Frankly Speaking: Aug 23-29, 2010

-A +A

More stimulus now is a bad ideaWhen private capital goes into shock, as it did in the global financial meltdown of 2007/2008, it is vital that the government pumps liquidity into the economy so business confidence is sustained. This maxim was proved right when the government introduced a RM67 billion stimulus package in 2009 to keep the financial chills away. Thanks to pump-priming and a loose monetary policy, Malaysia was able to weather the effects of the worst recession in a generation.
Now, as talk of a double dip recession in the global economy keeps surfacing, some quarters are calling for further stimulus to be injected. At a press conference after a National Finance Council meeting last week, Prime Minister and Finance Minister Datuk Seri Najib Razak correctly put paid to the idea.
Consider that the country’s total external debt stood at RM221.7 billion in 2Q2010, representing 30.5% of gross national income (GNI) and up slightly from RM219.3 billion in the previous quarter. That means a third of the nation’s wealth is consumed by debt, and this is clearly a heavy economic loss.
Underlining this is the fact that the federal budget deficit grew to 7% of GDP in 2009, after the stimulus package was introduced. Now, fiscal prudence must prevail before price inflation robs the economy of the gains made so far. This means that priority must be given to public expenditure that builds productive capacity, and a mean eye kept on big-ticket items that do not improve our competitive edge.
Another troubling fact is that government debt as a proportion of GDP stands at a high 52.9% this year. This was enough to raise fears of a sovereign debt crisis akin to Greece’s, which had a deficit of 12.7%.
It is encouraging that the government has pledged to bring debt as a proportion of GDP down to 49.9% by 2015. However, it may be rather difficult to discard a spendthrift lifestyle after getting used to living off the fat of the land.

Intriguing saga at TMCThe shareholding change at TMC Life Sciences Bhd is puzzling. Why would Peter Lim, an ex-remisier who is Singapore’s eighth wealthiest person, acquire a stake of up to 32.59% in a company whose  second largest shareholder holds 31.66%?
And the second largest shareholder is no lightweight. It is Berjaya Group’s Tan Sri Vincent Tan, who has been a longtime shareholder of TMC Life Sciences. Tan, a seasoned investor who has a knack for getting good value for his investments, is not someone who is known for his persistence with his investments.
The entry of Lim came about after the exit of TMC’s founder Datuk Dr Colin Lee Soon Soo and his brother, who disposed of their collective interest amounting to 25% at 52 sen each. There were other blocks that changed hands last week and eventually Lim emerged as the largest shareholder in TMC.
The question now is, what does he plan to do in TMC? And does he have a tacit understanding with Tan?
Lim’s investment raises more questions than answers as TMC is no ordinary company. It specialises in fertility treatments and has a hospital. Lim is no doctor, although he has interests in companies in the healthcare industry.
The deal will effectively allow Lee to leave TMC, if he chooses to do so. If that happens, where does that leave Lim and to some extent Tan? Certainly, there is always the option of getting a replacement, but it will not be the same.
TMC has plans to expand outside Malaysia. And for expansion, it needs capital. Maybe this is Lim’s role. Perhaps, his deep pockets will be the key to TMC’s expansion.
But even if that were the case, wouldn’t Lim have to work with the second largest shareholder?

Same cooks, same problemsA lot has been said by the regulators in the past few weeks about the country’s energy needs. Both the Energy Commission and the Energy, Green Technology and Water Ministry have said the peninsula needs at least another 2,000mw post-2015 to deal with its needs.
But is this a case of those not in the know jumping the gun yet again? Is this attempting to predict the future yet again?
It was a similar scenario more than a decade ago when the government gave out licences to independent power producers to stave off another nationwide blackout, like the one in 1995.In the end, it was a case of too many cooks, with more power being generated than required. The bill for the blunder, of course, went to Tenaga Nasional Bhd.
This time round, even though almost all agree that the power sector is likely to face shortages in the future, it appears that no lessons have been learnt. It should also be kept in mind that although the power from the Bakun Dam is not going to make it to the peninsula, the high voltage undersea cable project is still not off the table.
This means that when Sarawak Energy completes its plant-up programme, there is a chance that the peninsula could still have cheap power. Why not look into this as a possible long-term solution before doing a massive expansion?
Tenaga should be allowed to continue with the first 1,000mw before any additional capacity is planned. Allowing more than that will once again be putting the cart before the horse, perpetuating the problems the industry already faces.
If it turns out that Tenaga has miscalculated, then the national power producer is the one to bear the brunt of it. But the regulators shouldn’t be doing the planning because at the end of the day, it is not they who will pay the bill.

This article appeared in Corporate page of The Edge Malaysia, Issue 820, Aug 23-29, 2010