YOURSAY | ‘The high-interest debts to be serviced are the ones Umno saddled M’sia with’.

Bankruptcy more likely if Dr M borrows from Japan - Umno man

Malaysian Born: Even with exchange rate issues and interest considerations, having a straightforward loan with Japan is 100 times better than having shady commission-laden transactions with China with hidden liabilities, and all the rotten deals like 1MDB that have bled the nation dry.

Umno Youth exco Shahril Sufian Hamdan seems like a well-educated and bright chap, but with comments like this, you have to wonder if he has been hanging around a little too much with those ethically compromised.

Ruben: Shahril, a lot of the loans were taken at high interest, at about six percent, as explained by Prime Minister Dr Mahathir Mohamad.

Furthermore, like Goldman Sachs taking US$500 million as commission, those that arranged for the loans were also given commissions. So this pushes the effective rate to about 7.5 percent.

If you were given these two options, which loan would you take? Mahathir was very clear that the reason for the soft loans is to pay off old loans. So how can we go bankrupt?

Anonymous_c9f9d5c2: To get soft loans from other currencies with lower interest rates to offset high-interest rates incurred by 1MDB is good fund management. Turn immediate liability to long-term loan with lower interest rates.

To print our own currency just to fool ourselves and nation without increased overall productivity will result in immediate depreciation in our currency, as well as uncontrollable inflation.

Non-Evader: Printing a lot of money in a short time will cause the currency to depreciate. The gain of the amount of money printed by the government, in theory, is equal to the total loss of the value of the currency held by the general public.

This is a subtle way of robbing people's money.

Lembaga Hasil Tangkapan: First, the central bank cannot print money willy-nilly.

Second, Japan is suffering from deflation, and interest rates have been very low for a very long time – the only fluctuations are exchange rate fluctuations, which can be hedged by currency forward contracts.

Third, country bankruptcy is caused by drastic fund outflows – such as that seen when 1MDB crisis first surfaced – due possibly to the country not being able to service their bond payments (such as that of 1MDB).

Balance sheet recessions such as that of 1997 are avoided by the significant amount of foreign reserves, which MO1 also tried to plunder.

Before addressing this topic, Shahril had better reread any standard textbook of international macroeconomics. Any decent economics undergrad will be able to refute the arguments easily.

Causerie: Simply put, it's changing the loan that pays perhaps six percent per annum in interest to one that is one to two percent. If say the amount affected is RM300 billion, this four percent difference is a saving of RM12 billion in interest.

Then with regard to the principal, the market has sort of adjusted to announcements of the true status of the country's debt.

This show that the government is in control of all matters and is comfortable that our currency is expected to grow stronger, with oil prices being more favourable, and the possibility that more palm oil will be exported to China. In view of this, we will pay less in the future.

Kamaru: I have to compliment Shahril for doing a credible job as the opposition. This is a rare sensible shot from him. We should give credit when credit is due to encourage the opposition to do a better job, since they are an integral part of a vibrant democracy.

Back to Malaysia's national debt, it is composed of 97 percent ringgit. And it is also true that national debt in foreign currency is a lot riskier than in ringgit.

Japan, among the most indebted nations on earth, has a debt to GDP ratio of 253 percent as of 2017. Yet the Japanese yen remains strong. Singapore has a debt to GDP of 110 percent, and US, 105 percent.

All these countries have one thing in common. The debts are mainly denominated in their local currencies. While the yen interest rate may be low today, borrowing in yen will expose Malaysia to foreign exchange risks.

Of course, foreign exchange risks cut both ways. They can swing in Malaysia's favour, or against. We have a reasonable foreign reserve of US$110 billion. With the improved governance under the  Pakatan Harapan government, I expect Malaysia's economy to be getting stronger going forward. With that, our ringgit should strengthen vis-à-vis foreign currencies.

When our ringgit strengthens, the yen loan PM Dr Mahathir Mohamad plans to borrow will depreciate in value. Which means, the yen loan will require less ringgit to service. Of course, the reverse can happen.

Question is: should Malaysia government be in foreign exchange business? We already had disastrous results in the past when Bank Negara being too clever by half decided to profit from foreign currency trading.

So my sense is if we can manage the debt in ringgit, why risk borrowing in yen?

Hplooi: To a certain extent Shahril is right – on the risk of yen-denominated loans being subject to currency fluctuations. We suffered the same fate back in the 1980s.

However, the current geo-economic situation compared to the 1980s and 1990s is a little different. Japan is undergoing a deflationary cycle (the main reason for which is population decline).

A yuan-denominated loan would, in fact, be at a higher risk of currency inflation than the yen. What is worse is not so much the interest rate from China (which is at usurious level) but the ‘mark-up’ in pricing.

Thus instead of borrowing (say) ¥2 billion we have to borrow ¥4 billion for the same project. This 'leakage' in borrowing is even more deleterious than the interest itself.

Thus, if we break away from the yuan trap: we negotiate the capital cost down to a reasonable level, and we can refinance the loan at a much lower interest rate.

To shoot off one’s mouth without context and understanding is so very… Umno.

Anonymous: There must be certain advantages for Mahathir to seek soft loans from Japan to pay off some of our huge national debts.

On printing ringgit, we can never say never, but it must be supported by our gold reserves. But preferably not.

We may not have much choice to borrow from Japan with lower interest rates or even issuing government bonds or sukuk to repay our debts. We must also ensure that our exports are higher than our imports. Do not spend unnecessarily or overspend.

That's why mega projects are dropped. And of course, cut down on leakages and corruption. With oil revenue continuing to rise, I think we should be okay.

Anonymousytmq123: Did someone just say that he's worried about 10 percent fluctuation in yen? How about the interest of six percent on Chinese loans over a period of 15 to 20 years?

In fact, the commission rate of 10 percent would wipe out the yen fluctuation losses.

Quigonbond: Is Umno not following the news? Since when is borrowing from China not considered foreign currency?

Worried Sick: Wow! Now I am so happy. We just need to print money and pay off all our debts that Najib incurred. We will never go bankrupt.

Lim Guan Eng, we await your resignation as finance minister, to make way for Shahril, our new saviour. Where were you all this while?

Shahril, my salary is only RM3,500. Can you please increase it to RM35,000 since you can print any amount you want? The people at the market are demanding RM1,000 for 200g of kangkung.

Zzz: Shahril underscores the need to bring back quality education in this country.

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