Asia on verge of financial crisis, warns analyst

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Asia is on the verge of a possible financial crisis, according to a political analyst, and Malaysia is the third most likely place for the crisis to start.

Rather than a repeat of the 1997 Asian financial crisis that started in Thailand however, the analyst Alastair Newton said the looming crisis would be driven by domestic debt instead of external debt.

This is not 1997 all over again. It is not about external debt.

“It is more like an Asian version of 2007 (subprime mortgage crisis in the US). It is about domestic debt and inflated asset prices caused by persistent ultra-low interest rates.

“This is causing major tensions in the financial system,” he told an audience in Petaling Jaya this morning.

The former British diplomat was speaking at the Global Economic Conference 2016, which is organised by Associated Chinese Chambers of Commerce and Industry of Malaysia’s (ACCCIM) think-tank, the Socio-Economic Research Centre (SERC).

Topping the list of countries that are most, at least, likely to be hit by the crisis, Newton said, are China and Hong Kong, followed by Thailand, and then Malaysia.

He said these were based on the findings of his former colleague and economist Robert Subbaraman, whom he said he met last week and was on the verge of publishing a paper on the matter.

He said Subbaraman had studied at five different indicators of risk over the past four quarters for various countries in the Asia (excluding Japan) region.

However, Newton said Subbaraman had not looked into political risks that could morph into a financial crisis, and that the upcoming Hong Kong Legislative Council election in September could be a potential trigger.

“Both he and I believe that China will mow through (the crisis), but the downside risks of that are enormous. If China does crash, I don’t need tell to you how serious that is for all of us,” he said.

Various parties had previously raised alarm in the past over the debt situation in Malaysia, be it in the form of government debt (the bulk of which comes from domestic borrowing), household debt, and corporate debt.

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

The GDP last year was US$296 billion (RM1.22 trillion).

In particular, the IMF report identified Malaysia’s high household and corporate debt as vulnerabilities in Malaysia’s economy, but said this risk was also mitigated by several other factors such as low unemployment and strong financial institutions.

It suggested that policy changes are currently unnecessary, as existing policies seem to be adequate in stopping the growth of the debt.- Mkini