Debt jubilee proposal an easy way out

 

Let me make one thing clear before I am accused of being insensitive to the plight of struggling Malaysians affected by the Covid-19 pandemic. Most of us are aware that there are hundreds of thousands of Malaysians in need of help; there must indeed be some form of state intervention to reshape their lives. The powers that be cannot afford to fail here, as the social consequences can be telling if not addressed carefully.

The fact is everyone is struggling nowadays with reduced incomes or revenue. Malaysians are no exception as the situation is similar in almost all countries because of the pandemic.

Oxfam International, a global NGO that is working to end the injustice of poverty, estimates that half a billion people may end up in poverty unless urgent action is taken to bail out developing countries. It says only China is an exception because the number of new infections have almost disappeared. But with Covid-19, no one is insulated.

This projection is not something that should be taken lightly. The problem is real and serious as the majority of us who have taken up the moratorium on hire purchase, housing and personal loans are from the B40 or M40 groups.

These households comprise Malaysians who earn RM8,000 a month and below (the M40) or less than RM4,000 a month (the B40). Most of them have either lost their jobs or have suffered cuts in wages, overtime and allowances. With the pandemic threatening to slow us down for another few years before full recovery, these Malaysians are on tenterhooks.

I wish no one has to be in this dangerous predicament but the virus has taught us that we could lose all that we have overnight if we do not plan our finances well. Over the last four decades or so, most of us had chosen to purchase vehicles and houses soon after securing jobs. For some, more than half of their salaries go towards repaying various loans.

Loans and credit cards were relatively easy to obtain and with strong marketing strategies employed by financial institutions, many of us fell into the debt trap, a situation in which many ended up being unable to repay their loans under the current circumstances.

The Prihatin cash handouts and loan moratoriums since April are a form of stop gap measures and cannot be a permanent solution. So can there be an effective remedy in the suggestion by PPBM Youth chief Wan Ahmad Fayhsal for a targeted debt jubilee or at least to write off the interest payments until further notice?

Some say his radical call, which may have been a practice that was carried out during the feudal days, if applied carefully and to only those who absolutely needed the break, could help the nation prevent tens or even hundreds of thousands of its citizens from losing all they had built in the past few decades. At the last count, more than 800,000 people had lost their jobs since March.

Wan Fayhsal, who is also the deputy youth and sports minister, did say that government-owned banks could possibly do it if the finance ministry obtains the nod from the Cabinet. He said these institutions had a social obligation to the people and thus should make sacrifices.

“We are in trying times and banks have been making large profits for years, so a debt jubilee will be ideal. But we understand that not everyone will require one, so it should be targeted and done gradually.”

But his suggestion was criticised by some groups, including Umno supporters who said it was a stupid idea. However, looking at those hitting out at him, besides it being a political move, I have a feeling that they belong to the T20 group (the top 20% income bracket), who I presume cannot empathise with what the lower-income workers are going through.

In response, Wan Fayhsal said the national economy must be driven by the “real economy” which produces goods and services. To him, the real economy was for the man on the street, not shareholders.

Nevertheless, he must understand there is a downside to it. If banks were to implement a debt jubilee, shareholders will start deserting the financial institutions and depositors will withdraw their savings for fear of security and low returns. This may cause a tremor in the financial market.

I do however agree with him that unprecedented times require radical measures. For those weak-hearted, they may go into depression and resort to measures that can be socially disastrous. Most of their pain and fears stem from their debts and from losing their property and way of life.

On the other hand, any debt jubilee by government-owned banks will actually mean writing off investors’ and taxpayers’ monies and this will surely not go down well with the people. Obviously, there can also be accusations of double standards. But I am sure no private bank will even think of such a move.

Now, we must also ask if the government can afford this in the wake of the huge financial allocations it has been making due to Covid-19. Don’t forget many governments, including ours, have ceased to be creditors and have morphed into the largest debtors in the country.

The most recent statement by Auditor-General Nik Azman Abdul Majid is indeed worrying. He said 59.9% or RM82.72 billion of the federal government’s new borrowing receipts for the financial year 2019 were used to settle debts.

Expressing concern, he said ideally, the new borrowings should be used for development purposes and to create a multiplier effect in developing the economy. Need I say more about the consequences of writing off loans here?

Bankruptcy cases involving personal financing and credit card debts had grown by 104% in 2018, up from 43% six years before that. What is also worrying is bankruptcies among those aged between 25 to 34 constitutes 60% of total bankruptcy cases. They are in their prime and could become restless if saddled with too much debt.

These problems must be tackled early and effectively, failing which they will cause much unrest in society. No one wants this to happen, all of us especially businessmen want a stable society to live in and survive.

Help for this group of Malaysians is vital and must be done urgently but definitely not via a debt jubilee.

The pandemic has definitely taught us that some aspects of our lifestyle must change, household debts must be brought under control and a buffer must be ready for emergencies such as the current health crisis.

Maybe we should stop spending on projected income like bonuses, increments and overtime which are not guaranteed. A crisis like this may be the first for all of us but it certainly won’t be the last. - FMT

The views expressed are those of the author and do not necessarily reflect those of MMKtT.