I read a Bernama business news item today that quoted Malaysia’s second finance minister Nor Mohamed Yakcop as saying that the country will not be affected by the subprime crisis in the United States.
“As far as I know none of our banks are affected and have no direct exposure to the US subprime market. In our case the banks should do well because we are consumption led, we have the EPF scheme and the banks would be the prime beneficiary of this consumption led growth,” he was reported as saying.
Well, I don’t think it is so simple. Aren’t we all part of the global economy? Time has shown us again and again that we can never be insulated by events halfway around the globe.
The effect may not be felt immediately but it will hit us. It will not be the subprime crisis alone. Right now, the general feeling of economists is that the United States is heading for recession.
Earlier this week, the Federal Reserve made its interest rate cut in an attempt to prevent a housing market downturn there. It’s a real scary scene because the US credit crisis can easily spread to other countries. Call it what you like: domino effect, snowballing. Only last weekend, the Bank of England had to intervene in the run on Northern Rock, a British bank. Last month, the German government had to bail out two of its banks.
In the short term, the rates cut stabilised the fall in the Dow Jones and in turn, the Bursa Malaysia had also snapped our of its downward trend which began after the Budget was presented by the Prime Minister.
But the cut in the US rate has its own critics too. Some say that it was a short-sighted, knee-jerk move and it would affect the free market there. These are the people who would prefer to see the market readjust on its own without intervention, even if it brings on recession there.
And who says that we will not be affected if the world’s biggest economy goes into recession? I say it was a very simplistic statement by the second finance minister. He shouldn’t be dismissing so easily the effect of the US subprime crisis on our own economy.