Blanket moratorium does not come at 'zero cost' to govt: Zafrul

 

Contrary to his comments earlier this week, Finance Minister Tengku Zafrul Abdul Aziz has “clarified” that Putrajaya can use the Emergency Ordinance to compel banks to allow a blanket loan moratorium.

However, doing so would cost the government and possibly result in far-reaching implications.

His explanation came after critics panned his reasoning for why the government did not include it in its latest Pemerkasa Plus stimulus plan.

In an op-ed in The Star today, Zafrul cited Section 4 of the Emergency (Essential Powers) Ordinance 2021 that allowed the government to “acquire and mobilise resources that are necessary for public good”.

“But Section 5 clearly stipulates that any compulsory measure by the government must be matched by a compensation to the party that has yielded its resources.

“In short, this cannot be done at zero cost to the government,” he said.

Using public funds to compensate banks for allowing a blanket moratorium was not worth it, he contended.

“But just because we can, does that mean we should?

“Repeating the blanket moratorium also means that the government may need to significantly compensate banks for a measure that was not even necessary in the first place.

“How does this make financial sense, particularly in a resource-tight situation for a potentially lengthy war against an enemy (Covid-19) that can mutate without warning?” he posed.

Zafrul opined that resources were better used to distribute aid or subsidies to people and businesses.

Long-term effects

Furthermore, he contended that “forcing” a blanket moratorium will negatively affect the economy in the long term.

“The rule of law is necessary to build foundations and develop a stable market to enable entities to build wealth and prosper.

“By invoking emergency powers indiscriminately, we may be forcing parties to break or amend contracts. Dishonouring the sanctity of a contract between two parties will have serious ramifications on future business and investments.

“This may also have far-reaching implications which may lead to a run on our capital markets, and cause an outflow of funds which could, in turn, affect the ringgit’s value and increase the cost of doing business, collectively causing grave, long-term repercussions to our economy,” he said.

Laws, GLCs and banks

Umno Youth chief Asyraf Wajdi Dusuki previously pressured the government to invoke the Central Bank of Malaysia Act 2009 and Financial Services Act 2013 to control banks.

Today, Zafrul said using those laws in that manner would “run counter to the very spirit and rationale” of their existence.

Asyraf had also pointed out that several commercial banks were owned by government-linked companies (GLCs) like the Employees Provident Fund (EPF), Permodalan Nasional Berhad (PNB), Amanah Saham Berhad (ASB) and Tabung Haji.

To this, the minister said the rakyat would pay the price if these GLC-owned banks suffered.

“Lower earnings from these banking groups would correspondingly result in lower dividend payments for EPF members and PNB subscribers. In short, it is the general rakyat who ‘own’ the banks, albeit by proxy via entities like EPF and PNB.

“Ultimately, it is the rakyat who will get lower dividends from EPF, ASB or Tabung Haji etc if banks suffered losses through, say, a blanket moratorium.

“This unnecessary self-destructive, over-specified solution to the issue at hand is like cutting off our nose to spite our face,” he contended.

Blanket moratorium 'irresponsible'

Zafrul thus stressed that the risks were too high to allow a blanket loan moratorium for everyone.

“We already have a public health and economic crisis to manage; why throw a potential financial and banking crisis into the mix?

“Is it [sic] neither fair nor responsible for the government to take all these risks just for the sake of enabling a blanket moratorium for everyone, particularly when we know that at least 80 percent of borrowers do not need it, and banks are already giving or offering targeted assistance to borrowers that really require this relief,” he said. - Mkini