Tuesday, March 31, 2009

Oil Tumbles Below US$49 On Gloomy Economic Outlook

HOUSTON: Oil prices tumbled below $49 a barrel Monday as unease about the economy - from Asia to America - raised doubts about the global appetite for energy.

Benchmark crude for May delivery fell more than 7.6 percent, or $3.97, to settle at $48.41 on the New York Mercantile Exchange.

In London, Brent prices fell $3.19 to settle at $47.99 a barrel on the ICE Futures exchange.

Gasoline futures plunged more than 10 cents a gallon.

Jim Ritterbusch, president of energy consulting group Ritterbusch and Associates, said he expects oil to fall as low as $47 in advance of the U.S. crude inventory report, the monthly unemployment report and a meeting of the Group of 20 world leaders in London, all this week.

"Late in the week, all hell could break loose, but I don't know whether it makes the market go up or down," Ritterbusch said.

Most energy-market analysts found no fundamental reason for a rally this month that pushed oil prices from $40 per barrel to more than $50.

Crude inventories continue to build even with OPEC cutting production and domestic producers suspending oil projects.

Oil prices have moved higher as a spate of positive economic news heartened investors.

Just last week, markets rallied behind word of a new plan to resolve the nation's banking crisis and a report that consumer spending rose in February for a second straight month.

"None of these burned a single hydrocarbon or pulled a single gallon (of gasoline) from storage," the energy consultancy Cameron Hanover said in a note to clients Monday.

"By Friday, it was just too much macroeconomic news and not enough oil fundamental news that had pushed prices higher."

Traders began to sell positions on the final day of the week.

U.S. stock markets got off to a rocky start Monday after the White House rejected turnaround plans from General Motors Corp. and Chrysler.

The Dow Jones industrial average fell 300 points in late afternoon trading.

Losses by major corporations, from banking to the industrial sector, have boosted the amount of oil held in storage and weighed on prices.

The U.S. government last week said crude storage facilities were brimming with more oil than they've had in 16 years.

Combined with the strategic petroleum reserve, the nation now has 1.05 billion barrels of oil in storage - enough to fuel roughly 44 million cars for a year.

"You can't swing a cat without hitting a barrel of crude oil in the United States," analyst Stephen Schork said in his daily markets report Monday.

Crude is piling up as airlines, manufacturers, automakers and just about every other sector slow down and millions of workers lose their jobs. U.S. stores of natural gas also rose by 3 billion cubic feet to about 1.65 trillion cubic feet for the week ended March 20.

Natural gas prices have fallen to levels last seen nearly seven years ago as industries cut costs and slow factory production.

The Organization of Petroleum Exporting Countries has promised to slash production by 4.2 million barrels per day, but analysts are at odds about the level of compliance by OPEC members.

JBC Energy in Vienna cited data from tanker-tracking agency Petrologistics showing that March crude oil production from 11 OPEC nations would total 25.9 million barrels a day, more than 1 million barrels higher than the group's implied output ceiling of 24.845 million barrels a day.

Comments Monday by Qatar's oil minister suggested OPEC members may be facing a new reality because of a widespread recession.

Abdullah bin Hamad al-Attiyah said he was "OK" with crude prices around $50 a barrel for 2009 and was "trying to be more pragmatic" regarding the global crisis and its effects on oil prices.

Just two weeks ago as OPEC ministers gathered in Vienna, Austria, there was still talk of $70 oil.

In other Nymex trading, gasoline for April delivery tumbled 10.8 cents to settle at $1.3799 a gallon while heating oil slipped 9.02 cents to settle at $1.3426 a gallon.

Natural gas for May delivery rose less than a penny to settle at $3.739 per 1,000 cubic feet. - AP

Earth Hour: TNB Records 550MW Drop

KUALA LUMPUR: Although the Earth Hour campaign last Saturday resulted in electricity consumption dipping by 550 megawatt but Tenaga Nasional Berhad (TNB) is not complaining.

Rather, TNB accepted that the hour-long campaign, which began at 8.30pm, was for a good cause.

The 550 megawatt is equivalent to 14 million fluorescent bulbs of 40 watt each.

"While this minor fall in demand will result in a slight shaving of our revenue, we accept that Earth Hour is for a good cause," said TNB president/chief executive officer Datuk Seri Che Khalib Mohamad Noh in a statement here Monday.

He said, during the one-hour period of the energy conservation initiative, TNB staff were extra vigilant, in the event of untoward operational snags.

"Everything went on very smoothly and we were able to respond to the slightly lower demand, without any operational glitch.

"Demand peaked almost rapidly at 9.30pm, to follow the normal Saturday evening demand pattern," added Che Khalib.

He said TNB was surprised by the support and appreciation demonstrated by many of its customers on the worldwide Earth Hour campaign. - Bernama

In Support Of Earth Hour

MALAYSIANS joined in the call to take action on climate change when they turned their lights off for an hour to celebrate Earth Hour on Saturday.

The KL Tower welcomed 80 guests atop its Open Deck to witness the significant event. The guests from government agencies, corporations and the media watched the Petronas Twin Towers and other buildings in KL, Petaling Jaya and even Genting Highlands switch off their non-essential lights.


Beautiful: It was a party-like athmosphere at CapSquare where participants were entertained with games and performances by local celebrities

The event began at 8pm as Malay­sian celebrity Lina Teoh welcomed guests and later headed the countdown when four KL Tower base jumpers performed their feat for the launch of Earth Hour.

For an entire hour, guests enjoyed their meal amid darkness while listening to live Malay traditional music provided by the KL Tower.

The Federal Territories Ministry secretary-general Datuk Ahmad Phesal Talib said this year was the just the beginning for more events in the future.

“More than 50 government buildings from KL have joined in the Earth Hour and even the Cabinet agrees that it is an important event for the earth’s conservation,” Ahmad Phesal said.


Doing my bit: A supporter signing his pledge to conserve the environment at Sunway Pyramid.

For World Wide Fund For Nature (WWF)’s chief operating officer Datuk Dr Dionysius Sharma, the journey for Earth Hour was made a little easier by the co-operation from all spheres.

“When we started, we wanted three main organisations to join in — the government, corporations and the public. They have all proved to be very helpful,” Sharma said.

“Few people were sceptical about the event, asking how much energy we can conserve but it is more than that. It is the awareness that people have about the climate change,” he added.


McNeil: ‘We must try not to indulge too much and live on appropriate portions.’

To pledge your support or find out details on how to save energy, log on to www.earthhour.org/malaysia.

At CapSquare in Kuala Lumpur, some 2,000 participants from all ages joined in the fun by signing up in the Walk of Hope minutes before the countdown began.

Dressed in similar black T-shirts and armed with a candlelight each, the participants walked along the 500m route accompanied by a marching band together with the Charm All-Stars Cheerleaders.

“The Walk of Hope idea was initiated to gather as many people as possible to send a message and make a stand against global warming and preserving the Earth for generations to come,” said BRDB senior manager Wayne Wong.

Wong added that tickets sales from the walk would be donated to WWF-Malaysia in its efforts against global warming.

At 8.30pm, the crowd cheered and partied in the dark as they were entertained with a host of low-powered shows which included an 18-prosperity drums ensemble, a fire-eating show, rhythm tap dancing as well as singing performances by various local artistes and ambassadors.

Besides that, an all-day Eco Bazaar was held selling clothes, accessories together with environment-friendly groups like the Malaysian Nature Society, Wild Asia, WWF and Rakan Muda-Eco Wing.

At the Starhill Gallery in Kuala Lumpur, YTL Corporation Berhad held an Earth Hour celebration at Shook! The event started with the countdown by the Tree Theatre Group followed by a story-telling session by Datuk Dr Sheikh Muszaphar Shukor and performances by Sean Ghazi, Deanna Yusoff, Jes Ebrahim and Wayang Lampu by Five Arts Centre.

A welcoming address was given by YTL Corporation director of investments Ruth Yeoh, who was very passionate about the effort.

“In taking the logical step to not only be a part of the Earth Hour and celebrating it as well, we have looked how technology has made our lives more comfortable.

At the event, the YTL Green Ribbon Award prize was presented to SM Sains Kuala Selangor, SM Assunta and SM Damansara Damai, who received RM3,000, RM2,000 and RM1,000 respectively.

At the Westin Hotel KL, StarMetro spoke to guest Susannah McNeil, 41, from Australia.

McNeil said education was an important way to teach people about the environment.

“It is nice to see even Westin getting behind this effort. We must try not to indulge too much and live on appropriate portions, which is just one of the ways we can help save the environ­ment,” she said.

The hotel switched off its exterior signage lighting; dimmed non-essential interior lighting and used candlelight in public areas such as restaurants and bars to create the illuminating atmosphere.

At Mont’Kiara, children and adults alike waved their glow sticks and torchlights in sync with the Yayasan Anak Warisan Alam’s (Yawa) Eco Drum Circle performance, which artfully used recyclable objects like bins and bottles to create rhythmic beats.

The show was featured as part of the Earth Hour celebration at the Sunrise Fun Zone Community Centre.

Students from Global Issues Network at Mont’Kiara International School put up a simple play using glow sticks to form a globe and other props to demonstrate the effects of global warming and ways to save the planet, and gave an a-capella rendition of Joni Mitchel’s Big Yellow Taxi.

Other performances included a Taiko Drums ensemble comprising residents and Sunrise employees, and visitors singing in unison to Michael Jackson’s Earth Song.

Before the actual “lights off” hour, visitors took the opportunity to visit the several interactive eco booths where they learnt how to make natural potpourri and ‘exotic salad’ (rojak).

Supporting partners like Yawa distributed little plants for people to take home as part of its adopt-a-tree programme, while Justlife Group Sdn Bhd educated visitors about the benefits and process of making garbage enzyme.

The children took part in fun activities like painting eco bags and T-shirts, making edible dough flowers and getting a hands-on approach in gardening.

Insurance agent S. Hariharan brought his three children along to educate them about the environment.

“They already separate their garbage at home and witnessed first-hand what happens at the recycling centre. My son, Sri Ram, is very excited about the plant he got from Yawa and looks forward to seeing it grow,” said the Mont’Kiara resident.

Furniture outlet IKEA joined in the support for the event by turning off all non-essential lights in the IKEA Restaurant.

The lights on the facade of the store in Mutiara Damansara, Petaling Jaya, were also turned off.

IKEA Malaysia general manger Joseph Lau hoped that their actions would inspire people to take practical actions to support the initiative and reduce their own carbon footprints.

MixFM announcer Serena C and the Roadrunners crew were at hand to entertain customers and play games an hour before the lights went out.

At 8.30pm, IKEA managers and employees walked around the restaurant to place lamps on the tables so that diners could enjoy their dinner by candlelight.

The KL Stompers put up a live percus­sion performance with IKEA products.

To further spread the message, there were special offers on energy-saving bulbs and products.

Social and environment manager Ben Chong said the company used these bulbs where possible and had installed extra insulation to save energy on cooling.

“Here, we have water tanks installed in the building to accumulate rain­water for the sewage system, general cleaning and to flush the toilets.

“Our toilets are equipped with motion censors to save electricity when no one is using it,” he said.

He said so far, they had saved up to 13% on energy consumption compared with 2007.

At Sunway Pyramid, more than 500 people took part in the event. For the first time, Sunway Pyramid’s iconic lion head, Egyptian-style facade and street lighting were turned off.

Sunway resort Hotel and Spa turned off non-essential lights while the Sunway Lagoon Theme Park switched off lights at the pedestrian, palm trees, volcano and Wild Wild West. Sunway Medical Centre also turned off their facade lighting.

WWF Malaysia conservation director Dr Arun Venkataraman was proud that Malaysians were doing their part to support Earth Hour.

“Such concerted efforts to address climate change are urgent and crucial. According to climate modelling, may countries including Malaysia will experience significant future rainfall changes.

“(Therefore,) A Malaysian commitment to mitigate climate change will not only contribute towards reducing the global impact, but also help to ensure water and climate security for many future generations of Malaysians,” he said.

Subang Jaya assemblyman Hannah Yeoh, who officiated at the launch said: “Some may question the effectiveness of Earth Hour. The idea of turning off electricity for just an hour once a year seems silly, but what they don’t realise is the meaning behind the action. Our celebration today goes beyond turning off lights; it’s about our realisation of the current state of the environment,” she said.

Sunway University College students, led by Sunway Idol Benjamin Lin, sung Michael Jackson’s Heal The World. There was also an Earth Hour Poem recited by 14-year-old student Aina Nabilah, a Storm performance and song performances from the SMK Bandar Sunway special students.

PM: Malays Started Fight For Independence

KUALA LUMPUR: It is historically true that nationalism and the struggle for independence was first started by the Malays, says the Prime Minister.

However, the country gained independence after the Malays, Chinese and Indian communities united to fight to free the country from British rule, said Datuk Seri Abdullah Ahmad Badawi.

Commenting on Education Minister Datuk Seri Hisham-muddin Tun Hussein’s statement on the role of the Malays in the country’s Independence that has caused some unhappiness among other races, Abdullah said “it’s a fact” and true that the Malays, led by Datuk Onn Jaafar, initiated the struggle for Independence.

Saying that “history cannot be forgotten and erased”, he added that Tunku Abdul Rahman took over Umno’s leadership from Datuk Onn and formed an alliance – Perikatan – with MCA and MIC which eventually saw the country gaining its Independence.

Abdullah said as there were also other races in the country, Tunku Abdul Rahman had the wisdom to bring all together in the struggle.

“Because all the races came together and were united in the cause, the British had no chance to divide and rule. They granted Independence,” he said.

The Prime Minister said the country continued to be governed by the Barisan Nasional under the concept of the people’s participation through the parties that represented all the races.

Meanwhile, Hishammuddin has denied he excluded the involvement of the MCA and MIC when he talked about the process of attaining the country’s independence, saying that several vernacular newspapers had quoted him out of context.

Source: TheStar

Friday, March 27, 2009

US Stocks Up, Dow At Highest Level In Six Weeks

NEW YORK: Wall Street's March rally gained momentum on Thursday - this time, thanks to surprisingly good earnings from some major consumer brands.

Strong demand for government debt at the Treasury Department's latest auction also lifted stocks. Investors had been nervous about the government's ability to fund its economic stimulus and financial bailout programs.

Best Buy Co., ConAgra Foods Inc., and Dr Pepper Snapple Group Inc. all turned in quarterly profits that beat analysts' modest expectations.

The Dow Jones industrial average rose 174 points Thursday to finish at its highest level in nearly six weeks.

The index has surged 21 percent since hitting a nearly 12-year low on March 9.

Market analysts are quick to point out that an advance of that size can quickly collapse, especially in an uncertain economic environment.

Kevin Kramer, chief operating officer at West End Financial Advisors, an asset management company in New York, contends unemployment, limited access to credit and heavy loads of debt will keep curbing growth.

"Just because things aren't getting worse doesn't mean they're getting better," Kramer said.

"You stopped the flow of blood out of my body, but it doesn't mean I'm going to survive."

But with the end of the first quarter quickly approaching, money managers are fearful of missing out on the recent rally, the magnitude of which usually occurs over the course of many years.

David Waddell, senior investment strategist and chief executive of Waddell & Associates, said he has seen some "seller's remorse" among his clients who sold stocks too low in the first two months of the year.

That can move people back into buying mode. "One thing that many people are beginning to believe is that the market is going to bottom in 2009," Waddell said.

The Dow jumped 174.75, or 2.3 percent, at 7,924.56, its highest close since Feb. 12.

The Standard & Poor's 500 index rose 18.98, or 2.3 percent, to 832.86.

The Nasdaq composite index rose 58.05, or 3.8 percent, to 1,587.00. - AP

Thursday, March 26, 2009

UMNO's Golden Keris 'Retired' As The Party Seeks Renewal



UMNO has "retired" a famous "keris" that used to be brandished at party events because the gesture was regarded as ethnically divisive.

Hishamuddin Hussein, the leader of the party's influential and sometimes hot-headed youth wing, shot to fame for waving the keris above his head at annual meetings of the United Malays National Organisation.

But the resulting outcry, and elections a year ago that saw the UMNO-led coalition deserted by ethnic Chinese and Indians, have made such displays of Malay nationalism less acceptable.

Hishamuddin, who is stepping down after 11 years in the role, was today presented with the keris. It is now his for safe-keeping, after he delivered his last address to youth wing members at this UMNO get-together.

He raised the golden weapon to face level, but did not wave or unsheath it, and placed it back on its pillow while UMNO members dressed in traditional costume and black "songkok" hats cheered "Allahuakbar" or "God is great".

Hishamuddin, the son of a former prime minister, is now vying to become one of three party vice-presidents. He was in tears by the end of the event.

"This is our culture. Now the keris has been handed over to me for my personal care. The keris is no longer in the youth wing. I hope this is a closure to what has been disputed and misunderstood before," he told reporters.

The dagger issue became particularly divisive at the party's 2006 assembly, when it was linked with ultra-nationalist rhetoric that emerged there.

Some delegates said that Malays, who dominate the population of the multi-racial country, must be willing to fight "to the last drop of blood" to defend their rights.

Another speaker warned minorities to stop questioning the rights of the Malays and not to test their patience.

The fiery tone sparked concerns about the economic and religious rights of Malaysia's sizeable ethnic Chinese and Indian communities, and further strained race relations which have deteriorated in recent years.

The following year, Hishamuddin defied calls for restraint by again unsheathing the dagger and holding it aloft to thunderous applause, in a gesture widely seen as aggressive and inflammatory.

He subsequently apologised for the move, saying he did not intend to hurt the feelings of non-Malays.

Malaysia's population of more than 26 million consists of about 60 percent Malays but the economy is largely controlled by ethnic Chinese, who make up some 26 percent of the population. - AFP

Wednesday, March 25, 2009

Malaysia's Next Leader Calls For Radical Overhaul

Malaysia's next premier Najib Razak on Tuesday warned the ruling party it must embark on a radical overhaul to win back public support, or face the end of its half-century grip on power.

Najib's address to the United Malays National Organisation (UMNO) at the start of a landmark meeting where it will elect a new leadership, is an attempt to set a new direction for the party which was humbled in March 2008 polls.

"What is at stake is nothing less than the very fate of UMNO," said Najib, the current deputy premier, who is to succeed Prime Minister Abdullah Ahmad Badawi shortly after the five-day assembly concludes.

"Clearly, the results of that general election have been the worst in the history of our party," he said, after the UMNO-led coalition lost five states and a third of parliamentary seats to the opposition.

"It is an awful and bitter truth, but a truth nonetheless and one which we must accept," he told the party, which has floundered since the polls which redrew Malaysia's political landscape.

"We gather here tonight not to wallow in sadness nor to lament our fate. But as a party, we are here today but for one singular purpose, that is to chart the way forward for UMNO and our struggle," he said.

"The decision we collectively make at this assembly will determine the future of our party: whether we continue to shape and mould history, or just become an entry in the annals of history."

The assembly was launched with a speech by Abdullah, who is to step down after a disappointing six years in power during which he failed to implement promised political reforms including tackling corruption.

UMNO delegates will Thursday anoint Najib as the new UMNO president, and cast their votes for key roles including deputy president and heads of the youth and women's wings.

In line with UMNO custom, Najib is succeeding Abdullah unopposed. The party chief traditionally becomes prime minister and leader of the Barisan Nasional coalition of race-based parties.

Najib urged the delegates to choose wisely as they select the new leadership, and to reject vote-buying which is endemic in the party.

"We must resolve to eradicate money politics right down to the roots. If not, we will all be collectively responsible for the demise of this beloved party of ours."

He called for a new attitude within the party, which is seen as self-interested and out of touch, and said it must embrace a new generation of voters who are "better informed, very demanding and highly critical."

He urged members to embrace online media, which have become a phenomenon in Malaysia, successfully exploited by the opposition, which has been shut out of the government-linked mainstream media.

"Like it or not, we cannot regard the new media as our enemy," he said, in comments that came shortly after party officials said they had barred several online news portals from covering the UMNO assembly.

Despite the talk of reform, there are concerns that from its position of weakness, the party may reject calls for liberalisation and instead choose to shore up its support among conservatives.

Political observers say recent events, including sedition charges against an opposition veteran for criticising a Malay royal ruler, and the banning of two opposition newspapers, indicate a hardline approach could be in the offing.

Najib is expected to be sworn into power by the king in the first days of April but no date has been announced, giving rise to speculation that Abdullah may be reluctant to step down.

After emerging from his speech to delegates, the outgoing leader defended the lack of a formal plan.

"I know what I am supposed to do. There is no need to disturb me," he told reporters. - AFP

Obama Says US$3.6 Trillion Budget Will Create Jobs, Cut Deficit

WASHINGTON President Barack Obama says his ambitious US$3.6 trillion budget will put economic recovery on a stronger foundation that ensures the nation doesn't face another crisis in 10 or 20 years.

At a prime-time news conference Tuesday (Wednesday morning Malaysian time) Obama said: "We will recover from this recession."

Defending his budget from Republican critics and some in his party, Obama said his spending plan will lead to new energy jobs and less dependence on foreign oil.

He said it invests in education, health care and makes the tough choices to cut the deficit in half by the end of his first term.

He says the budget should not continue past policies that have led to "narrow prosperity and massive debt" - a rebuke to Republicans.

Other pointes he made:

Obama says he's not ready to comment on a proposal from some Senate Democrats to scrap his middle-class tax cut after 2010.

Obama says he hasn't yet seen what changes are coming out of the House and Senate.

But he delivered his bottom-line on the budget at a Tuesday evening news conference.

Obama said the budget must move toward health care reform and include an energy policy that frees the U.S. from dependence on foreign oil.

He also says he's looking for investment in education and a reduction in the deficit.

Obama said a middle-class tax cut is already in place through the recovery package for at least two years.

And he said he never expected Congress to approve his plan without some changes. - AP

Obama is defending his decision to wait a few days before expressing his anger over the bonuses paid out to executives at troubled insurer AIG.

Critics questioned why the president seemed days behind the populist anger over the $165 million that were distributed to executives of the company bailed out with federal tax dollars.

Said Obama: "It took us a couple days because I like to know what I'm talking about before I speak."

Obama says he can save money on defense and veterans programs by targeting the way the military buys its equipment.

He says the country can remain safe and make sure veterans have the services they deserve.

Obama says too often in recent years, returning veterans haven't been given what they need in such areas as treatment for post-traumatic stress and serious brain injuries.

He says he wants to serve those veterans and reduce military spending by keeping close tabs on the way contractors and lobbyists do business.

He told reporters at a Tuesday evening news conference that he's already targeted $40 billion in procurement savings, and that he'll continue to look for ways to reduce wasteful spending on multibillion-dollar weapons systems.

At a time when millions of Americans are losing their jobs and their homes, President Barack Obama says he's "heartbroken" that any children are without a roof over their heads.

Obama says the "most important thing" that he can do for those children is make sure that their parents have jobs. And he again pointed to his plan to save or create 3.5 million jobs through his economic stimulus package.

He says in the meantime, he wants to work with states to help those who are "falling through the cracks."

He said there needs to be a "change in attitude" in the country, so that it isn't seen as "acceptable" for children and families to be homeless. - AP

How Do You Measure A Company’s Financial Health?

Personal Investing - By ooi Kok Hwa

Altman’s Z-Score helps investors determine the bankruptcy risk of a firm

DESPITE the recent strong stock market rally as a result of the current tough economic environment, some investors may still doubt the financial health of some listed companies.

At present, apart from some common financial ratios such as debt-to-equity and interest coverage ratios, investors are looking for a ratio that can provide an indicator on the potential bankruptcy risk for any listed companies.

In this article, we will look into a method called Altman’s Z-Score, which can help us determine the bankruptcy risk of a company.

The Altman’s Z-Score Method was developed by Dr Edward I. Altman in 1968. It is a multivariate formula to measure the financial health of a company on whether it will enter into bankruptcy in the coming two years.

This method uses five common business ratios: earnings before interest and tax (ebit)/total assets ratio; sales/total assets ratio; market value of equity/market value of total liabilities; working capital/total asset ratio and retained earnings/total assets.

The Z-Score is computed using a weighted system based on the formula below:-

Z= 3.3X1 + X2 + 0.6X3 + 1.2X4 +1.4X5

Where:

X1 = ebit/total assets

X2 = sales/total assets

X3 = market value of equity/total liabilities

X4 = working capital/total assets

X5 = retained earnings/total assets



According to Altman, if the score is 3.0 or above, bankruptcy is not likely. If the score is 1.8 or less, potential financial embarrassment is very high.

A score between 1.8 and 3.0 is the grey area where the company has a high risk of going into bankruptcy within the next two years from the date of the given financial figures.

Hence, we can conclude that we should look for companies with higher Z-Scores for investing.

We have computed Z-Scores for two listed companies, Company A and Company E. Company A is consumer-based whereas Company E is property-based. We notice that Company A has a strong Z-Score value of 5.78 versus a very low 0.62 for Company E. Based on Z-Score, Company A is very unlikely to go bankrupt (5.78>3.00) whereas the chances of Company E going into bankruptcy is very high (0.62<1.80).

The reason behind the very low Z-Score value for Company E was because it had a very low market value over its total liabilities as compared to the high market value for Company A. In fact, Company E is currently having financial difficulties and is under PN17 (Practice Notes 17).

In short, companies with higher profit margins, sales, market value, working capital and retained earnings against their total assets will command a higher Z-Score.

This method is popular in the Western countries where some accountants found it quite reliable and accurate.

In the Malaysian context, according to a user manual published by Dynaquest Sdn Bhd, they found that the cut-off at around 1.5 is a better measurement of the likelihood of bankruptcy as compared to the 1.8 stated by Altman.

It may appear that companies selling at higher market value are safer than companies with lower market value. However, sometimes we may be tempted to nibble companies with lower stock prices.

We should be aware that the current very low stock prices for certain companies may indicate to us that the coming financial results of these companies might be quite disappointing.

However, we should be aware that Z-Score does not apply to every situation. We may want to use additional financial ratio like debt-to-equity ratio to complement this method.

Monday, March 23, 2009

Are Asia’s economic woes just beginning?

In Perspective - Baljeet Grewal


The risks of a deeper downturn are intensifying

WHEN written in Chinese, the word “crisis” is represented by two key characters: one represents danger and the other represents opportunity. Whilst Asia will remain best placed globally to take advantage of any potential upswing in fundamentals, the near term outlook remains desolate. The financial crisis has now unraveled into an economic crisis which it caused; and Asia gives the best evidence.

Asian banks did not, as a rule, purchase or invest in substantial toxic debt or subprime products. Leverage was readily available. And yet, the region will not remain unscathed from the ongoing crisis.

The global economy, now supported at its core by the overextended US consumer, finds itself stalling, susceptible to any number of potential external shocks. Ultimately, the economic malaise created by this convergence of events will take years to unwind.

Also, geopolitical events become volatile in a world of economic insecurity, leading to political upheaval and protectionism. A positive outcome to this process is dependent wholly on liquidation of excess credit and consumption.

In Asia, the prospect of sluggish growth and depleting consumer confidence now debunks any notion of “decoupling” from the United States. In fact, more and more, 2009 is seeing a ‘recoupling’ of Asian dynamics with the global economy, underlying similar economic traits of the West. Whilst governments in the region advocate that Asia is well-placed to withstand financial instability, the risks of a deeper downturn are intensifying.

In its economic evolutionary process, the boom bust cycles in Asia have been unprecedented in terms of volatility in the prices of commodities, currencies, real estate and stocks.

Although all global crises have been different, in terms of its impact on Asia, many have shared common features. They begin with capital inflows from foreigners swayed by tales of economic enchantment. This generates low real interest rates and a widening current account deficit.

As a result, domestic borrowing and spending surge, particularly investment in property. Asset prices soar, borrowing increases and the capital inflow grows. Finally, a correction occurs, capital floods out and the banking system is burdened with debt.

With variations, this story has been repeated time and again. It has been particularly common in emerging economies. But it is also familiar to those who have followed the US economy in the last eight years.

The case for a much more resilient Asia this time round has been conditional on strong domestic demand, and room for policy maneuvering to expand consumption and spending. But Asian countries are mostly net producers, while the US is a net consumer. A reduction in global demand means a reduction in global supply.

The credit crisis and the ensuing tidal wave of economic recession have triggered reduced global demand. With this, Asia could potentially bear the brunt of the problem through reduced global supply.

The US, as a consequence of the crisis, is currently undergoing a period of seismic economic adjustment in which consumption and investment relative to GDP are crash landing, and as a result, savings will increase (over time). This, in the long run will imply a reduction in the US current account deficit and, hence, a reduction in Asian current accounts and trade surpluses (read: reduction in exports).

Given that China is the US’s second-largest importer and the country with which the US has the largest bilateral trade deficit with, China – the bastion of Asia’s economic hope – is likely to bear a large part of the adjustment.

Other export driven economies like Taiwan, South Korea and Malaysia will see varying degrees of this adjustment impact trade and growth. The danger is that with the combination of external shocks, a fall in asset and commodity prices and demand shrinking, the Asian consumer is not able on its own to spend its way out of the crisis.

Faced with the daunting prospect of dismal growth, Asian economies have no other choice: with demand shrinking in Western markets, either domestic demand must compensate, or supply must shrink. Reflating domestic demand will mean entire export industries will have to turn inward and serve domestic sectors – a process which will take decades given that Asian industries are “intermediate” in nature. Above all, domestic demand cannot replace export demand given the relatively low per capital income in most of emerging Asia.

The key to a recovery lies with government intervention. Asia needs to spend its way out of a crisis. While no singular government spending will fill the gap to reflate an economy, a concerted effort by Asian governments to get fiscal, and collectively, may work. Policy measures have thus far been domestically driven and reactionary.

A more coordinated effort within the region in disseminating fiscal spending and its target sector will serve to boost confidence especially through fiscal measures that offer the prospect of resuscitating growth and disposable incomes. Close scrutiny will show that most crisis situations are either opportunities to advance, or stay stagnant. As such, the prospect for a collective Asian voice is now more pressing than ever.

The global economy is more than the sum of its parts – and so policy direction becomes crucial. It’s near impossible to predict whether policymakers will succeed in preventing the recession turning into a prolonged economic calamity, and lay the foundations for a sustainable recovery.

But what we can predict with near certainty is that policy will matter a great deal in 2009.

Uncertain Times For Property

By EDY SARIF


Industry players express mixed feedback on market outlook

THE property outlook in Malaysia remains uncertain with industry players giving mixed feedback.

The Malaysian Institute of Estate Agents (MIEA) president K. Soma Sundram believes the local real estate industry is still resilient.

“Based on the feedback from our members, they are still doing business as usual, in fact some of them are doing much better. We are not in recession yet, the only thing that is happening now is that investors are adapting a wait-and-see attitude,” he said.

“Though the market around KLCC area is expected to go down by 15% to 20%, other places such as Bangsar, Subang Jaya and Damansara Heights are still maintaining their prices,” he added.

People with cash were still on the lookout for properties, Soma noted.

“First-time buyers for example, are still looking for affordable properties to buy or invest in and real estate agents need to adapt to tap this market and offer suitable locations for them to close more deals,” he said.

Soma said with developers giving out more incentives and doing more promotions, there were still plenty of jobs for real estate agents.

Zerin Properties executive Lalitha Anandarajah, who has been covering sales and leasing of office space in the past few months, said there had been an increase in demand for office spaces, and almost 70% of the enquiries were businesses looking to shift to more competitive rentals.

“There has also been an increase in demand for furnished offices to defray costs on renovation,” she said.

But at Venture Properties, senior negotiator Gary Lee is beginning to feel the impact of the economic slowdown.

“The number of cases has reduced since three to four months ago as the result of the slowdown in the global economy and this include local and foreign parties,” he said.

A real estate agent covering both office and residential sales/lease said the market had made a turn for the worse.

“Some of my clients aborted plans to secure new premises. It is not a good sign. Even expatriates looking for houses to rent are looking for more short-term agreements,” she said.

Another real estate agent said the market was extremely slow especially for the high-end residential units.

She said there were still expatriates coming in but their budget was now much lower.

“Honestly speaking, I don’t see many European expatriates coming in to the country compared with the previous years.

“Right now, I have to change my strategy by expanding my network and focusing on condominiums with much lower rent,” she said.

EPF's Azlan explains timing of overseas investments

By YAP LENG KUEN


THINGS were going on well for the first three quarters of last year, Then in October, the markets saw the crash of the 120-year-old Lehman Brothers and the snowballing of the US subprime problem.

Other funds have been badly affected too. Calpers, the US’ largest pension fund, has dropped by 28% in value; Khazanah 20% and Temasek 31%.

The Singapore central provident fund has two accounts – ordinary that is paying a dividend of 2.5% while retirement and medisave is paying 4%.

An analysis of the EPF dividend over the last five years, split into equity and fixed income, revealed that without making any provisions, the dividend could be much higher.

Could the timing of the overseas investments be held back in view of red hot prices already at a high in many equity and commodity markets? Was there any advice against this at that time?

“There was no advice internally or externally not to enter these foreign markets at a high,’’ said EPF CEO Datuk Azlan Zainol. In fact, one or two organisations that the EPF met had expressed their support as they also agreed that Malaysia was a small market.

“Every time we go into the market in Malaysia, we end up owning stocks like Maybank where we would be holding a stake of less than 20%. We shouldn’t have such high stakes as 15%-16% in Malaysian companies,’’ he said.

The fund has strategic stakes only in the RHB group, Malaysia Building Society Bhd and Malaysian Resources Corp Bhd.

“For the rest of the companies, we should only be looking at 5%-9% stakes. Because we have no choice, we have to buy into these so-called good counters,’’ he said.

On top of that, each time the EPF goes into the market, it accounts for almost 20% of the volume. “That is not good. By right, a fund should not take more than 5% of the volume especially when the market is so dull,’’ he said.

The fund started going abroad in 2007 and 2008. “If people say the timing was not so good, the answer is ‘yes’ and ‘no’. Suppose the subprime market and Lehman had not collapsed, it would have been good. Did anybody say at the beginning of last year that this was going to happen?’’

No doubt, economists had been voicing their concerns over subprime and high levels of debt. “But nobody could foresee that it would be so terrible.

“Can anyone imagine that a 100-year-old bank can just go down like that, or Citigroup would shrink in value in just 12 months to US$1 from US$100?’’ he asked.

In retrospect, it is very easy to say what should not have been done. But the fund has been selling too. In January alone, it sold RM5bil in domestic equity.

“We were selling and luckily, we sold a 25% stake of RHB Capital to Abu Dhabi Commercial Bank at RM7.20. Today, RHB is only RM2-RM3. But I don’t think that was very clever as I thought I could get RM10. That is luck,’’ he said.

However, the EPF’s performance in equity investments had dropped by less than 20% in both domestic (18.4%) and overseas markets (19.5%). In comparison, the KLCI had dived by 39.3% and the Dow Jones 33.8%.

The Tokyo, Hong Kong and Singapore markets were down by more than 40% last year compared with 2007.

Obama advisers urge restraint on AIG bonus issue

WASHINGTON: The White House said using tax law to pry bonuses from bailed-out company executives is "a dangerous way to go" and a Republican senator on Sunday advised against the mob mentality that has Congress "grabbing its pitchforks and charging up the hill" in pursuit of the cash.

While acknowledging public outrage over $165 million in bonuses paid to a financial firm that just months earlier had turned to taxpayers for aid, the administration's economic advisers said President Barack Obama wouldn't "govern out of anger."

Obama's economic team has to deal with a plan backed by the House of Representatives that would tax American International Group Inc. executives 90 percent of bonuses paid this year.

The president, they added, did not embrace the populist legislation.

Rep. Barney Frank, the Massachusetts Democrat who heads the powerful House banking committee, supported the legislation but said Washington should consider more steps, including suing AIG to recoup the money.

The government has an 80 percent equity stake in the insurance giant, a position Frank said should be used "to assert our rights."

The White House and Senate Democrats, including Senate banking chairman Kent Conrad, urged restraint, instead hoping executives would voluntarily return their bonuses.

Vice President Joe Biden's economic adviser, Jared Bernstein, criticized the AIG tax plan as it headed to the Senate, where it was likely to be modified with bipartisan backing.

"I think the president would be concerned that this bill may have some problems in going too far - the House bill may go too far in terms of some - some legal issues, constitutional validity, using the tax code to surgically punish a small group,"

Bernstein said. "That may be a dangerous way to go."

Populist anger came to a head last week when the Obama administration went on the defensive against AIG's bonuses.

It was a distraction for the administration as it sought support for Obama's ambitious $3.6 trillion budget and a defense for Geithner, for whom Wall Street's woes have become his chief task.

White House economic adviser Austen Goolsbee said Sunday that Obama understands the anger and that the easiest thing would be for AIG executives to return the bonuses.

"The president's also been clear we don't want to govern out of anger. He's going to look at what comes out of the House, what comes out of the Senate, see what ideas we have," Goolsbee said.

Republicans and Senate Democrats seemed to line up with the president's policy team.

"People are disgusted and outraged, as they should be," said Republican Sen. Judd Gregg of New Hampshire.

"But let's not overreact in a way that basically has the Congress grabbing its pitchforks, and charging up the hill, and abusing what is a core authority of a government, which is the authority to tax its people."

The bailed-out insurance giant paid bonuses totaling $165 million to employees, including traders in the Financial Products unit that nearly took the company and the U.S. financial system to the brink of collapse.

AIG has received $182.5 billion in federal bailout money and is now 80 percent government-owned.

Populist anger led the House to pass a bill that would impose a 90 percent tax on bonuses given to employees with family incomes above $250,000 at AIG and other companies that have received at least $5 billion in government bailout money.

It would apply to any such bonuses issued since Dec. 31.

On Saturday, a busload of activists representing working- and middle-class families paid visits to the lavish homes of AIG executives in Connecticut to protest the bonuses awarded by the struggling insurance company.

About 40 protesters sought to urge AIG executives who received a portion of the $165 million in bonuses to do more to help families.

American International Group Inc. has said it was contractually obligated to give the retention bonuses, payments designed to keep valued employees from quitting, to people in its financial products unit, based in Wilton, Connecticut.

AIG chairman Edward Liddy has urged any executive who received more than $100,000 in bonus payments to return at least half.

He told a House subcommittee last week that some of the executives have "already stepped forward and returned 100 percent."

AIG has argued that retention bonuses are crucial to pulling the company out of its crisis.

Without the bonuses, the company says, top employees who best understand AIG's business would leave.

"We think $165 million could be used in a more appropriate way to keep people in their homes, create more jobs and health care," said protester Emeline Bravo-Blackport, a gardener.

The company, in response to the protests, said all its employees were "working very hard to pay back the government and help the U.S. economy recover."

"The people working at AIG today are part of the solution, not part of the problem," company spokeswoman Christina Pretto said in an e-mailed statement.

The group also protested at the office of AIG's financial products division in Wilton, where they waved signs and chanted, "Money for the needy, not for the greedy!"

There were no arrests.

Bernstein spoke on ABC television's "This Week." Goolsbee appeared on CBS' "Face the Nation." Gregg appeared on CNN's "State of the Union."

Source: TheStar

EPF aims to recover foreign investments when Dow hits 9,000

By YAP LENG KUEN


THE Employees Provident Fund (EPF), the country’s largest investment fund, is targeting to break even on its overseas investments possibly by next year when it can write back the bulk of its provisions.

“The Dow Jones was 14,000 at its highest. Today, it is around 7,000. We expect to recover the bulk of our investments when the Dow Jones goes to 9,000,” said EPF CEO Datuk Azlan Zainol.

The EPF has, so far, invested RM16bil overseas on a staggered basis in the five major financial markets – the US, Britain, Australia, Singapore and Japan.

However, he expects the markets to possibly recover only next year. Yields for Malaysian Government Securities (MGS) have also come off. In 2009, about RM16bil to RM17bil of MGS will mature and be replaced at today’s rate.

Last year, in July-August, it was possible to get 4%-5% for 10-year money, but that has dropped to 3.5%. Companies are also scaling back on dividends.

This year, he said, would continue to be difficult and the fund hopes to be able to maintain its dividend payment of between 4% and 4.5%. “Our policy is to give out everything we earn in the form of dividends. We do not have any reserves,’’ he said.

As far as gross income is concerned, the EPF, which manages RM340bil of funds, performed better than 2007 – gross income was RM19.96bil compared with RM18.24bil.



The big increase is in provisions which was RM515mil in 2007 compared with RM4.69bil last year.

Out of that amount, about RM3bil is provided for overseas investments. “Our policy is to provide in full for every diminution in value in our investments overseas,’’ Azlan said in response to queries from StarBiz.

In Malaysia, if there is a stock with more than 50% loss, the EPF will provide for 25% of it, spread over a four-year period.

“We are more conservative abroad because that is everybody’s market ... anything can happen. Locally, we roughly know (the local conditions),’’ said Azlan.

He expressed disappointment at some of suggestions posted on the blogs. “There is a blog that says the RM4.6bil provision that we made was because we lent to ValueCap Sdn Bhd. That is a gross accusation ... very, very unfair. That is not the truth,’’ he said.

Last year, the EPF had provided a RM5bil loan to government-controlled ValueCap which was set up to undertake investments on the stock exchange.

“As far as our investments are concerned, we are strong internally. What happens outside is a global issue. Our risk management and people are in place. There will be no major changes this year or the next,’’ he said.

In terms of EPF’s asset allocation, it is based on advice from its consultants and its proportion of investments in equity to fixed income is, according to Azlan, a proven formula.

Currently, Azlan as the CEO, assumes direct oversight of the fund’s investments. He is looking for a new head of investments who would probably be an outsider. The former deputy chief executive of investments, Johari Abdul Muid, has moved on to head the strategic planning unit.

“Johari will be responsible for looking into the second phase of transformation for the EPF,’’ said Azlan. The division also looks into retirement benefits and pension fund reforms in the country.

“The retirement money for Malaysians will not be enough. It has been three weeks since he is at the new position and he has done a very good job,’’ Azlan said in response to queries from StarBiz regarding Johari’s move to strategic planning.

Insiders added that it was part of a reorganisation to strengthen certain divisions that also saw new heads for property, withdrawals and call centre.

The dividend of 5.8% for 2007 has come down to 4.5% for last year.

Due to the large provision made, net income has slipped from RM16.87bil in 2007 to RM14.3bil last year. Costs have also gone up – to pay 1% dividend cost RM2.89bil in 2007 compared with RM3.18bil currently.

Gross income from investments in MGS and equivalents was higher by 5% at RM5.75bil last year. Investments in private debt securities and loans yielded a higher gross income of RM5.59bil or 13%.

With the lowering of fixed deposit rates, gross income from the money market went down by 25% to RM694mil.

Gross income from external managers for both domestic and global equities dropped by 43% to RM767mil and by 254% to a loss of RM194mil respectively. External managers were more prepared to cut loss.

However, income from internal managers showed an increase of 33% to RM6.27bil and 123% to RM439mil respectively.

The EPF is heavily invested in local banks with stakes ranging from 13.6% (Malayan Banking Bhd) to 2.8% (Affin Holdings Bhd).

“In Malaysia, big caps like Sime Darby, IOI Corp and Public Bank have all experienced huge drops in market cap. Tell me, how do we pay 7% or 8% dividend?’’ he asked.

Balik Pulau’s Online Marketing Bid

By MANJIT KAUR


BALIK PULAU: Housewives have a new reason to be tech-savvy – to buy poultry, fish and vegetables with a click of the mouse. They can soon do their marketing online on a website that’s being set up for them by the Balik Pulau Village Initiative Co-operative Bhd.

Pulau Betong assemblyman Muhamad Farid Saad said the co-operative hoped the website would be up and running in two months.

He said people could order the produce online and pick up their shopping at stalls set up in designated areas.

“The co-operative is currently selling these items, which are especially popular with students, in front of the Universiti Sains Malaysia’s mosque from 4pm to 6.30pm from Tuesdays to Fridays.

“Once the website is up, we hope to capture the market of those staying in apartments and flats around Balik Pulau before venturing to other areas in the state,” said Muhamad Farid, who is also the co-operative’s executive adviser, after launching the Blog Bash ’09 forum yesterday.

Asked what was the purpose of getting people to buy the essential items online when they could go to the nearest market, he said there were many people who had no time to go to the market.

“We are helping vegetable and livestock farmers and fishermen in Balik Pulau as well, as the co-operative purchases the items from them direct and sells to the public.

“There will be no extra charge, and the items will be sold according to the market price. We want to make things convenient in this Information, Communications and Technology era,” he added.

Muhamad Farid also said the forum was a good initiative to educate people in rural areas on ICT.

The event was organised by the Balik Pulau Social Entrepreneurs Club with the support of the Balik Pulau Rural Internet Centre (under the Energy, Water and Communications Ministry).

The programme themed “Community Media for Local Socio-Economic Development” was held to acculturate the local community with entrepreneurship skills and ICT knowledge in order to generate more progressive entrepreneurs.

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I think this is a good initiative and makes life more convenient. Thumbs up !!! (",)

Thursday, March 19, 2009

A shrinking economy

The Real Matter - By Pankaj Jumar


A good stimulus package should restore confidence and reflate a sluggish financial system

IN the 1989 hit movie, Honey, I Shrunk The Kids, Rick Moranis plays a nutty inventor who perfects a machine capable of shrinking objects down to a hundredth of their size.

The plot made a good family comedy and the end result was Moranis was finally able to reverse the machine’s capability and bring his children back to normal size.

Incidentally, there were two sequels to this movie: Honey, I Blew Up The Kids and Honey, We Shrunk Ourselves.

No need to get into the details of these movies as their titles would allow us to imagine what would have happened in the sequels.

Now, how do we relate the “experience” of the above three movies to the predicament that we are all in now? While some readers may not agree with my analogy, I will attempt to relate the movie’s plot to the current crisis of confidence.

While we may not have deliberately shrunk our economy by using a machine, we caused it to shrink due to the housing market bubble, the huge inflated size of the US financial institutions’ balance sheets, as well as the easy lending in both the credit market and derivatives activities.

As troubles mounted in these financial institutions, governments globally had to provide a lifeline to them to ensure that they remain afloat.

Except for Lehman Brothers, which was allowed to fail, companies like AIG, Citigroup and others were deemed to be “too big to fail”, and failure itself could lead to further destruction of wealth of investors.

While the US government, and to a certain extent other governments in Europe, rescued these financial institutions from collapse by recapitalising them, most of these institutions took in new money in the form of capital to de-leverage their balance sheets and not entirely lend again.

Hence, there was a huge hue and cry among corporates and individuals as new borrowings were hard to come by.

In addition, due to the destruction of wealth of US consumers as a result of lower home prices and job losses (which have reached 4.38 million since January 2008), consumers simply halted consumption, resulting in drastic reduction in demand for goods and services.

With financial institutions unwilling to lend, some economists thought that perhaps the government should step in and provide financing to consumers. Hence, the US government instead becomes the lender of last resort as financial institutions have failed to act to stimulate demand.

There is empirical evidence that suggests banks’ willingness to lend to consumers/corporates is indeed instrumental to economic growth, as the lending activity itself has a multiplier effect on the economy.

Recent Bank Negara statistics which show loan applications and approvals in January 2009 fell 21% and 35.6% respectively, compared with 18.8% and 23.7% in December 2008, suggest that not only consumers/corporates are not encouraged by the current low interest rate environment to borrow or invest, banks too have been reluctant to lend.

To re-ignite the global economic engine, countries like the United States, Britain, Australia and Austria have unveiled massive stimulus packages.

Based on available data, the relief programmes now amount to about US$4.5 trillion or RM16.6 trillion. While these programmes are meant to stimulate the economies of the nations, some may not be able to create the multiplier effect because many of the programmes are meant to shore up the balance sheets of financial institutions.

In Malaysia’s case, it is a RM60bil question whether the stimulus package announced last week can have the right impact on the economy, as some have argued that it is not directed at the right target group.

My personal opinion is that the Government should have tackled the epicentre of the current crisis: consumer spending, which makes up half the economy.

Perhaps one way to “force” consumers to spend is to provide them with shopping vouchers to the tune of perhaps up to RM1,000 per household. This would cost the Government not more than RM10bil.

To ensure that the money is spent, perhaps the vouchers can come with an expiry date that says: “This voucher will self-destruct in three months.”

This way, retailers will be able to see their sales rise by the same amount in a shorter period, while creating a direct multiplier impact on the economy as a whole.

Just like the banking sector, where the central bank may end up as the lender of last resort, governments across the globe too need to step up spending, and even turn spender of the last resort, to restore economic activities.

A good stimulus package should be able to restore confidence and reflate a sluggish economy, as a shrinking economy is not going to get us anywhere. As in the movie, we need a good ending to the current sequel, Honey, I Shrunk the Economy.

Recovery, Malaysia-style

By NAJIB RAZAK


Boosted by a historic RM60bil second stimulus package, Malaysia is ready to confront challenges in a sharply declining global economy by tapping the talent, energy and drive of its people, writes the Deputy Prime Minister in his op-ed which appeared in the Wall Street Journal Wednesday.

AS Group of 20 leaders prepare to meet in London early next month, they face an unprecedented challenge. The global economy is likely to shrink this year for the first time since the Second World War. The World Bank predicts that during 2009, world trade is likely to record its largest decline in 80 years, with the sharpest losses in East Asia.

My country, Malaysia, is one of the most trade-based economies in the world. Our ratio of foreign trade to gross domestic product exceeds 200%, the highest of any economy except Hong Kong and Singapore. We have prospered by recognising the power of trade and the value of markets. But this embrace has been pragmatic, not ideological. It has always been complemented by our recognition that government, too, has a critical role to play.

The global economic crisis has demonstrated anew that relying on the behaviour of markets alone is insufficient to promote stable, long-term economic development.

When economic crises hit, one has a choice. Those steering national economies can either stand aside, or use public capital to take the place of private capital that has gone into hiding, thereby investing in the country’s human capital.

In the short term, this kind of action provides jobs and opportunity. In the long run, it provides the foundations for recovery.

Stimulus packages should not be about resorting to popular policies or handing out cash. And they should not target one group or area, but benefit the whole country. It is about achieving maximum impact.


Progress: A building under construction in Kuala Lumpur. Malaysia is fortunate to have good national infrastructure and quality workforce.

With the global economic crisis still unfolding, we have focused on boosting investments and credit flows while providing government guarantees and infrastructure expansion.

Foreign investment in Malaysia is expected to fall by 50% to RM26bil (US$7.22 bil) in 2009. That means we must either respond domestically, or allow our country to waste precious years during which we should be working to build a better society.

That is why on Nov 4 last year, I announced a first stimulus package of RM7bil. And why on March 10, I announced a historic second stimulus and mini-budget of RM60bil.

Accounting for 9% of Malaysia’s gross domestic product, the RM60bil alone is the biggest stimulus package in our history.

Some may say this is too much. But with our low foreign debt, large international reserves and ample banking sector liquidity, we have the capacity to fund it. Given the magnitude of the still evolving global crisis, I am convinced the risk isn’t that we do too much, but that we don’t do enough.

We know that ultimately, the world will recover, and normal trade levels will resume. When it does, we want Malaysia to be best positioned to take advantage of that recovery.

That is why we have decided to balance short-term requirements with building for the future. The mini-budget is designed to provide a quarter of the stimulus funds as a boost to meet people’s immediate needs, with the remaining 75% for medium- and long-term development goals.

It is vital for countries to remain competitive. Malaysia’s corporate tax of 25% is comparable with others in the region. However, taking into account the many incentives offered to investors, the country’s effective tax rate is between 3% and 7%.

Efficient implementation is vital in the success of any country’s stimulus package.

We have set up a technical committee to monitor the implementation of ours. It will meet regularly and report to a steering committee that I will personally chair. I will then report to the ultimate beneficiaries of the effort, the Malaysian people. They are the appropriate judges of the mini-budget’s success.

In Malaysia we learned fundamental lessons from the 1997 financial crisis. Our financial sector and corporations realigned as a result. We are fortunate today to have good national infrastructure, technical know-how, a diversified economy and a quality workforce. Overall, post-1997 we are far better placed to weather this new storm.

Yet in the long run, further transformation of the Malaysian economy is needed. We will use the current downturn to forge a new economic model that puts knowledge first. We will invest in education and technology, further strengthening Malaysia’s capacity to lead in information technologies, renewable energy and emerging sectors of the new economy.

Our goal is to harness the talent, energy and drive of all of our people. We will be aided in our efforts to provide lasting prosperity by working to spread mutual tolerance and respect between genders, cultures, races, religions and nations. We will champion inclusiveness not just because it is a foundation for political stability and economic growth, but because it is right.

As a nation in a hurry, with millions dependent on its development and progress, Malaysia is picking itself up and moving on. We are remaking Malaysia once again.

When G20 leaders meet next month, I hope others will take similar positions. It is time to turn words into deeds. The world’s economic recovery will depend on concerted and coordinated efforts by economies large and small, and we in Malaysia will play our part.

> Datuk Seri Najib Tun Razak is Deputy Prime Minister and Finance Minister of Malaysia.

US Fed starts bold US$1.2 trillion effort to revive US economy

WASHINGTON: With the country sinking deeper into recession, the Federal Reserve launched a bold $1.2 trillion effort Wednesday to lower rates on mortgages and other consumer debt, spur spending and revive the economy.

To do so, the Fed will spend up to $300 billion to buy long-term government bonds and an additional $750 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.

Fed Chairman Ben Bernanke and his colleagues wrapped a two-day meeting by leaving a key short-term bank lending rate at a record low of between zero and 0.25 percent.

Economists predict the Fed will hold the rate in that zone for the rest of this year and for most - if not all - of next year.

The decision to hold rates near zero was widely expected.

But the Fed's plan to buy government bonds and the sheer amount - $1.2 trillion - of the extra money to be pumped into the U.S. economy was a surprise.

"The Fed is clearly ready, willing and able to be the ATM for the credit markets," said Terry Connelly, dean of Golden Gate University's Ageno School of Business in San Francisco.

Wall Street was buoyed.

The Dow Jones industrial average, which had been down earlier in the day, rose 90.88, or 1.2 percent, to 7,486.58. Broader indicators also gained.

And government bond prices soared.

Heralding a coming drop in mortgage rates, the yield on the benchmark 10-year Treasury note dropped to 2.50 percent from 3.01 percent - the biggest daily drop in percentage points since 1981.

The dollar, meanwhile, fell against other major currencies.

In part, that signaled concern that the Fed's intervention might spur inflation over the long run.

If the credit and financial markets can be stabilized, the recession could end this year, setting the stage for a recovery next year, Bernanke has said in recent weeks.

The Fed chief and his colleagues again pledged to use all available tools to make that happen, and economists expect further steps in the months ahead.

Since the Fed last met in late January, "the economy continues to contract," Fed policymakers observed in a statement they issued Wednesday.

"Job losses, declining equity and housing wealth and tight credit conditions have weighed on consumer sentiment and spending," they said.

The Fed's announcement that it will spend up to $300 billion over the next six months to buy long-term government bonds was something that in January it had hinted it would do.

But some officials had seemed to back off from the idea in recent weeks.

Such action is designed to boost Treasury prices and drive down their rates, as it did Wednesday.

Rates on other kinds of debt are likely to fall as well.

"This is going to help everybody," said Sung Won Sohn, economist at the Martin Smith School of Business at California State University.

"This might help the Fed put Humpty Dumpty back together again."

The last time the Fed set out to influence long-term interest rates was during the 1960s.

The Fed's decision to buy an additional $750 billion in mortgage-backed securities guaranteed by Fannie and Freddie comes on top of $500 billion in such securities it's already buying.

It also will double its purchases of Fannie and Freddie debt to $200 billion.

Since the initial Fannie-Freddie program was announced late last year, mortgage rates have fallen. Rates on 30-year mortgages now average 5.03 percent, down from 6.13 percent a year ago, according to Freddie Mac.

The Fed's decision to expand the program could further reduce rates, analysts said.

"This is not only going to keep mortgage rates low for a long period of time," said Greg McBride, a senior financial analyst at Bankrate.com.

"The mere announcement may produce a honeymoon effect and bring mortgage rates down to even lower levels in the coming days."

The goal behind all the Fed's moves is to spur lending.

More lending would boost spending by consumers and businesses, which would revive the economy.

The Fed also said it would consider expanding another $1 trillion program that's being rolled out this week.

That program aims to boost the availability of consumer loans for autos, education and credit cards, as well as for small businesses.

Where does the Fed get all the money? It prints it.

The Fed's series of radical programs to lend or buy debt has swollen its balance sheet to nearly $2 trillion - from just under $900 billion in September.

Sohn believes the Fed's balance sheet could grow to $5 trillion over the next two years.

The Fed has said it's mindful of the risks of pumping more money into the economy, bailing out financial institutions and leaving a key rate near zero for too long.

There's the potential to plant the seeds for higher inflation, put ever-more taxpayer money at risk and encourage "moral hazard."

That's when companies make high-stakes gambles knowing the government stands ready to rescue them.

The Bank of England last week began buying government bonds from financial institutions as it turned to new ways to help revive Britain's moribund economy.

The Bank of England, like the Fed, already had lowered its key interest rate to a record low of 0.5 percent.

Finance leaders from top economies have discussed coordinating actions from their governments and central banks to provide a more potent punch against the global financial crisis.

The Fed is taking the new steps as the U.S. economy sinks deeper into recession.

Businesses are facing weaker sales prospects as customers in the United States and abroad cut back, the policymakers said.

Still, the Fed said it hoped its actions, the government's bank rescue effort and President Barack Obama's $787 billion stimulus of increased government spending and tax cuts eventually will help revive the economy.

"Although the near-term economic outlook is weak, the committee anticipates that policy actions .... will contribute to a gradual resumption of sustainable economic growth," the Fed said.

But even in this best-case scenario, the nation's unemployment rate - now at quarter-century peak of 8.1 percent - will keep climbing. Some economists think it will hit 10 percent by the end of this year.

The recession, which began in December 2007, already has snatched a net total of 4.4 million jobs and has left 12.5 million searching for work.

Source: TheStar