Learn from Greek debt crisis, excessive loans no good

EXCESSIVE debt build-up is something most people, companies and countries would prefer to avoid if possible. Unsustainable debt levels have broken homes, bankrupted companies and crippled a number of countries worldwide and the latest proof of this is the crisis in Greece where the debt build-up has impacted the economy of the country.

Continued debt build-up without finding a solution to minimise and eventually reverse the piling up of debt, no matter for what reason, will extract a high price in the future.

For Malaysia, while the condition is still way off from what is happening to Greece, it is nonetheless a lesson for the Government to deal with before things get out of hand.

Slashing the budget deficit, though, is not an easy task to accomplish. Cut too much too soon and the economy will take a dip as the reduction in consumption and investment by the Government will eventually be mirrored by that of the private sector.



Public debt as a percentage of GDP is now 54%, which is much higher than Indonesia’s 28% but still off the level seen in the Philippines which is at 62%. But keep spending about RM74bil a year on subsidies - or RM2,610 per person - and the indebtedness level of the Philippines will be in our country’s rear view mirror in a matter of time.

It’s therefore not a surprise to have seen over the past months initiatives taken not only to increase the efficiency in tax collection through a goods and services tax but also through ways to minimise the massive subsidy bill that is incurred by the Government on a yearly basis.

That subsidy bill is broken down into three main categories — energy, food and social services — and the largest of which is on social services at about RM43bil.

While cutting back on social and essential services, such as healthcare and education, will be the least palatable to Malaysians from all walks of life, dealing with payments, too, has to be addressed.

Take healthcare for instance. The charge of RM1 for outpatient care was introduced in 1982 and I think a small increase in such a payment, which is less than the cost of a roti canai, is due.

The subsidy on food is around RM3bil a year and is mainly spent to keep the price of flour, sugar and cooking oil down. Here, there are ways to cushion the removal or reduction of such subsidies for the poor but it will not be a stretch for middle-income households to start paying unsubsidised prices for such goods as these items will not constitute a large chuck of their monthly income on such goods.

The real area which needs to be tackled is energy cost. The Government subsidy bill to keep the price of fuel, electricity, LPG and natural gas low, based on where the global prices of energy, is slightly below RM25bil a year.

That is a huge sum and the removal of such subsidies will have a huge impact on every strata of society.
With 40% of Malaysian wage earners having an income of less than RM1,500 a month, higher energy costs, whether at the pump or in the form of a hike in monthly electricity bills, will evoke the most volatile reaction.
But presenting a case why that has to be done needs to be made.

Sure, the poor and needy will get the most protection against any reduction in subsidies but the Government, too, has to be mindful of the middle class in the country which will be most affected by an increase in energy costs.

It’s the middle class that is the foundation to consumer demand and striking a balance between reducing such subsidies and keeping people happy will be a tricky task. Appealing to people’s season of reason and articulating the consequences of not doing so may work.

People have to know that the precious resource the country is blessed with should not be frittered away. And while conservation and efficient use of energy resources will help reduce wastage and help the environment, people also need to be shown that their efforts are helping to build something worthy for the future.

Any programme of reducing energy subsidies should be met with a similar programme that will improve the economic welfare of the people. I have said this countless times, and it bears repeating once again.

Having a world-class public transportation system will give people a viable alternative to cope with higher fuel costs. Also, the money the country makes after the price of crude oil is past a certain level should be saved in a fund for future generations.

Making a Point - By Jagdev Singh Sidhu

Deputy news editor Jagdev Singh Sidhu is watching closely the developments of his favourite football team, hoping the club’s rich history does not end up being just that.
For latest pictures, news, videos on the Greek crisis and other business news from AP-Wire click here

Shanghai World Expo economy could be better than Olympics

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Many analysts are predicting the economic impact of the 2010 World Expo will be three times larger than that of the 2008 Olympics. Can the effects of the six-month showcase in Shanghai really surpass what took place during the Beijing Games? And if so, how might it happen? CCTV reporter, Wang Guan, investigates in this BIZ EXPO feature.

Zhang Yiping has been working as a tourism consultant for four years. Her company provides information on traveling in and around Shanghai, and helps clients book trips.

She says the six-square-meter store receives nearly 1,000 customers every day.

Tourism consultant Zhang Yiping said, "Since April 30th, there has been a dramatic increase in the number of people. They come from across the country-Henan, Sichuan, Zhejiang and Jiangsu. Especially from Jiangsu and Zhejiang."

At the box office for the neighboring Oriental Pearl Tower, tourists aren't hesitating to pay premium holiday prices to enter the iconic structure.

The influx of visitors clearly demonstrates this event's economic muscle.

Sun Lijian, dean of Fudan University School of Economics, said, "The expo lasts longer. It's a concentrated event where you need to be there to enjoy it, rather than just watching it on TV. It will give a boost to many industries, and jump start the service sector in the Yangze River Delta Region. So the economic benefits will be more obvious, and more comprehensive, than the Olympics."

Professor Sun adds that, in addition to generating quick cash, the event will transform the city's economic growth pattern by initiating a green revolution.

To describe the low carbon concept as being widely applied in Shanghai's expo park might be a huge understatement. Tapping into environmentally friendly materials, and renewable energy sources, are the primary concerns of most pavilions. It's probably fair to say this World Expo is one of the largest showcases for low carbon technologies and lifestyles in history.

So what factors will lead to green science playing a bigger role China's economy?

Sun Lijian said, "First it's people's awareness and knowledge. Ordinary folks go to the park, and see that green lifestyles can actually make our lives so much better. With increased awareness comes demand. And with increased demand comes incentives for enterprises. The government should also cash in on low carbon technology. This will help cultivate the market."

So behind the rosy economic figures that are set to surpass the Beijing Olympics, what the Expo is really offering are new opportunities for this host city to make momentous progress.

CCTV reporter Wang Guan said, "For example, Shanghai can rebuild its brand to fast-forward its investment drawing process. It can cultivate people's awareness of our shared low carbon future. And through exchanges of new ideas and technologies, Shanghai can book a faster boat to lead China away from its label of the world's factory, and into one of its creative centers."

Special Report: Shanghai World Expo 2010

Flirting with change that Britons can believe in

DRAMA, suspense, irony and regret all clash in the chorus of confusion and contradiction in the build-up to Britain’s general election tomorrow.

This political equivalent of Britain’s Got Talent pits Labour Party Prime Minister Gordon Brown, Conservative Party leader David Cameron and Liberal Democratic Party leader Nick Clegg as keen contestants.

Popular expectations dwell on a contradiction: that Brown is going to lose heavily to Cameron, and that it will be a tight race between the three. Another contradiction is that while the sorry state of Britain’s economy is uppermost in voters’ minds, a candidate’s appeal is an inversion of his competence.

By all accounts Brown is most experienced on the economy, being Chancellor of the Exchequer (finance minister) for a full decade before becoming premier. Yet he is expected to fall the hardest, particularly from his incumbency.

The candidate with the highest jump in popularity is Clegg, who is the least experienced. Cameron’s experience with economics was as a subject at university, and for both political experience came only as Opposition MPs.

Brown’s critics say his experience has not stopped Britain’s steep economic slide. But much of the problem might have been beyond his control, since the global crisis began with Britain’s closest ally, the US.

Brown’s own decline is tied to Labour’s, whose downward spiral began with his predecessor Tony Blair’s fall from public grace after taking the nation to war three times. Brown’s liability may be limited to his naivete, such as in asking Blair to help his campaign in its closing stages this week.

Britons are worried about lax immigration controls largely because they are worried about the economy. But before Brown could absorb that, he was caught calling a lifelong Labour supporter who cornered him on immigration “a bigoted woman.”

That affected his image and his performance in the final debate, all at a crucial moment of his campaign. Besides, two terms of Blairite “New Labour” may be all that even the staunchest supporters can endure.

Beyond party rhetoric, Clegg’s Liberal Democrats seem to offer the most radical changes. On the economy all are worried about the budget deficit, but Lib-Dems are even more pro-poor and for taxing the rich than Labour.

Pensioners, the lowest-earning bracket and the first £10,000 (RM48,648) earned would be free from tax. There would be a “mansion tax” and tax loopholes for the rich would be closed.

On civil liberties, Lib-Dems have more to offer than the other two. There would be better protection for journalists, curbs on libel claims, and a freedom Bill to limit invasive CCTV security coverage.

Lib-Dems want to scrap the Trident missile system like the others, while rejecting any similar replacement.
They also want a full inquiry into Britain’s role in state kidnapping and torture, rejection of military action against Iran, pressure on Israel and Egypt to lift the Gaza blockade, and end the “subservient relationship” with the US.

The latter prompted Brown to call Clegg “anti-American,” as if championing British interests has to be anti-ally. Brown as unreformed Blairite has not understood how the British electorate has shifted its ground on his party after Blair.

Lib-Dems are the most radical on electoral reform. Not only would they introduce a written Constitution, lower the voting age to 16 and replace the House of Lords with a fully elected second chamber, they want proportional representation for voters to select more than one candidate in order of preference.

This system, practised in Ireland and Australia, is rejected by both Labour and Conservative as it could put them at a permanent disadvantage. Since they are supposed to be at opposite ends of the political spectrum, their supporters are likely to vote for the centrist Lib-Dems as second choice, virtually adding to the party aggregate to keep it in office indefinitely.

That, or the party will remain strong enough to be a kingmaker in various combinations of coalitions. If the Labour-Conservative divide based on the 19th-century division between labour and capital are now outdated in today’s industrial Britain, the Lib-Dems could be a sign of the times.

Despite the touted differences between Labour and Conservative, in office both gravitate to a middle ground of consensus politics such as “caring Conservatism” and “New Labour.” The Lib-Dems’ high profile today may just be blowing the cover of party labels to reveal modern British social democracy as it is.

MIDWEEK
By BUNN NAGARA