loan out almost limitless amount and money out of thin air.


    Bank Negara Malaysia - Monetary Policy Statement 24 Feb 2009

    The Statutory Reserve Requirement (SRR) is also adjusted downwards from 2 percent to 1 percent effective 1 March 2009 to reduce further the cost of intermediation.

    Bank Negara Malaysia - Monetary Policy Statement 21 Jan 2009

    The Statutory Reserve Requirement (SRR) is also reduced from 3.5 percent to 2 percent, effective from 1 February 2009

    Bank Negara Malaysia - Monetary Policy Statement 24 Nov 2008

    To further reduce the cost of intermediation, the MPC also decided to reduce the Statutory Reserve Requirement (SRR) from 4% to 3.5%, with effect from 1 December 2008.

    SRR cut will put RM9b into banking system: ECM Libra

    BANK Negara Malaysia's 150 basis points cut in the statutory reserve requirement (SRR) to 2.0 per cent, will put about RM9 billion back into the financial system, to be used by banks to generate income.

    However, the reduction in the overnight policy rate (OPR) which saw most financial institutions reduce their base lending rates by 55 basis points to 5.95 per cent, will certainly impact earnings in the short term given the initial period of adjustment, said ECM Libra Investment Research in its January monthly review.

    It said the situation will eventually normalise given the current low loans/deposit ratios which allows banks to generate new levels of income, albeit on reduced margins.

    That said, ECM Libra is of the opinion that the banks' earnings impacted negatively overall banking loans registered a 12.8 per cent growth in December 2008, higher than the 10.7 per cent in November, but the number is distorted by huge repayments in December 2007 which brought the base lower during that particular period.

  2. no wonder our money is getting more and more worthless

  3. Nak tau lagi pasal SRR, tengok katun di bawah ni. Ada 5 parts. Link is part 1.


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