Wednesday, October 22, 2008

RM5bn for Valuecap – 2 questions

Deputy Prime Minister and newly-minted Finance Minister Datuk Seri Najib Tun Razak announced the government will provide an additional RM5bn to Valuecap Sdn Bhd. This will double its size to R10bn. Valuecap is to use the money to invest in undervalued stocks and protect investments in government-owned companies.

Two questions: 1) Where is the money coming from? See my previous post – government revenues will be down with lower oil prices and a slower economy. So how is the government going to raise this RM5bn for Valuecap? and 2) Is this the best use for that RM5bn?

The Sun yesterday also reported “Malaysia not in financial crisis: Najib.” I agree we are not in a financial crisis – our banks are unscathed by the happenings elsewhere, and confidence in the financial system is so strong that the local AIG operations didn’t suffer any significant aftermath from its parent’s collapse, unlike in Singapore.

So, if we’re not in a financial crisis, there is no need to support the stock market. Where would the RM5bn funds go anyway? If Valuecap buys, someone is selling. And some of those selling will be foreigners who will happily take the money out of Malaysia. Malaysians will not enjoy the full benefit of that RM5bn.

I think that RM5bn is better spent locally on small-scale projects that employ local businesses and Malaysians. How about redoing the drains in my neighbourhood for a start? They’ve not been changed since 1976 when we moved in here. Some are crumbling. Putting money to work here benefits local contractors, workers and raw material suppliers. Similarly school facilities. Don’t spend millions on laptops which may or may not be effectively used. But how about upgraded buildings, lab facilities, furniture ….

PS I know I had said the next post would be next Wed. But I just had to flag this. Next post (barring any other major news breaks) will be Sunday, when I contribute to 51 ideas for a better Malaysia.


Anonymous said...

The RM5b is a loan from the EPF. While there is no doubt that a well performed stock market will have positive spillover effect to the public, EPF money is hard earned money of the working class, intended for their future use. Those who earned money from the stock market do not contribute their profit to EPF - they don't even need to pay tax on the profit because it is considered as capital gain.

Is it fair to the working class? What if it didn't work out well? Past performance is not an indication of future performance.

Anonymous said...

Not everyone has investment in the stock market and hence making the stock market look good doesn't mean that everyone will be happy. I have no doubt about the spill over effect but I believe there are other ways to create a better multiplier effect to support the economy.

The government should just go back to the basic and place less emphasis on the stock market because stock market is not the backbone and fundamental of the economy.

chapchai said...

In the unfortunate event that this money is lost will EPF members get the loan back with interest?

Anonymous said...

I would add another question notably "What happpened to the initial RM5bn?". First tranche of RM5bn was in Jan 2003 when KLCI was around 650 points. Even at this levels, the gains must be going somewhere. Why no transparency? Even GIC and Temasek has recently announced their asset allocation and profits/losses. How about ValueCap providing simialr transparency?