Rafizi: Malaysia at risk of subprime crisis with government mortgage sale

(MM) – Malaysia may fall into a similar financial crisis that plagued the US in 2007 if the federal government carries on with the unplanned sale of housing loans undertaken by its massive civil force, PKR’s Rafizi Ramli said today.

The opposition party’s strategic director dismissed Putrajaya’s defence of its sale of national assets and government mortgages to raise revenue, saying such actions smacked of desperation and were not how a sovereign nation’s economy should be carried out.

“If we allow the federal government to continue to do this unchecked, it’s a recipe for disaster, as what happened in the US,” Rafizi a new conference at PKR headquarters here.

“Disposable income is decreasing because of the price hikes. The probability that people will default on their monthly payments is higher,” added the Pandan MP.

The Finance Ministry said on Tuesday that the liquidation of national assets is common and openly conducted by governments to drive the economy.

But Rafizi pointed out that Putrajaya was forced to make an unplanned sale of national assets and government mortgages for RM1.4 billion and RM4.2 billion respectively, due to overspending and slower than predicted economic growth this year, as mentioned by the World Bank’s “Malaysia Economic Monitor: December 2013” report.

“It’s fine if it’s a strategic move, but this is a short-term measure, a desperate move to meet creditors’ requirements,” he said.

“At the moment, our credit and sovereign rating is already under threat. They may revise down our credit rating. The government being forced to dispose of assets is different from disposing of them in a planned manner,” added the opposition lawmaker.

The World Bank said that Malaysia was expected to meet its target deficit this year at 4 per cent of the GDP due to revenue from non-tax sources amounting to RM7.4 billion, including the sale of national assets and government mortgages, despite exceeding the budget for operating expenditure by 7.1 per cent, or RM14.3 billion.

Rafizi likened Putrajaya’s actions to that of people pawning their gold in desperate times.

“It’s a distress signal from Putrajaya,” he said.

He added that the threat of a financial crisis would be further exacerbated in the event of civil servants’ failing to service their housing loans, as the biggest buyers of their mortgages were likely government institutions, such as the Employees Provident Fund (EPF) and asset manager Permodalan Nasional Berhad (PNB).

Malaysia’s 1.3 million civil servants have faced less hurdles in seeing their loan applications approved, compared to their peers who fall into a similar income bracket in the private sector.

“If the bond holders are EPF or PNB, it’ll have an effect on their returns,” said Rafizi.

He said that government institutions were probably the largest buyers of such mortgages, as the recent dip in the value of the ringgit showed foreign investors’ declining interest in Malaysia.

“This is a national financial difficulty that will have an impact on day to day living,” said Rafizi.