Hu hits out at 'all forms' of protection

Chinese President Hu Jintao has slammed protectionism and urged his G20 partners to ensure exit strategies from economic stimulus programs will not harm the global recovery.

Speaking at a G20 summit in Toronto on Sunday, Hu took aim at the developed world, saying they should promote international trade with greater openness.

"We must take concrete actions to reject all forms of protectionism, and unequivocally advocate and support free trade," Hu told his counterparts from the G20 group of major developed and emerging economies.

He called for a renewal of commitments from countries not to impose new restrictions on goods, investment and services, and urged his partners to "earnestly follow through" on these pledges.

Amid warnings from American legislators seeking to impose trade sanctions on China over its relatively undervalued yuan currency, Hu said trade disputes should be settled through consultation.

"It is important to address trade frictions appropriately through dialogue and consultation and under the principle of mutual benefit and common development," Hu said.

Hu did not touch on the issue of the yuan's value, but said: "Exchange rates of major currencies fluctuate drastically and international financial markets suffer from persistent volatility."

He also weighed in on the debate between the United States and countries such as Germany and Britain - which are seeking rapid deficit reduction - on how to nurture the fragile global recovery from the worst recession in decades.

Despite its mounting deficit, the United States wants stimulus measures to be maintained while Germany and Britain, worried about the escalating budget crisis in Europe, feel deficits needed to be trimmed swiftly.
Hu offered words of caution.

"We must act in a cautious and appropriate way concerning the timing, pace and intensity of an exit from the economic stimulus packages and consolidate the momentum of recovery of the world economy," he said.

Hu also wanted a shift in the focus of the G20, the premier global economic forum, from coordinating stimulus measures to coordinating growth and from addressing short-term contingencies to promoting long-term governance.

"We should strengthen coordinating of macroeconomic policies among G20 members, keep the right intensity of our policies and support countries hit by the sovereign debt crisis in overcoming the current difficulties," he said.

The sovereign debt turmoil in Europe was triggered by a Greek budget crisis and has threatened to spread across the eurozone, undermining the stability of the euro and the strength of many European banks.

© 2010 AFP

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A bold and calculated move

Malaysia’s global sukuk issue a huge RM4bil success

Tan Sri Wan Abdul Aziz Wan Abdullah

 

THE announcement to launch a global sukuk on May 19 was greeted with a lot of questions, doubts and scepticism. This was due to uncertainties caused by the sovereign debt crisis, particularly in Greece, Spain, Portugal and Ireland, which accentuated concerns over a double-dip recession.

Notwithstanding this, we went ahead with the launch after taking into consideration the factors in favour of Malaysia. These include the strong demand for good quality sovereign debt papers in the market; Malaysia’s credit risk spreads, which had narrowed considerably; the country’s good credit story supported by sound economic fundamentals; and clear economic transformation agenda under the New Economic Model.

It was a calculated and bold move. We were proven right when the issue was oversubscribed by nearly six times the initial size of US$1bil (RM3.25bil).

The issue was a huge success with a final sukuk size of US$1.25bil (RM4.06bil). It was Malaysia’s first in the international debt market after a lapse of eight years and was accorded emas, a special recognition given to foreign currency denominated issues in the Malaysian capital market.

The global sukuk has three objectives: to establish a new US dollar benchmark as pricing guidance for corporate fund raising, to profile Malaysia’s credit story in international capital markets, and to showcase the country as a global Islamic financial hub. The issue successfully met these objectives.

In line with Malaysia’s leadership in Islamic finance, the issue was structured as a syariah-based Ijara − an asset-based Islamic instrument, which pays sukuk-holders returns from the rental of 12 government-run hospitals.

The purchase price is equivalent to the proceeds raised by the special purpose vehicle – 1Malaysia Global Sukuk Sdn Bhd (the trustee/issuer).

It is a sale and lease-back arrangement, where the Federal Land Commissioner as the land owner of the 12 hospitals would sell the asset to the trustee which will lease the assets to the Government. Rentals received will be used to make periodic payments to sukuk investors.

Upon maturity, sukuk holders will be paid the redemption sum through the proceeds received from the Government as the obligor who will purchase the rights, interest, benefits and entitlements on the lease assets from the Trustee. (See chart on transaction structure)

The sukuk was assigned a rating of A- by Standard and Poor’s and A3 by Moody’s. The credit ratings reflect Malaysia’s sovereign credit worthiness backed by a deep and liquid domestic capital market, a well-managed and resilient financial system, strong external position, net external creditor position as well as a diverse and competitive economy.

The global sukuk roadshows started off with a team lead by Second Finance Minister, who met investors in Jeddah, Riyadh, Abu Dhabi and Dubai. The second team led by the Finance Ministry secretary-general saw investors in Hong Kong, Singapore, London and finally in New York, where the sukuk size and pricing were finalised.

During the roadshows, the teams met investors in groups and also had one-on-one interactions with key investors. Investors raised questions on Malaysia’s fiscal sustainability, economic fundamentals as well as the reform agenda of the Government. The teams took the opportunity to explain Malaysia’s economic policies, the accommodative monetary policy as well as impressed upon the investors the reform agenda and growth prospects that will be realised through the New Economic Model.

Fundamentals intact

Investors were convinced that Malaysia’s fundamentals remained intact, with strong fiscal position and credible economic growth from enhanced reform initiatives under the New Economic Model.

These meetings were well-received and generated significant interest among investors in Asia, the Middle East, Europe and the United States, despite increased uncertainty and market volatility created by the debt crisis in Greece.

The high-level delegations were instrumental in raising Malaysia’s profile and entrenching its growth prospects among key investors and decision-makers.

As a result, the issue attracted bids from a diverse group of over 270 investors around the world with most bids from Asia and the Middle East.

The final distribution reflected the wide interest among global institutional investors for Malaysia’s debt papers. (See table on final distribution of global sukuk )

It also reinforced Malaysia’s lead position in the global sukuk market, accounting for 65% of global outstanding sukuk.

The initial proposed size of the global sukuk was US$1bil, which was upsized to US$1.25bil after receiving bids of about six times over the initial cover, making it the largest global sovereign sukuk ever.

The five–year sukuk was priced on May 27 to yield 3.928%, the lowest yield for an Asian sovereign issue in the last five years.

In New York, where the pricing was to be decided, the global markets had turned volatile threatening to scuttle the whole exercise. However, with a strong order-book from Asia and the Middle East, a small window of opportunity appeared when the market stabilised.

Bold and quick decisions were made to capitalise on it. The price “whisper” began at around the Treasury+200 basis points range and the order-book started to fill up and demand momentum was sustained.
With such an encouraging order-book, the pricing guidance was issued at Treasury+190 basis points and finally the issue was priced to yield 3.928%.

The final pricing at Treasury+180 basis points was very competitive, given the uncertainty and volatility of markets caused by the ongoing Greek debt crisis.

The spread on the five-year sukuk due in June 2015 further narrowed by six basis points a day after listing, reflecting robust demand for Malaysia’s dollar debt.

It was challenging to launch and conclude the largest sovereign sukuk ever at the lowest price for an Asian sovereign issue in the last five years. Despite the volatile markets, there was overwhelming response to the global sukuk, reflecting investor confidence in Malaysia’s credit story and growth prospects.

We must sustain this confidence by implementing all reform measures, however painful it may be in the short term. We must sacrifice for the greater good of the nation in the long run.

The success of the global emas sukuk is indeed an international recognition and endorsement of Malaysia’s credit story and confidence in the reform agenda of the New Economic Model under the leadership of Prime Minister Datuk Seri Najib Tun Razak.

“Our sukuk offering was priced at the lowest yield achieved by an Asian sovereign in the past five years notwithstanding volatile market conditions. We also had wider investors base from Asia, the Middle East, Europe and the US. This is a great achievement for Malaysia.”

● Tan Sri Dr Wan Abdul Aziz Wan Abdullah is the Finance Ministry’s secretary-general of Treasury.

Financial literacy vital to achieve high income status

COMMENT By CAROL YIP

THE first report on the New Economic Model (NEM) for Malaysia presents a clear message for radical change in our approach to economic development. The stated goal is to enable Malaysia to reach high income status by 2020.

The National Economic Advisory Council, which came up with the report, recommends that businesses must heighten their appreciation of people as valuable assets that they must collaborate actively with to make Malaysia a sustainable and vibrant nation.

However, the recent announcement of likely subsidy reductions on essential items has raised the spectre of many Malaysians experiencing an increase in inflationary pressure. While there is much commentary in the media focusing on how to help the poor, the aged and middle-income wage earners, we need to collectively and individually solve the problem so that we can speed up the process and reach these goals as a society. The year 2020 may seem a long way off, but nine years is not a long time to achieve these lofty NEM goals.

The Government cannot expect Malaysians to continue showing excellent work performance to contribute to economic growth when we experience personal financial stress in our day-to-day lives. Unless we have salary increases that align with living costs and the Government heightens its efforts to work with the business community, things may stall.

Without the financial security and benefits as envisioned in the NEM goals of “inclusiveness” and “sustainability” to improve the rakyat’s quality of life, the majority of our society will continue to experience a bleak financial future, culminating with an unsustainable retirement.

Stuck in the middle income trap

While the Government is trying to put things in order to help us get out of the middle income trap to reach a high level income society, there is still a missing link. We need to start looking into a national strategy to help Malaysians improve their personal financial literacy and develop the necessary skills to keep their personal financial matters in the proper perspective.

There are several transitions that Malaysians must navigate through as they grow from children, through wage-earner, on to retirement. Each stage requires an understanding of personal financial matters that are sorely lacking in most of us.

Financial literacy is important to everyone. Financial stress is not biased based on race, age, gender, marital status or different income groups. Just because a person might be below the middle-income group doesn’t mean he or she may need financial education more than others. Just as likely, the children of wealthy parents need to be educated to maintain family wealth. Similar to reading and writing literacy, financial literacy is necessary to all. When a nation has a high level of financial literacy, it is easy to promote healthy financial ethics and values across different generations, from young to the old.

What other countries are doing

In 2008, the Organisation for Economic Co-operation and Development (OECD) launched the International Gateway for Financial Education to serve as the first global clearing house on financial education. It seeks to raise awareness to ensure wide dissemination of research, best practices and guidelines and build a worldwide network of government stakeholders on financial education. Several countries, most of whom are members of the OECD, have developed and implemented national strategies on financial literacy:

Australia: In 2005, the government established the Financial Literacy Foundation (FLF) to implement a national literacy strategy. The FLF worked to integrate financial literacy into the educational system, to develop resources and support for teachers and to provide financial literacy materials for the workplace. In July of 2008, all of FLF’s functions were transferred to the Australian Securities and Investments Commission, in order to consolidate the Australian government’s financial literacy response under the Commission and to strengthen its role in safeguarding Australia’s economic reputation and well-being.

New Zealand: A crown agency, the Retirement Commission, led the development of New Zealand’s National Strategy for Financial Literacy, in 2008. The New Zealand Retirement Commission also created “Sorted”, an independent government-funded organisation dedicated to helping New Zealanders manage their personal finances, throughout their lives. In 2009 the Ministry of Education also took over all responsibilities for financial education in schools.

Singapore: The national financial education programme MoneySENSE was launched in October 2003 to bring together industry and public sector initiatives in financial education, to create a long-term sustainable programme to enhance the basic financial literacy of Singaporeans. Through its national MoneySENSE programme, the Singapore government continues to support initiatives that enhance the basic financial literacy of consumers.

The Netherlands: Under the working title CentiQ (Sensible with Money), around 40 partners from the financial sector, the government, information and consumer organisations and science centre signed an agreement in 2006 to work together on financial education. Together, the partners carry out a strategic agenda that includes programmes and projects aimed at improving the financial knowledge and skills of consumers and stimulating an active attitude, so that consumers can make conscious financial choices and become financially competent.

Getting our house in order

Malaysia shouldn’t be left behind. We need a concerted effort to create a national financial education blueprint. Let’s start transforming the nation with a new attitude and mindset by emphasising building a “made-in-Malaysia” financial education programme in schools, tertiary institutions, workplaces, community centres and NGOs.

There are some stakeholders who are already educating different parts of our society according to their core business objectives. A central regulatory body is required to consolidate existing financial education programmes and be the centre of influence to create a national strategy to improve the nation’s financial literacy level based on sound ethics and core values, and in line with the NEM goals.

·Yip is a personal financial coach and also founder and CEO of Abacus for Money