KUALA LUMPUR: The eurozone’s €1 trillion (RM4.4 trillion) rescue package is a short-term fix that has to take place but there are deeper problems with global finance that must be addressed, said Datuk Seri Nazir Razak, CIMB Group Holdings Bhd group chief executive.
“This is a short-term fix that has to take place. In a nutshell, it is about setting up firewalls outside apart from Greece. That is the basic framework. Those firewalls are to protect other economies and the European financial institutions.
“I don’t know whether [€1 trillion] is enough or not. But what I would say that even if it is enough, it is a temporary fix,” Nazir told a press conference during the inaugural CIMB Asean conference.
Yesterday, the eurozone reached a consensus to boost its bailout fund to about €1 trillion in order to protect larger economies like Italy and Spain from the market turmoil that has already pushed three countries (Ireland, Portugal and Greece) for bailouts. The crucial plan is also to reduce Greece’s debts and provide the country with more rescue loans so that it can eventually dig out from under its debt burden.
Nazir is of the opinion that there are deeper global finance problems that must be tackled. “There are far greater questions about global finance architecture that need to be addressed. “Tun Dr Mahathir Mohamed spoke about this in 1998. The Asian financial crisis (1997/98) wasn’t good enough to get them to fix it. The fall of Lehman Brothers in the 2008 financial crisis wasn’t good enough to fix it. So are they going to fix it before you really have the mother of all crises? That is a fundamental question to me,” he said, adding that it is largely a political issue.
“Today the problem is that the Western political system [leads] governments to compound the problem. If you want to stay in power, borrow some more and spend. And it [the political ecosystem in the West] also punishes governments that try to fix the problem. You bring in austerity measures, you get unpopular and you get kicked out.
“There is a political issue behind these global financial architecture issues. So it’s a very big problem but my take on it is that the world has to deal with this. “The situation now is quite severe. People on the streets are questioning capitalism. How much more dire straits do you need before you deal with this?” asked Nazir.
On how he views China in this situation as the country has bought quite a lot of treasury bonds, he said, China has to be part of the big solution since it is the largest creditor. Asked if Malaysia is ready for another financial crisis, Nazir said the country is fundamentally strong like many of the Asian countries, as they had gone through the Asian financial crisis.
“Our reserves and banking system are extremely strong to weather the financial crisis. “Then the next question is when it becomes an economic crisis in a sense of sharp drop in exports, etc. The situation then would be potentially slow growth but manageable obviously.
“But at the same time one also has to bear in mind that Malaysia is in quite a unique position as what the government has reflected on is a number of years of sub-optimal growth and a lot of quick wins in order to fuel private investments.
“So in terms of investment Malaysia is quite fortunate. If the ETP is successful and we do get a lot of investments then this could significantly mitigate the external factor,” he added. Nazir also suggested that perhaps it is time to have a new version of the zone of peace, freedom and neutrality (Zofan) in the light of the current global financial crisis and potential impact on Asia and Asean.
(Zofan came about in the 1970s when Asean leaders decided to take a stand of neutrality in the light of the cold war). “Asean should get together to talk about the need for collective action to protect Asean countries against the forces of global financial crisis. Then you could actually have strengthened the whole basis of Asean where people can see the merits of coming together as one region and how it benefits or protects them,” Nazir said.
Asked on how to further integrate Asean, he explained in economic integration governments could only provide the frameworks but it is the businesses that must create value and make it real.
“They (the governments) can bring down tariffs but we are the ones who import and export. I do feel that Asean businesses are not engaged enough… don’t fully understand the benefits,” said Nazir, adding that setting up the Asean Business Club (which is to be launched today) is important for businesses to appreciate the benefits available to Asean companies.
The CIMB Asean conference attracted the participation of 500 fund managers and investors and 23 companies from the region.