The Malaysian government is in the final stages of setting up a new state-guaranteed asset management company to head off defaults in the banking sector and to bail out troubled businesses reeling from the collapse in the financial markets battered by the coronavirus pandemic.
The plan for a new asset management company was broached at a meeting on Sunday between Finance Ministry officials and key representatives from the country's battered aviation sector, where a controversial merger between state-owned Malaysia Airlines (MAS) and AirAsia Group was also discussed.
The push for an asset management entity to deal with the country's mounting economic challenges was drawn directly from the government's experience in managing the fallout from the 1998 regional economic crisis, when it set up Pengurusan Danaharta Nasional to deal with non-performing loans in the banking sector.
"The need for another Danaharta is obvious, but the bailouts for businesses are going to be many times more compared with the previous crisis," said the chief executive of a large United States-based investment fund with extensive interests in the region.
Danaharta emerged as a prime mover in getting the country's seriously mauled banking system back on its feet following the 1998 financial crisis. The agency used a mixture of zero-coupon bonds and cash to purchase loans from the domestic banking system by paying sharp discounts of as much as 50 per cent on a loan that was either collateralised by property or shares listed on the stock exchange.
The warehousing of these troubled loans with Danaharta, which ceased operations in 2005, allowed financial institutions to resume lending to help revive the economy.
The creation of a new asset management entity will represent a major undertaking by Prime Minister Muhyiddin Yassin's new government as it con-fronts the unprecedented economic fallout from the Covid-19 pandemic.
The administration, which took shape earlier this month through defections and the intervention of the Malaysian King, has already come under sharp criticism this week over its plans to allow wage earners to dip into their personal pension savings to weather the current financial crisis.
Private economists say any failure on the government's part to provide direct financial assistance to ordinary Malaysians in the coming days, while pushing ahead with business bailouts, will surely add to growing public unease over the country's political and economic prospects.
The Malaysian Institute of Economic Research (MIER) offered a grim picture of what is to come.
In a statement issued late on Tuesday, the highly respected MIER said the economy will slip into a serious recession and contract by as much as 2.9 per cent this year, against the official estimate of gross domestic product expanding mildly by 2 per cent.
Household incomes are projected to fall by 12 per cent, which it estimated amounted to roughly RM95 billion (S$32 billion), and job losses are estimated to be in the region of 2.4 million positions, 67 per cent of which is unskilled labour, the MIER said.
The Malaysian Institute of Economic Research says the Malaysian economy will slip into a serious recession and contract by as much as this figure this year.
A substantial number of job losses are likely to come from the proposed forced merger of MAS and AirAsia.
The merger has been in the works for some months but has faced heavy opposition from several government officials, who have argued that AirAsia stood to gain more from such a corporate union.
However, financial officials close to the situation said the dynamics have changed sharply after shares of AirAsia's listed entities were battered in recent weeks, forcing the government to consider the drastic step of potentially nationalising the aviation sector.
"Whether the government goes that far (to nationalise) is not clear, but you cannot write off the prospect," said one CEO of a financial consultancy close to the ongoing negotiations.