Sunday, 14 December 2008
Economical Society of Singapore: Crisis
The writer attended a discussion organised by the Economic Society of Singapore two days ago. Present were Manu Baskaran, Khor Hoe Ee, Ho Ching, J Y M Pillay and several bankers. Below are some of the more interesting points raised which you may find instructive or useful:
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Economical Society of Singapore: Crisis
The writer attended a discussion organised by the Economic Society of Singapore two days ago. Present were Manu Baskaran, Khor Hoe Ee, Ho Ching, J Y M Pillay and several bankers. Below are some of the more interesting points raised which you may find instructive or useful:
1. The trajectory of the global recession is going to be very sharp; next six months will be real painful for some countries.
2. Trade is now severely disrupted. This is hurting the real economies badly. Go count the number of ships now anchored off our east coast. They are left idle because there is either no cargo to ship or the shippers can’t get LCs from banks that have money but won’t lend.
3. Thus far, government policies around the world to help tackle the financial crisis and the recession have been more reactive than proactive. There need to be more of the latter, if only to tackle problems simmering beneath the surface calm before they erupt and cause another round of panic.
4. The US dollar is bound to drop drastically within the next 12 months. This will spell disaster for those who have taken flight to the greenback.
5. There is still no systematic and coordinated global scheme to dispose off all the toxic or bad assets.
6. Secondary, flow-through effects of the financial/banking crisis have yet to be grasped.
7. There are huge fault lines in the Chinese economy. Even the underground illegal banking system in China is heading for collapse. (I didn’t know that you could raise US$35 million in Wenzhou from underground bankers within a day, provided you are prepared to pay their rates. But now this is said to be drying up, according to People’s Bank of China, the central bank, which monitors these activities).
8. Indonesia is also emerging as a worry, its real economy is in good shape but its financial system is badly mismanaged.
9. Much more radical policies are needed to get us all out of this deep hole. For example, central banks may have to go into direct lending to business.
10. In Singapore, though the government has come out with a scheme to share risks with banks for loans to SMEs, many banks are still reluctant to lend because of many structural impediments, such as the capital adequacy ratios, rules on fund allocation set by headquarters in the US or Europe, and so on. Further, professional bankers don’t care about the long-term. They just don’t want to run foul of externally-imposed or internal rules. Their compensation scheme also does not encourage them to think long term, unlike entrepreneur bankers or family owned banks (Wee Cho Yaw?) which care about relationships and nurturing for the future.
11. Thai economy is OK as its businesses are very nimble and flexible. They change very quickly to stay in competition. Malaysia’s economy is also going to muddle through in the short term. It may escape recession.
12. The good news is that no Asian economy has been damaged irreparably, so Asia will return to growth by 2010.
13. Backdoor protectionism is bound to rear its ugly head.
14. Asian financial institutions with access to savings, pension funds, etc. must stop looking to the West to invest their funds. This has got them into a lot of trouble already, So it’s time they invest in Asia and Asian companies. This is code for saying the likes of Temasek and GIC should plonk their money into local companies and businesses.
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