PETALING JAYA: Malaysia’s request for yen-denominated loans from Japan to help resolve its debt problems was a more feasible and attractive proposition given that the cost was likely to be lower and the tenure longer, say economists.
The move resembles the scenario during the 1997 Asian Financial Crisis when the country sought the assistance from the Japanese to help resolve its financial difficulties while going on an austerity drive.
With the cost likely to be lower and the tenure longer, a yen loan was a feasible and an attractive proposition to pare down the more expensive dollar borrowings, especially the ones incurred by 1Malaysia Development Bhd, said Sunway University Business School professor of economics Yeah Kim Leng
“It also signals that the government’s fund-raising capacity in international financial markets was not impaired by the high debt level, as well as affirming the continuing foreign investor confidence in the country under the new government,” Yeah said when contacted by StarBiz.
He added that currencies of countries with stronger output and productivity growth tend to have higher appreciation prospects.
“The yuan in the long term, therefore, has a strong likelihood of appreciating against the ringgit, thereby rendering loans from China more expensive to service in the future,” he noted.
Yesterday, Prime Minister Tun Dr Mahathir Mohamad, who was on a working visit to Japan, said he asked Japan to extend a yen credit to Malaysia, adding that his counterpart Shinzo Abe had agreed to consider the request.
The Prime Minister also plans to reduce Malaysia’s debt to China.
With Dr Mahathir’s good relationship with Japan, a line of credit in yen is seen as a positive given that the country is facing with a high public debt of RM1.09 trillion, said economists.
Following the Asian Financial Crisis in 1998, Malaysia sought aid from the Japanese Official Development Assistance (ODA) when the country ran into financial difficulties, according to AmBank Group chief economist Anthony Dass.
Dr Mahathir was then the Prime Minister .
“Aid was given in the form of ODA. We have been seeking financial aid from the Japanese government since the First Malaysia Plan and would have been exposed to a total of more than US$2.8bil (RM11.18bil) to help the process of modernising Malaysia,” he noted.
According to him, the latest move by the Prime Minister indicates the country could potentially run into difficulties due to the huge public debt and the need to reduce fiscal deficit to gross domestic product which stands at 2.8%.
Seeking credit assistance from Japan would likely continue though the Japanese ODA, he said.
The loans could come at a special rate of around 1% or even lower, depending on the type of projects. Those loans would be over a long period of 30 to 40 years.
“It could be used for economic development and to support small and medium-scale industries with the aim of ensuring the economy continues to grow at a sustainable pace, while not straining liquidity at the same time,” said Dass.Economists said that while the yen credit would help support economic activity, it would also provide room for the government to continue “cleaning up” the red files without causing any major dent on economic growth.
“On our end, we need to create the level of transparency, governance and reforms to ensure the past mistakes are not repeated and that the credit line is used in the best interest of the country,” Dass added.
“Also, we need to ensure there is no tolerance for lacklustre and complacent attitudes as it would raise the reputation risk and could signal that the country may risk defaulting on the credit line utilised.”
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