Wednesday, June 1, 2016

What the next financial crisis will entail

Salleh Said Keruak

Alastair Newton, a former British diplomat, spoke at the Global Economic Conference 2016. The conference was organised by the Associated Chinese Chambers of Commerce and Industry of Malaysia’s (ACCCIM) and the Socio-Economic Research Centre (SERC).

Newton said Asia is on the verge of a possible financial crisis and that this time around it is not going to be like the 1997 Asian Financial Crisis that started in Thailand and spread to the other countries but is going to be more a domestic debt crisis.

Newton said that the countries most likely to be hit first are China and Hong Kong . And if this does happen then certainly Malaysia cannot hope to escape unaffected.

According to an International Monetary Fund (IMF) report on 4 May 2016, Malaysia’s government debt last year stood at an estimated 57.4% of gross domestic product (GDP), while the ratio for household debt was far higher at 89.1% of GDP (and non-financial corporate sector debt at 96.0% of GDP).

The issue, said Newton, is that because of low interest rates people are borrowing more. And that has created high domestic or personal debts with people owing more than they can afford to pay. And the highest debts are credit card debts, according to Bank Negara Malaysia.

But then economists have for years been warning the government about an impending debt crisis. Three years ago back in February 2013, Frederic Neumann, co-head of Asian economic research at HSBC, warned that Asia could be at the brink of a major debt crisis.

“I believe we are at the beginning of a major debt cycle in Asia. We are certainly seeing the early symptoms of a debt bubble emerging, and I think it’s worth keeping a close eye on it,” said Neumann in 2013.

The issue is Malaysians are borrowing and spending more than they can afford. And many young people below 30 are declaring bankruptcy because they cannot service their debts. This attitude has to change and credit card companies need to also play a role in curtailing this.

We cannot go on borrowing to fund our spending and Malaysians need to realise that eventually something is going to give way. So before that happens we need to learn how to spend within our means and not keep blaming others for our own folly of living on borrowings to fund our wants rather than our needs.

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