1. I wrote recently on the financial problems of Europe at the invitation of the Financial Times. Of course it is not erudite as would those who studied economics and finance would write. Strangely some people agreed with my views.
2. During the financial crisis of 1997-1998 I was forced to read up on the subject. Today I know a bit more about money and finance. But the most important thing about money which everyone of us knows without need to be an economist or financial expert is that if you spend more money than you have you will be in trouble. Simply put, if you have one hundred Ringgit but you spend one hundred and ten Ringgit, you will be in debt to the amount of ten Ringgit. But if you have 100 RM and spend 90 RM you will not face trouble.
3. No big deal. But when you have a million or a billion, your 10% overspending will put you in debt to a level which you may not be able to pay and the person you owe money to may not be so ready to forgive.
4. Greece is now bankrupt. The reason is simple enough, Greece overspent. It borrowed more money than it is able to pay. The sums are big, running into billions of Euro. The creditors cannot forgive.
5. Why did Greece borrow beyond what it could pay. Well, Greece is a member of the European Union, a collection of developed countries. So it must live by the standards of the European Union. It must practice the welfare state principles of the European countries.
6. The revenue of the Greek Government was not enough to support the high standards of living, the high pay, pension and other benefits of the Europeans. So the Government borrowed money to cover the high salaries, short working hours and days, early pensions, unemployment benefits and other perks that European Governments offered their workers.
7. The private sector had to follow the Government, which results in raising the cost of production until the products of their labour are no longer competitive and either they earn less profits or became unsaleable altogether.
8. Loans unfortunately have to be paid when matured. When the loans amounting to hundreds of billions cannot be paid, the Greek Government, the borrower, must be made bankrupt.
9. Somewhere in the story of Greece, there is a lesson for other countries. The lesson as I pointed out earlier is very simple. When you spend more than the money you have, you will become a debtor. And when you cannot pay your debt you will become bankrupt.
10. Once upon a time when I was Prime Minister I had the responsibility of approving the budget before it was presented to Parliament.
11. Roughly I knew I had to make provision for operation, for debt servicing and for development. Despite allegedly being profligate, I managed not to overspend. In fact the reason why we did not go down during the financial crisis was because we had no big debts to pay.
12. Of the three elements of the Government budget, only development spending can be reduced. Debt servicing and operations (salaries, pensions and other statutory expenditure must be paid on time if we are not going to default). If we increase salaries too much, and we have more than a million Government employees, there is a likelihood that we will not have enough for even minimal development.
13. We may announce a big development budget but there will simply be not enough money to implement them.
14. We may borrow. But there is a limit to borrowing. When you borrow the debt servicing charges will increase. A point will be reached when we will not be able to service debts or pay the lender when the loans become mature.
15. All these elementary things must be known to the Government. So we will not become like Greece. But people do not seem to know about this. Demands for pay increases, for higher non-taxable pensions, for abolition of tolls ( the Government has to make up for the loss of revenue by toll concessionairs), more holidays, more subsidies etc will continue to be made.
16. The opposition, wishing to become popular and win elections will always support these demands. Not having to be responsible for the overspending and the possible bankruptcy of the nation, it is easy for them to support. I hope the people will see through their lack of a sense of responsibility to the nation.
17. The incumbent Governments cannot be irresponsible and try to be popular always. The people must understand this.
18. When a demand is made the Government has to examine the implication not only to the Government in terms of its capacity to meet the demand, it must also consider the effect on the whole nation. If the Government cannot approve the demand it must be because it does not want to bankrupt the nation.
No comments:
Post a Comment