Speechs in the year
Tarikh/Date 	: 	25/08/86 

Yang Berhormat Encik Daim Zainuddin, Menteri Kewangan; Yang Berbahagia Tan
Sri Basir Ismail, Pengerusi Persatuan Bank-Bank Dalam Malaysia; Yang
Berbahagia Dato' Jaafar Hussein, Gabenor Bank Negara; Dif-dif
kehormat; Tuan-tuan dan Puan-puan yang dihormati sekalian. Saya
mengucapkan berbanyak terima kasih kepada Ahli Jawatankuasa Penganjur
Majlis Makan Malam Tahunan Institusi-Institusi Kewangan Malaysia, kerana
menjemput saya dan isteri saya ke Majlis Makan Malam ini.

Ladies and Gentlemen, 

2. This is the fifth occasion I have been invited to address the annual
gathering of bankers and financiers of the nation. I have invariably used
the gathering to make critical observations which I believe have caused
some people a fair degree of discomfort. I wish I could be more genial but
I believe we are not here to scratch each others back. We are here to
seriously review our roles and correct flaws. Glossing over our faults in
the interest of comfort can be done elsewhere. This is not to say that
there is nothing praiseworthy that you as bankers have done. I realise the
contribution you have made to the development of our country. But there is
still much to do, especially now. Now that the General Elections are over
and wishful thinking of some quarters has been proven wrong, we should all
turn our attention to the all important tasks of governing and the
restoration of the economy of the country.

3. We are going through a rough patch, made worse by deliberate attempts
by some groups to undermine the efforts of the Government to achieve
recovery. One of the reasons why elections were held almost a year earlier
is to demonstrate that the rumours that the Government has lost the
support of the people is false. One would have thought that the
overwhelming victory of the Government party would have put paid to such
rumours. But the rumour mills are still busy churning out the most
fantastic myths. The latest one is that the Prime Minister is going to
resign. I am not so daft that I should lead my party to victory in order
to resign.

4. But rumour-mongers are not the only ones to try and subvert the economy
of this country. During the Raya Holidays when the banks were closed a big
foreign-owned bank tried to undermine the ringgit. Predicting without any
basis that the ringgit would be devalued by 18%, they sold forward some
100 million ringgit. What followed, you as bankers already know. But it is
shocking that banks should try to make a fast buck at the expense of a
country struggling to recover from an economic blight. This is the second
time that this trick has been tried. When Bank Bumiputera lost money,
crooked Malaysian bankers were rightfully castigated. But silence will
greet the manipulations by some of the worlds powerful bankers. Those who
went to the rescue of this bank should ask themselves whether they were
doing a good turn or they were abetting unethical practice.

5. I mention rumour mongering and banking ethics because they are
additional irritants which this country has to tackle. They complicate the
strategies and efforts that have to be put in to overcome the economic
problems of this country. As bankers you must be aware of the ease with
which a run on the bank can be started by rumours. You should therefore be
more appreciative of the problems of the Government in its efforts to
resuscitate the economy.

Ladies and Gentlemen, 

6. The Malaysian economy is highly dependent on exports of commodities. At
one time it was thought that diversification would solve the problem of
fluctuating commodity prices and the lack of control over prices exercised
by producer countries. But now that panacea is no panacea. Commodities can
go down in price together and they have done so. A structural change has
taken place in the commodity trade so that not only have the prices
plunged severely and together but they are not ever going to recover to
the old levels. New technology has changed permanently the linkages
between commodities and manufactured products.

7. For Malaysia this collapse of prices has been aggravated by the
developed countries' manipulation of exchange rates in order to balance
their trade. The prudent borrowings by Malaysia have now been inflated so
highly that our financial resources are seriously strained in order to
service loans, particularly those in Japanese Yen.

8. The effect of the collapse of commodity prices is far-reaching. Apart
from widespread unemployment, there is less money to spend even by the
generally well-to-do. Economic growth which has been taken for granted by
all Malaysians has now probably grounded to a halt. There has been very
little new investment from domestic as well as foreign sources.

9. For the banks this means debts cannot be serviced. Banks like to think
of fixed returns on their loans. They cannot accept that when their client
lose they should share in the losses. Their natural reaction is to make
their clients pay up somehow even if bankruptcies would be the result.

10. The attitude is right and proper. Banks do not lend their own
money. They lend money belonging to their depositors. They have a duty to
safeguard their depositor's money. If they don't they will lose their
credibility and can no longer enjoy the custom of their depositors.

11. The Government too is concerned that banks continue to enjoy the
confidence of the public. The only way they can do this is to ensure that
the money the depositors keep with them are safe.

12. But how safe is forcing borrowers to go bankrupt? Borrowers who go
bankrupt obviously cannot pay what they owe the bank. Since they cannot
pay, it follows that the bank will lose money. What happens to the
depositors money then? If all or a majority of the big borrowers are
unable to pay and become bankrupt, what happens to the banks, what happens
to the depositors and what happens to the economy? 

13. Some borrowers have been very unwise or have played around. They
deserve to be made bankrupt because there is no way they can pay back. But
some are in a bad way through no fault of their own. A declining economy
due to falls in commodity prices and reduced export cause serious
cash-flow problems not only to traders in commodities but to all
businessmen. Property developers, car dealers, retailers of all kinds,
contractors, building material suppliers all suffer during a
recession. They all borrow and if their loans are all recalled, the
economy would suffer disastrously. There will be unemployment on a massive
scale. Indeed the Government would get so little revenue that it may not
be able to pay salaries.

14. The bankruptcy route to safe-guarding the money of depositors in the
end will save them nothing. Indeed they will lose more than their savings.

15. All these must be obvious to all bankers. It is really superfluous for
a medical doctor to be repeating them here. I am not for one moment going
to suggest that bankers do not recall loans. They should. But they should
be judicious.

16. Malaysia is not teeming with entrepreneurs and good managers. We
cannot annihilate the few that we have. We have to give them a chance. Not
to all, of course. But those of them who show initiative and who honestly
try to repay when they can - they should be helped. They should not have
the carpet pulled from under their feet.

17. It is not they that we really want to save. These people contribute to
economic growth, to employment and to the coffers of Government. It is the
latter that we are truly concerned with. Indeed even the banking industry
is dependent on these people. If they go under we are all going to go
under sooner or later.

18. The Government has been urged admittedly by the business people to
amend the Companies (Amendment) Bill 1986 in order to provide for a
formula to save ailing businesses threatened by debts. We have drafted the
amendment after studying similar legal provisions in America known as the
chapter eleven provision of the U.S. Bankruptcy Code, and in Europe and
Singapore. In its present form the bill is probably not quite
acceptable. But there is plenty of time before it is debated in
Parliament. The bankers can study it and make suggestions for amendments
where necessary. But let us not reject it out of hand.

19. We need to help the ailing companies because it is in the national
interest to do so. But obviously the banks cannot move in and manage all
these companies. There are not enough people in the banks to sit on all
the boards of these companies. Certainly the banks cannot oversee directly
the affairs of the numerous small companies which are also in trouble. We
have a big problem here. We cannot shrink from it. We have to devise ways
of tackling these problems.

Ladies and Gentlemen, 

20. The economy of the world has changed. We no longer trade in goods and
services. The biggest trade is now in currencies and shares. Apparently
one can buy and sell currencies or shares without paying the slightest
heed to their basic functions. As a layman I am lost. $1/- worth of shares
are sold for $25/- one day and a few months later may be worth only
40$. The performance of the company concerned or its assets apparently
bear no relation to the market value of the shares.

21. Worse still non-existent shares can be sold and bought at prices
determined by rumours and imaginary happenings. As a result a country can
lose billions of dollars for no very good reason. Of course, it can also
make billions of imaginary dollars for the same no good reason.

22. Excited by the possibility of becoming millionaires overnight through
playing the stock market, serious business is almost forgotten. Who cares
about manufacturing or trading when selling non-existent shares in a day
can bring in more income than a year of real business.

23. Now comes the co-operatives. The Government has been very careful
about listing public limited companies. They must have a track record
before they can be allowed to tap funds from the public. But the co-ops
can tap the same source without having any experience in business or
financial management.

24. The Government must not regulate too much. But if public listing is as
easy as starting co-ops, one wonders what the picture would be like
today. As it is the co-ops have demonstrated that there is plenty of
capital available in Malaysia. Unfortunately they have been amassed by
unscrupulous people. Not all of course. But a sufficient number of crooks
have apparently got into the act.

25. As usual the Government is being asked to absorb the losses. Everybody
cares about the poor depositors. But the usual champions of public moral
have not let out a whimper about the people who have committed obvious
fraud. In other cases they express a desire to see the culprits brought to
book irrespective of the cost to the people. What is the reason for this
new attitude one wonders.

26. From the foregoing it is manifestly clear that this country faces
serious economic and financial problems. Can we overcome them and get back
on the road to economic growth and progress?.

27. The recent election should be an indicator of the resilience and
commonsensical attitude of Malaysians. Despite deliberate efforts by
certain groups to undermine the Government and the stability of this
country, the people of Malaysia reelected the Government parties with a
huge majority-signifying a vote of confidence in Government policies and
actions. Of course, the disappointed analysts are saying that the losers
are actually the winners. But then these people have to try to regain
their lost credibility.

28. What is important is that the people want the stability and pragmatic
approach of the Barisan Nasional Government. Having nailed the lies that
the Government lacks support, it is now possible for the Government to
attend to the economic ills of the country with confidence.

29. Already the reelection of the Government has removed the uncertainties
which undermine economic activities. In the prevailing stability the
Government is free to plan and implement various measures to resuscitate
the economy.

30. We have already identified weaknesses in the financial
sectors. Additional powers have been given to Bank Negara to deal with
certain situations in the market. Growth is to be stimulated by making
finances available for the sectors which have potentials including housing
and road construction.

31. New incentives have and will be provided for investments. Much
political controversy was generated by my statement that the New Economic
Policy will be held in abeyance. The fact is that the NEP is based on
growth and there are many facets to the NEP.

32. Obviously if there is no growth there will be nothing to
distribute. If certain conditions are found to inhibit growth at a given
time, it follows that those conditions will have to be modified to remove
the inhibitions. In the case of work permits for example, factors such as
amount of capital brought in, export-orientation and transfers of skills
programme will be taken into consideration. We shall be more flexible in
the issuance of work permits according to the needs of the particular

33. Secondly the NEP is not just equity distribution. It is equally
important that job opportunities are also evenly distributed. In a
situation where unemployment is rampant it is invidious to protect the
interest of certain categories of investors at the expense of unemployment
for workers. We will, therefore, modify the NEP conditions regarding
equity in order to implement the NEP stipulations regarding
employment. The Government is studying very specific conditions so that
investors will not be left in doubt as to when and how we are prepared to
forego equity participation in favour of jobs for Malaysians.

Ladies and Gentlemen,

34. The Government had adopted the Look East Policy in order to instill
Eastern work ethics but its detractors have been able to sabotage the
efforts. Consequently Malaysian productivity has only improved
slightly. We now want to be more positive in instilling Eastern work
ethics. Training camps for youths and workers will be set up by the
Government in order to instill the right attitude towards work and
employment. They will know their rights but they will also be made
conscious of their obligations not only to their employers but also to
society and the nation.

35. The managers and executives need also to be trained so as to upgrade
their ethical values. Much of the scandals and embezzlements by executives
is due to a 'get-rich-quick' mentality which they have
developed. Executives should not regard this as a slur on their
character. I am not saying that all of them are untrustworthy. But the
fact is that every time we look closely we see all kinds of activities
unworthy of people entrusted with responsibilities. The Government will
take care of the public sector executives. The private sector needs to do
the same.

36. The Government for its part have cut down expenses to the bare
minimum. If we spend it is because we want to stimulate the
economy. Obviously if the Government ceases to expand money during
economic stagnation, growth will not take place and the income of a lot
people will be adversely affected. It is hoped that the kind of carping
criticisms which only hampers recovery will cease. We, the Government, can
and we do. Those who cannot should confine themselves to teaching.

37. These are but some of the measures we are taking to revive the economy
and stabilise the financial health of the country. Already we are seeing
results. We are in a better position to sit out this recession than most
other countries. The important thing is not that prices should recover but
the terms of trade should be more equitable. Eventually the terms of trade
will have to adjust. Our not buying foreign goods has already given us a
favourable trade balance despite poor exports. The developed countries
will lose if they skew the terms of trade further. However, if all prices
go down together, the consequent revaluation of all currencies would not
be bad for anyone. Even in Malaysia falling prices would harm no one if
the banks can accommodate and adjust.

38. And so finally we come back to the role of the banks. They cannot
function in a vacuum. Even a bad economy is better than no economy at
all. So the banks should give careful consideration to measures to help
the survival of their clients. In the short term ensuring that you get
back your money may be good. In the long term it may drag you down.

39. Similarly the interest rates must go down. We cannot function if our
interest rates are double those of our nearest competitor. If we say the
prime rate is so much, that should be the prime rate. It is useless to
have an official prime rate which nobody gets.

Ladies and Gentlemen, 

40. The Government expects the banks in Malaysia to help the economy to
recover. I have outlined some Government measures and the possible
measures that banks could consider. There will be others you can think
of. It is up to you.

41. Finally on behalf of myself and my wife, I would like to thank the
Association of Banks of Malaysia for inviting us and giving me a forum to
speak on a subject quite unrelated to medicine.

Thank you