opinion
The currencies of the countries of Southeast Asian nations fell heavily in the 1997-98 period. Many are still not worth much relative to the euro and the US dollar, and the recent trend is down. An exception is the ringgit of Malaysia. It hangs, surprisingly stable, suspended sisterly from the US dollar by the blustery breath of Malaysia's prime minister; little else.Daim Zainuddin, the ex-finance minister, drew fire, and now is hidden somewhere under the carpet, letting his protges take the heat. The investments linked to his helping hand are under heavy selling pressure, the share market price sliding slowly down, down.
UEM, Renong, Time, Time dotCom, and a butcher's basket of other deeply indebted firms in the ex-finance minister's personal portfolio are in trouble. And there is no one and no money to bail them out anymore.
The banks, having extended unsound credit, are faced with bigger and better write-offs, and there is no end to the trend. Government agencies established to sponge huge non-performing loans are saturated to the dripping point. Government funding for Danaharta, Danamodal and the Credit Restructuring Agency is exhausted, and plans may be announced of intent to close the doors.
Every day the list of defaults lengthens. Applications to extend, yet again, previous defaults, meet a market made miserly by mendacity. The famous put option asks to be put off yet again. Where is the morality of the market if a man's word is no good anymore? Markets depend on the honouring of verbal agreements.
An offer by open outcry, once accepted, is a done deal, and all in hearing are witness to it. Failure to perform is grounds for banishment in any exchange, just as those who give a verbal telephone order to a broker are expected to honour it when the confirmation arrives. Those who renege, for whatever reason, have their accounts closed and are everywhere black-balled. That is the way the game is played.
How big the pile?
Everywhere but in Malaysia, that is, where a contract is not a contract until the government says it is. In a famous recent incident it declared that payments to honour a decades-old royalty contract had suddenly deteriorated into a voluntary 'goodwill' offering. There was no contractual obligation to make the royalty payments, it said. Acting on this view, it promptly claimed the multi-million dollar payment for itself and the party-in-power.
The payee, a northern state now in the hands of the opposition, sued. The courts are now to re-consider the situation. The government has no defence other than it needs the money, and it is well advised to make preparations for reparations, interest, penalties, costs and all. Justice will be done, and in this case, one hopes it will be well done.
The prime minister has pegged the ringgit to the US dollar by fiat at a rate of 3.8 to one. It fluctuates on the world currency float alongside the dollar. The prime minister says the peg has saved Malaysia from the fate of its neighbours. "Now no one can benefit from trading in the ringgit," he says. "The ringgit is only good in Malaysia," he says. He is correct on both counts. But there is more.
What he does not say is the obvious. Malaysia, a country of 23 million, is in the unfortunate position of guaranteeing the ringgit. This simply means that the central bank guarantees anyone in the world holding ringgit, that it will exchange them on the basis of 3.8 ringgit to one dollar. As if to say, "Bring me 3.8 ringgit, and I will give you the dollar." The Central Bank says it is prepared to do this indefinitely, staring you strongly in the eye.
It is clear that the guarantee is only good so long as the pile of dollars holds out. If one shows up the day after the pile is exhausted, too bad. All the dollars have been taken, and that person must trade his ringgit where he can, accepting the best rate available. When the central bank defaults at the exchange counter, all bets on the peg are off.
That raises the obvious question, how big is the pile now? How many dollars does the Bank Negara have left? They say they have enough to cover four months of dollar valued imports, and they consider that sufficient. Maybe so. Maybe not.
Ineffective ACA
The Bank Negara is arranging underwriting with major US institutions for a big, billion US dollar-denominated bond. One can see Malaysia needs dollars, and lots of them. Some is needed for more pump priming. Some is needed for more crony bailouts to come.
Are the national treasury bonds of Malaysia backed by the full faith and credit of the Malaysian government? The prime minister, who says he is new at the finance game, says so.
A number of bond offerings have been put on the market in the past year. Most have found few takers. The real reason Malaysian bonds don't do well is simply that the ministers are not men of their word.
They cannot tell the truth to save themselves and the country. The minister of international trade challenged a business group to organise their own anti-corruption agency, and if it found evidence of bribery or other forms of un-ethical conduct, "then tell us about it" she said.
Hollow words, and meaningless, simply because the ACA that is totally ineffective in dealing with the internal thefts of the party-in-power. Sworn court testimony that the prime minister forestalled an ACA investigation was hushed up and he had the brass to tell a judge who found the prime minister's party guilty of vote rigging that, "He should have brought the matter to me."
The ACA announced that an investigation into a five billion dollar bond scam would be completed in two weeks. That was in January, and came after an investigation that originated the past July. Since then the director of the ACA has been removed, and there has been not a peep from that direction since. Nothing has been done on the prime minister's obstruction of justice, nothing on the bond scam, nor any other of dozens of cases that should have been prosecuted long ago.
Scarecrows watch
Against this backdrop Malaysia wishes to offer a multi-billion dollar bond issue. Not in ringgit, but in US dollars. For internal consumption the prime minister launches tirades against "the wicked west," with their "lying, slanderous" media and unscrupulous "Jewish currency traders", who are now asked to take Malaysian paper and promises for the US dollars desperately needed to paste more money onto ridiculous projects like the Bakun dam, and to keep the Malaysian pyramid scheme going.
In order to make payments on present debts, now due in dollars, more dollars must be in hand. The debt grows because the original loan calls for payments on the principal, plus accrued interest. Whenever someone repeatedly entices new money to forestall default on old debt, all the makings of a pyramid or Ponzi scheme are present. Ponzi went to prison. It is the thing of boiler room operators, not a national treasury.
Malaysia has run all its credit cards to the limit. And now more cards are applied for to make payments on the existing cards. There is no debt consolidation in sight. There is no financial consultant to give advice on prudent spending, or to help work out a re-payment schedule. Instead, there is to be new and greater spending, using the money of the hated "white man" whose "globalising greed" is his only motivation.
When the new Malaysian bonds are issued, and the buyers properly shun them, the burung s will return to roost, and the droppings will fall onto the fallow fields of Putrajaya. Scattered about are the scarecrow ministers of the party-in-power, standing stalwart and staunch, seeming not to feel or note events.
But the young are willing to tell, and the foreigners are willing to tell. Unfortunately, the ministers listen only to their master's voice.
Only then ...
It is hoped that soon he, like the Pied Piper of fable, will leave town. Only then will the false arrests stop; the courtroom sandiwara will cease. Only then will the repressive laws against basic human rights will be repealed. Only then will the political prisoners be released.
Only then will freedom of speech, freedom of the press, and freedom of peaceful assembly be restored. Only then will protection from police brutality and political prosecution be possible, supervised and enforced by an independent and honourable judiciary.
Only then will the Sultans restore integrity and morality to the elections commission, as the Constitution demands. Only then will the bribery, theft and immoral conduct in top circles be promptly and fairly prosecuted by independent and honest officers of the court.
Only then may all judges hand down rulings with fairness and justice, free of intimidation from executive vengeance or critique.
Then, and only then, will a bond bearing the seal of Malaysia be a fit and marketable commercial instrument.
HARUN RASHID is a scientist avidly interested in the application of Islamic principles in international affairs. The promotion of goodwill through civilisational dialogue motivates his writing. His Worldview column is a personal analysis of Malaysian affairs from a global perspective.