Malaysian currency hardest hit in Asia by Greek crisis and political conerns, Fitch boost short-lived!


PETALING JAYA: The simmering economic crisis in Greece and weakness in China continued to roil financial markets across the region, with the ringgit being the hardest hit among Asian currencies.

Sentiment on the ringgit was further compounded by rising domestic political risk, lingering concerns about 1Malaysia Development Bhd’s massive debt problems and lower oil revenue.

The local unit fell to a 16-year low yesterday at 3.809 against the US dollar – a level last seen before the exchange rate was pegged in 1998.

It was down 8.1% year-to-date and is currently the worst performing currency in Asia.

Independent economist Lee Heng Guie said Greece might be a small economy but the contagious implications on other weaker links in the eurozone could spook investors if Greece were to be forced out of the bloc.

“Recovery in the eurozone is still weak and people are worried that a possible fallout from Greece may impact the region’s economy,” he said.

Another economist said the depleting international reserves indicated that Bank Negara had carried out some currency stabilising activities.

A source suggested that Bank Negara may have sold more than US$1bil yesterday to shore up the ringgit, which had dropped to an intra-day low of 3.814 in early trade.

The country’s international reserves stood at US$106.38bil as at end-May, slightly higher than US$105.95bil at end-April.

“Our current account is still in surplus mode, so a twin deficit is unlikely.” the economist said, adding that the reserves level should be sustainable at above US$100bil.

“Bonds and the Malaysia Government Securities (MGS) have continued to thrive. Foreigners still believe in the country’s long-term outlook, as they remain the biggest bondholders,” she said.

Foreign investors had been increasing their holding of MGS up until the end of May this year, according to a recent estimate by Standard Chartered Global Research.

As at end-May, foreign ownership of MGS stood at 47%, or US$43bil of the total outstanding of US$92bil.

But May marked a significant turning point, both for the ringgit and the stock market.

MIDF Research, in a recent note, observed that foreign investors had been net sellers of local equities in the past two months. It said, June was the worst month for Bursa Malaysia since 2014, as foreign outflows totalled more than RM3bil.

This increased the cumulative net foreign outflow for the year to RM9bil, significantly higher than the RM6.9bil that had left the market in the whole of 2014.

“The Greece NO vote means uncertainties ahead and there will likely be a global sell-off in equities in the immediate term,” MIDF Research said.

“However, the Greece outcome should have been expected and priced in,” it added.

But the worst, however, may not yet be over for the ringgit.

“Fitch’s revision of Malaysia’s outlook seemed to be short-lived because of the negative sentiments. Investors don’t like uncertainties,” one analyst said.

A foreign report last Friday had alleged that there was investigative evidence of money from state fund 1Malaysia Development Bhd being channelled to what was believed to be Prime Minister Datuk Seri Najib Tun Razak’s personal accounts. Najib has denied the allegations and is looking at legal options against the publisher.

Meanwhile, the economy is still absorbing the impact of the goods and services tax while the country’s biggest trade partner, China, shows signs of slowing down.

“We expect a worse third quarter, as we foresee weaker economic numbers,” the analyst said.

By Ng Bei Shan The Star/Asia News Network

Ringgit hit by Greek crisis

Currency hit by Greek crisis

Currency plunges to 16-year low against US dollar

PETALING JAYA: Uncertainties in Greece have hit Asian stock markets and currencies, with the ringgit taking the brunt of it amid renewed political concerns within the country.

The ringgit hit a 16-year low of 3.8142 against the US dollar during intra-day trade before settling at 3.809 against the greenback at 5pm.

It broke the crucial 3.80 level for the first time since the US dollar peg was removed 10 years ago.

The ringgit had been pegged at 3.80 against the dollar since 1998 at the height of the Asian Financial Crisis to 2005. Closing lower by 0.78% against the dollar yesterday, the ringgit was the biggest loser among Asian currencies.

Malaysia’s stock market took a heavy beating, with the benchmark FBM Kuala Lumpur Composite Index falling 17.19 points, or 1%, to close at 1,717.05 points.

Other Asian currencies and equity markets also closed lower yesterday due to capital outflow after Greece on Sunday voted against further austerity to qualify for new bailouts to help its ailing economy.

Greece’s Finance Minister Yanis Varoufakis resigned and the country is now at risk of exiting the single-currency eurozone, raising questions about the future of the 17-nation region.

Greek voters overwhelmingly rejected the bailout terms demanded by international creditors, with official figures from Sunday’s referendum in that country showing 61.31% voting “no” and 38.69% voting “yes”.

In Malaysia, the impact of capital outflow was worsened by renewed political uncertainties after The Wall Street Journal’s (WSJ) report on July 3 alleging that about US$700mil (RM2.6bil) from 1Malaysia Development Bhd (1MDB) had ended up in Prime Minister Datuk Seri Najib Tun Razak’s personal bank account .

The allegations had resulted in some quarters calling for Najib to take leave and be investigated.

1MDB is being ­investigated by the Public Accounts Committee while a special task force involving Bank Negara, MACC and the police are looking into WSJ’s claims.- The Star

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Sue or don’t sue WSJ’s report: RM2.6bil was moved to PM Najib Tun Razak’s bank accounts?


KUALA LUMPUR, Malaysia—Malaysian investigators scrutinizing a controversial government investment fund have traced nearly $700 million of deposits into what they believe are the personal bank accounts of Malaysia’s prime minister, Najib Razak, according to documents from a government probe.

The investigation documents mark the first time Mr. Najib has been directly connected to the probes into state investment fund 1Malaysia Development Bhd., or 1MDB.

Mr. Najib, who founded 1MDB and heads its board of advisors, has been under growing political pressure over the fund, which amassed $11 billion in debt it is struggling to repay.

The government probe documents what investigators believe to be the movement of cash among government agencies, banks and companies linked to 1MDB before it ended up in Mr. Najib’s personal accounts. Documents reviewed by The Wall Street Journal include bank transfer forms and flow charts put together by government investigators that reflect their understanding of the path of the cash.

The original source of the money is unclear and the government investigation doesn’t detail what happened to the money that went into Mr. Najib’s personal accounts.

“The prime minister has not taken any funds for personal use,” said a Malaysian government spokesman. “The prime minister’s political opponents, unwilling to accept his record or the facts, continue to try to undermine him with baseless smears and rumours for pure political gain.”

Mr. Najib has previously denied wrongdoing in relation to 1MDB and has urged critics to wait for the conclusion of four official investigations that are ongoing into 1MDB’s activities.

Investigators have identified five separate deposits into Mr. Najib’s accounts that came from two sources, according to the documents viewed by the Journal.

By far the largest transactions were two deposits of $620 million and $61 million in March 2013, during a heated election campaign in Malaysia, the documents show. The cash came from a company registered in the British Virgin Islands via a Swiss bank owned by an Abu Dhabi state fund. The fund, International Petroleum Investment Co., or IPIC, has guaranteed billions of dollars of 1MDB’s bonds and in May injected $1 billion in capital into the fund to help meet looming debt repayments. A spokeswoman for IPIC couldn’t be reached for comment. The British Virgin Islands company, Tanore Finance Corp., couldn’t be reached.

Another set of transfers, totaling 42 million ringgit ($11.1 million), originated within the Malaysian government, according to the investigation. Investigators believe the money came from an entity known as SRC International Sdn. Bhd., an energy company that originally was controlled by 1MDB but was transferred to the Finance Ministry in 2012. Mr. Najib is also the finance minister.

The money moved through another company owned by SRC International and then to a company that works exclusively for 1MDB, and finally to Mr. Najib’s personal accounts in three separate deposits, the government documents show.

Nik Faisal Ariff Kamil, a director of SRC International, declined to comment. Mr. Kamil had power of attorney over Mr. Najib’s accounts, according to documents that were part of the government investigation.

A 1MDB spokesman said, referring to the transfers into Mr. Najib’s account: “1MDB is not aware of any such transactions, nor has it seen any documents to this effect.” The spokesman cautioned that doctored documents have been used in the past to discredit 1MDB and the government.

For months, concerns about 1MDB’s debt and lack of transparency have dominated political discussion in Malaysia, a close ally of the U.S. and a counterweight to China in Southeast Asia.

When he founded 1MDB in 2009, Mr. Najib promised it would kick-start new industries and turn Kuala Lumpur into a global financial center. Instead, the fund bought power plants overseas and invested in energy joint ventures that failed to get off the ground. The fund this year has rescheduled debt payments.

The Journal last month detailed how 1MDB had been used to indirectly help Mr. Najib’s election campaign in 2013. The fund appeared to overpay for a power plant from a Malaysian company. The company then donated money to a Najib-linked charity that made donations, including to local schools, which Mr. Najib was able to tout as he campaigned.

“We only acquire assets when we are convinced that they represent long-term value, and to suggest that any of our acquisitions were driven by political considerations is simply false,” 1MDB said last month.

The four probes into 1MDB are being conducted by the nation’s central bank, a parliamentary committee, the auditor general and police. A spokeswoman for Bank Negara Malaysia, the central bank, declined to comment. Malaysia’s police chief and a member of the parliamentary committee also had no comment. The auditor general said this week it had completed an interim report on 1MDB’s accounts and would hand it to the parliament on July 9.

The prime minister is facing increasing pressure over 1MDB. The country’s longest-serving prime minister, Mahathir Mohamad, who left office in 2003, publicly has urged Mr. Najib to resign.

This week, Malaysia’s home minister threatened to withdraw publishing licenses from a local media group, citing what he said were inaccurate reports on 1MDB.

The $11.1 million of transfers to Mr. Najib’s bank account occurred at the end of 2014 and the beginning of 2015, according to the government investigation. Among the companies that investigators say it passed through was Ihsan Perdana Sdn. Bhd., which provides corporate social responsibility programs for 1MDB’s charitable foundation, according to company registration documents. Attempts to reach the managing director of Ihsan Perdana weren’t successful.

Documents tied to the transfer said its purpose was for “CSR,” or corporate social responsibility, programs. The Wall Street Journal examination of the use of funds tied to 1MDB for Mr. Najib’s election campaign showed that the money was slated to be used for corporate social responsibility programs as well.

The government probe documents detail how investigators believe SRC International transferred 40 million ringgit on Dec. 24 last year to a wholly owned subsidiary. This company on the same day wired the money to Ihsan Perdana, according to the documents. Two days after receiving the money, Ihsan Perdana wired 27 million ringgit and five million ringgit in two separate transfers to two different bank accounts owned by Mr. Najib, the government documents show.

In February, 10 million ringgit entered the prime minister’s account, also from SRC International via Ihsan Perdana, the documents show.

The remittance documents don’t name Mr. Najib as the beneficiary but detail account numbers at a branch of AmIslamic Bank Bhd. in Kuala Lumpur. Two flow charts from the government investigation name the owner of these accounts as “Dato’ Sri Mohd Najib Bin Hj Abd Razak,” the prime minister’s official name. A spokesman for AmIslamic Bank declined to comment.

In another transaction, Tanore Finance, the British Virgin Islands-based company, transferred $681 million in two tranches to a different account at another Kuala Lumpur branch of AmIslamic Bank. The government probe said the account was owned by Mr. Najib, according to the documents.

The transfers came from an account held by Tanore Finance at a Singapore branch of Falcon Private Bank, a Swiss bank which is owned by IPIC, the Abu Dhabi fund, according to the documents. A spokesman for Falcon Private Bank declined to comment.

The $681 million was transferred to Mr. Najib’s accounts on March 21 and March 25, 2013, the government documents show.

By Tom Wright at tom.wright@wsj.com and Simon Clark at simon.clark@wsj.com

Attorney General says task force uncovered documents during probe of investment fund 1MDB

KUALA LUMPUR, Malaysia—Malaysia’s attorney general said an official investigation into a troubled state investment fund has uncovered documents related to allegations that money was transferred into the personal bank accounts of Prime Minister Najib Razak.

A task force comprising the central bank, the national police and the nation’s anticorruption agency uncovered the documents during a probe of 1Malaysia Development Bhd., or 1MDB, Abdul Gani Patail, the attorney general, said Saturday.

Mr. Abdul Gani said that on Friday the task force had raided the offices of three Malaysian companies linked to 1MDB that allegedly were involved in the transfer of funds to Mr. Najib’s accounts.

“I confirm that I have received documents from the special task force related to 1MDB, including documents related to the allegations of channeling of funds to accounts owned by Prime Minister Najib Tun Razak,” Mr. Abdul Gani said.

The Wall Street Journal reported on Friday that Malaysian government investigators looking into 1MDB’s activities had traced almost $700 million in deposits into what they believe are Mr. Najib’s personal accounts. The investigation documents, reviewed by the Journal, didn’t provide the original source of the money or what happened to the cash after it allegedly entered Mr. Najib’s accounts.

Mr. Najib on Friday said the allegations were an attempt by his political adversaries to smear his name. His office declined to comment on specific allegations referring to the alleged money transfers.

The government investigation, reported first by the Journal, marks the first time Mr. Najib has been directly connected to probes into 1MDB, which owes over $11 billion to banks and bondholders. A person familiar with the government investigation said the documents had been given to the attorney general several weeks ago.

In response to the Journal report, Deputy Prime Minister Muhyiddin Yassin said on Saturday that authorities must investigate the allegations made against Mr. Najib, in a statement given to local media.

“These allegations are serious because they can affect the credibility and integrity of Najib as PM and the leader of the government,” said Mr. Muhyiddin, who is from Mr. Najib’s ruling party.

The raids of the three companies netted documents which will be examined as the investigations continue, Mr. Abdul Gani said.

The Journal reported how government investigators had traced the movement of a total $11.1 million from a unit of the country’s finance ministry through a subsidiary of the unit to a third company, which carries out corporate social responsibility work, exclusively for 1MDB. According to the government investigators, the money then went into Mr. Najib’s accounts.

SRC International is the unit of the Finance Ministry, which also is headed by Mr. Najib. The company originally was part of 1MDB but was transferred to the Finance Ministry in 2012.

1MDB has denied any involvement in transferring money to Mr. Najib’s accounts. The corporate social responsibility company, Ihsan Perdana, said to local media Friday that the firm didn’t send any money to the prime minister’s accounts. Attempts to reach the three companies weren’t successful.

By far, the largest alleged transfers into Mr. Najib’s accounts were two deposits of $620 million and $61 million in March 2013, during a heated election campaign in Malaysia, the government investigation documents show. The cash came from a company registered in the British Virgin Islands via a Swiss bank owned by an Abu Dhabi state fund according to documents obtained by investigators.

The fund, International Petroleum Investment Co., or IPIC, has guaranteed billions of dollars of 1MDB’s bonds and in May injected $1 billion in capital into the fund to help meet looming debt repayments. A spokeswoman for IPIC couldn’t be reached for comment. The British Virgin Islands company, Tanore Finance Corp., couldn’t be reached.

Mr. Najib set up 1MDB in 2009 to develop new industries. But the fund’s overseas energy ventures have failed to take off and it has been forced to reschedule debt repayments. Critics, including opposition politicians and some members of the ruling party, are worried about its heavy borrowings and lack of transparency.

The Journal last month reported how 1MDB indirectly had supported Mr. Najib’s election campaign in 2013. The fund appeared to pay an inflated price for a power asset from a Malaysian company, according to financial statements. That firm then contributed millions of dollars to a Najib-led charity that spent on schools and other projects that Mr. Najib was able to tout as he campaigned.

“We only acquire assets when we are convinced that they represent long-term value, and to suggest that any of our acquisitions were driven by political considerations is simply false,” 1MDB said last month.

A number of agencies are probing 1MDB. They include the national police, the auditor general, a parliamentary committee and the central bank. The attorney general didn’t say whether his office would launch its own investigation. The auditor general last week completed its probe into 1MDB’s finances, and plans to hand its report to Parliament on Thursday.

By Tom Wright And Celine Fernandez The Wall Street

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The center of world economic gravity moving east as AIIB shows


Chinese President Xi Jinping (C, front) poses for a group photo with the delegates attending the signing ceremony for the Articles of Agreement of the Asian Infrastructure Investment Bank (AIIB) at the Great Hall of the People in Beijing June 29, 2015. [Photo/Agencies]

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Financial leaders of 57 states gathered in Beijing on June 29 to sign the agreement for establishing the Asian Infrastructure Investment Bank (AIIB), expected to become the region’s largest investment bank in the 21st century.

Seventy years ago, the World Bank was established, led by the US and its close western economic and political allies, as the first global financial institution. Along with the World Trade Organization and the International Monetary Fund, the western powers have commanded world financial and trade order for more than half a century. Even the Asian Development Bank (ADB), established 20 years later after the World Bank, has been largely controlled by Japan, backed by the US and other western economic powers.

China benefited from the global and regional development and financial institutions in the initial stage of economic reform and openness. As China expanded its economic strength it has aggressively contributed to financing them. However, despite its financial contribution to these institutions rising significantly China still has limited influence over management and operation.

China’s desire to influence world financial order and its inability to do so have been due to the governance structure of these institutions where China is not only a minority shareholder but its voting rights are marginalized.

Since the world financial crisis, triggered by the US subprime mortgage crisis and the EU’s debt problem, China’s relative importance in the world economy has risen rapidly. By 2010, it surpassed Japan to become the world’s second largest economy, and by 2012 it overtook the US to become the world largest trading nation as well as the largest producer and consumer of motor vehicles.

Apart from China’s second-to-none manufacturing capability, it holds the world’s largest foreign exchange reserves which have to be used effectively so they can generate a financial return and make appropriate contributions to infrastructural development in Asia, the largest and fastest growing region among all continents.

In addition, China, India, Russia and other initial AIIB member states have the financial strength and managerial confidence to create a new financial institution similar to the World Bank and ADB. For the initial $100 billion fund to be pledged, China has agreed to contribute 29.7 percent, India 8.3 percent, Russia 6.5 percent, Germany 4.4 percent and South Korea 3.75 percent. Other major contributors include the UK, Australia and Indonesia.

Both the US and Japan have not expressed their intention to join AIIB although many US political and economic allies have come to Beijing to sign the agreement, particularly the UK, Germany, France, Italy and Australia. The diversion of these countries’ attention away from the US to China and Asia not only reflects ever rising business opportunities in Asia, but also the relative decline of the US-led western influence on the global economy and financial order.

The apparent shift of economic gravity from the West to the East reminds me of my personal experience in the past. Thirty year ago, I was awarded a World Bank scholarship from a university in Hainan to study in the UK in 1985. At that time, the salary of a Chinese university lecturer was less than 1 percent of his UK counterpart. Today, all the top Chinese universities are able to pay significantly more than the equivalent UK or US salaries to attract overseas talents to work in China. In addition, numerous university teachers in China can easily apply for more research funding than their western counterparts.

Although China is still a developing economy by definition, it has exceeded many western powers in a number of areas such as equipment manufacturing, high-speed railways, nuclear power, construction, infrastructure engineering and space technology. In 2014, Chinese scientists produced the second largest number of high-impact academic journal papers in the world.

China started the first high speed railway 30 years later than Europe, but by 2014, has built 16,000 km of high-speed tracks, twice as long as the total length of all the EU countries put together. BYD, one of China’s private auto makers, has marched to California to build electric buses for the local market.

India is racing to follow in China’s footsteps. Its economy was growing as fast as China in 2014 and is set to overtake China’s growth in 2015. However, India’s transportation systems are so poor that they are evident constraints on the country’s development. It is expected that India will require $1 trillion to improve its transportation systems, and the establishment of AIIB will be helpful to its development needs. Other Asian countries face similar problems of investment for roads, railways, airports, seaports, telecommunications and internet.

AIIB will become a potent propeller to accelerate economic and social development in Asia. Along with the Silk Road Fund and the Brics Bank, China will use AIIB to implement its “one- belt and one-road” regional and global development strategies.

The Silk Road Economic Belt and the 21st Century Sea Silk Road will cover more than 60 countries surrounding China, and many will benefit from China’s outward-looking investment and development strategies. Under Xi Jinping’s leadership, China has gained increased support from neighbouring countries in Asia and many others in Latin America, Europe and Africa, thanks to its persistent foreign policy of peaceful cooperation, mutual benefit and common prosperity.

The future operation of the AIIB may face many challenges and uncertainty, but the AIIB has signified the rapid emergence of China, India and other developing and transitional economies. The determination and confidence for success through the AIIB and other newly created financial institutions suggest that the world financial and political order will be different from now, as the overwhelming dominance of the World Bank and ADB in Asia and the world financial systems will inevitably decline in the future.

By Shujie Yao (chinadaily

The author is a professor of economics, Chongqing University and the University of Nottingham.

Through AIIB, China can learn to lead

Representatives of 57 prospective founding members of the Asian Infrastructure Investment Bank (AIIB) gathered in Beijing on Monday for the signing ceremony, with 50 of them endorsing the AIIB agreement. As the largest shareholder, China takes a 30.34 percent stake and correspondingly has a voting share of 26.06 percent, which actually enables China to wield a veto on major issues, such as electing the bank’s president. This is a moment that our nation could never have imagined just 10 years ago.

The move forward in the AIIB, however, seemed to have no bearing on people’s feeble confidence in China’s stock market, as shares plunged amid a flurry of automatic sell orders on this remarkable day.

However, the country’s fundamental confidence has been elevated to a new stage. This is the first time ever that China is leading an international multilateral bank. Its influence is prominent and far-reaching, and it carries more profound significance than successfully hosting an Olympic Games.

It took China less than six months to complete the signing of the AIIB agreement and this efficiency shocked the world.

Although China barely has any experience in this regard, it is proof of its excellent capacity to learn and of its eager pursuit of fairness and equity. The first batch of 50 signatories is far more than the number of founding members of the Asian Development Bank (ADB).

China’s attempt to lead the international financial institution may have been forced by unfair treatment in other institutions or China may want to test experiences with the AIIB as we are still a developing country. But from now on, we must shoulder our responsibilities.

Of these responsibilities, the foremost is to bear criticism as numerous Western observers are waiting to find faults with and go bearish about China. But regardless of what they say, China must stick to its current trajectory.

In recent years there have been fewer protests by China, but frequent ones against Beijing overseas. China needs to stick to its major principles, but it does not need to be entangled in minor issues.

US allies that have joined the AIIB do not mean to flatter China, but they see the benefits will outweigh their relations with Washington. With GDP at the $10-trillion level, can China build more platforms of common interest and convince the outside world that working with China always means a win? This serves as the key to China’s further rise without encountering strong resistance from the outside.

Compared with the IMF, World Bank and the ADB, the AIIB indicates that the environment where China is rising may not be as terrible as we conceive. We must grasp the opportunities.

Source: Global Times Editorial



50 nations sign AIIB deals – China wields veto powers, enjoys 26% voting rights

China’s role as the largest shareholder with significant voting rights in the Asian Infrastructure Investment Bank (AIIB) will make the country shoulder more responsibility in turning the bank into a high-quality financial institution to complement existing multilateral development banks, experts said Monday.

A total of 50 prospective founding members of the AIIB on Monday signed the bank’s articles of agreement (AOA) in Beijing, which outlines the bank’s objectives, operating principles, governance structure and decision-making mechanisms.

Seven members, including Denmark, Thailand and the Philippines, failed to sign the AOA on Monday. China’s Ministry of Finance said they can sign the agreement anytime this year.

“The signing of the AOA is a milestone in the establishment of the bank,” Vice Minister of Finance Zhu Guangyao told the Global Times Monday on the sidelines of a forum in Beijing.

The bank was proposed by President Xi Jinping in 2013 during his visit to Indonesia.

Xi said on Monday that China’s development would not have been possible without Asia and the world.

“As China grows stronger, we are willing to make our due contribution to world development,” he said.

Zhu said the AIIB’s establishment process has outpaced other multilateral development banks, and its objectives have won support from members within and outside Asia.

“We hope AIIB members’ legislatures will approve their AOA membership as soon as possible and get the bank’s operations going by the end of the year,” he added.


Voting shares

The AIIB will have an authorized capital of $100 billion, and Asian members are required to contribute up to 75 percent of the total capital, leaving the rest to non-Asian members, according to the AOA.

China is the bank’s largest shareholder with a 30.34 percent stake. This gives China 26.06 percent of the voting shares, also the largest, within the multilateral financial institution.

“It is within expectations given China’s huge economy, and it also means China needs to shoulder more responsibility in building the AIIB into a high-quality bank,” Ruan Zongze, vice president of the China Institute of International Studies, told the Global Times Monday.

According to the AOA decision-making mechanism, China has effective veto powers over major decisions because it has voting shares of over 25 percent.

China does not seek veto powers in the AIIB, Vice Finance Minister Shi Yaobin told the Xinhua News Agency Monday. He said the country’s stake and voting shares in the initial stage are natural results of current rules, and may be diluted as more members join.

“Being a major Asian economy, Japan’s entry will dilute China’s stake and voting shares more than any other country, but so far we have not seen such a sign,” Ruan said.

He said he believes the AIIB is not likely to approve a large number of new members in its initial stage. Instead, it will focus on rolling out investment projects.

Owning veto powers does not mean that China will use these powers in AIIB’s future operation, Jia Qingguo, dean of the School of International Studies at Peking University, told the Global Times Monday.

Jia said China might use the powers only if the projects would seriously hurt China’s interests or are not in keeping with the bank’s objectives, adding that the possibility for such conditions is low.

After the signing of the AOA, the bank’s senior management will be appointed before it starts operations.

The bank’s headquarters will be located in Beijing, and its president will be selected through an open, transparent and merit-based process, according to the AOA.

The AIIB’s future investments will focus on Asian infrastructure projects in the energy, power, transport and agricultural sectors that also meet environmentally friendly and energy-saving standards, Jin Liqun, secretary-general of the AIIB’s interim multilateral secretariat, said at a forum held in Beijing over the weekend.

The Asian Development Bank said it believes Asia would need infrastructure investments worth over $8 trillion between 2010 and 2020.

“The AIIB will complement existing multilateral development banks to promote sustained and stable growth in Asia,” Zhu said.

World Bank President Jim Yong Kim welcomed the signing of the AOA.

“More funding for infrastructure will help the poor, and we are pleased to be working with China and others to help the AIIB hit the ground running,” he said in a statement on Monday.

– Song Shengxia contributed to this story

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Dad’s what all kids want?


Father_kids

Fathers have an impact – good or bad, intentional or otherwise – simply by what they do, and what they don’t.

TODAY is Father’s Day. There is no real significance to this date, other than the fact that it has become yet another day for commercial interests to make more money.

And so we are inundated with messages on what we should buy for our fathers – anything from a tie to a power drill is fine.

It is also interesting that many charity organisations have also got into the game, where you can give a donation on behalf of your father in support of various causes.

I won’t pour cold water on those who believe this day should be celebrated in such manner. Having been a father for nearly 30 years, I will say that a day’s celebrations can’t encapsulate the role of a father, which is both unique and challenging.

More so in our Asian culture where fathers tend to play second fiddle to mothers in a nurturing role, and may not have enough opportunities to exert their influence on the children.

But the reality is we, fathers, do have an impact – good or bad, intentional or otherwise – simply by what we do, and what we don’t.

I have written before in this column that the best times in my career were the six years, over two different stretches, that I spent at home as a full-time father.

I had a whale of a time, although my better half did find it tricky explaining to friends why she had to earn the bread and butter while I was gallivanting at home.

Without being tied down to an office routine, I had all the time in the world. During my first stint, when my sons were still quite young, we had plenty of fun activities. Among other things, I built them a playhouse, flew kites with them, and taught them to swim and to ride a bicycle.

On my second stint, when they were already in their pre-teens and had become more aware of the world around them, our conversations often revolved around the values of life.

Fathers, as you receive gifts on Father’s Day, I wonder if you have thought about what gifts you might give to your children in their formative years – gifts that money cannot buy.

Do you teach them how to make the right choices, rather than lay down a list of dos and don’ts?

Do you respect that they have a voice that needs to be heard, or do you exert authority simply because you are the father?

Do you imbue in them the fortitude to overcome obstacles in life, resisting the urge to always jump in and rescue them?

Do you affirm their dreams, or simply tell them to be practical and march to the beat of the world?

I have learnt that these lessons cannot be taught in a textbook format, and certainly not in one sitting.

Lessons in life are passed on over many conversations and through much time spent together.

If we are the kind of fathers who leave home before our children wake up and come home after they are asleep, or even when we are present with them, are not really listening, perhaps it’s time to take stock.

The world tries to make busy dads feel less guilty by highlighting the effectiveness of so-called quality time. But I believe there can be no quality time without time in quantity.

Fathers, full-time or not, are you prepared to leave everything aside when your child comes up to you, because you are the only person he or she can call “dad”? And will you show, through your words and actions, that such moments mean all the world to you?

Happy Father’s Day.

By Sunday starters SOO Ewe Jin

Deputy executive editor Soo Ewe Jin urges every dad to listen to Cat in the Cradle, made famous in 1974 by Harry Chapin. The song is about a father who was too busy to spend time with his son, who eventually grew up just like him, a busy man who did not have time for his father. The views expressed are entirely the writer’s own.

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What household debt means and how to manage it ?


House debt_means

The difference between ‘healthy’ and ‘unhealthy’ loans

I have received queries about what household debt means and the best ways to manage it.

Household debt is basically all forms of loans with interest rates taken from entities that provide financing. The loans can be secured with assets such as real estate loans (housing and commercial properties), or without any collateral such as personal and credit card loans.

Residential and commercial property loans have capital appreciation potential over the long term. According to statistics from National Property Information Centre, the annual appreciation rate for house prices has averaged 9% in the past five years.

Even if we assume the average house prices only appreciate 5% per annum, it is still an ideal asset which we can live in, and at the same time it grows in value.

If you refer to the chart above, the effective interest rate for housing loans is only 4.65%, which is lower than its annual appreciation rate.

On the other hand, the effective interest rates for car loans range from 5% to 7.5% depending on car model and loan term (effective interest rates are calculated from the advertised headline rates of 2.5% to 3% depending on the tenure of the car loan).

On top of higher effective interest rates, the value of private vehicles depreciate about 10% to 20% per year based on car insurance calculations and accounting practice.

In fact, everyone knows that the day you drive the car out of the showroom, its value drops by 15% to 25%!

The effective interest rate for personal loans is 9% to 10%, while credit card effective interest rates can go as high as 18% to 24% (again, like car loans, the effective interest rates per year are much higher than the advertised rates).

If these loans are spent on items that do not appreciate over time and on perishable items, then the depreciation rates are high and there are no returns to speak of.

The real estate loans (housing and commercial properties) that will appreciate in the longer term, can be deemed as “good debt”.

Car, personal and credit card loans, which have higher interest rates repayment and do not generate value in the future, and are considered as “unhealthy debt” or “bad debt”.

The chart above illustrates the effective interest rates on different household debt components. It also reminds me about the household debt I shared in my last article. What does our nation’s household debt really mean to us? How much of it impacts us if we include its interest rate, appreciation and depreciation values?

According to Bank Negara, our household debt was at RM940.4bil or 87.9% of gross domestic product (GDP) as of end-2014.


Large burden

Residential housing loans accounted for 45.7% (RM429.7bil) of total debts, hire purchase at 16.6%, personal financing stood at 15.7%, non-residential loan was 7.7%, securities at 6.5%, followed by credit cards and other items at 3.9%.

Our household burden is larger if we include the servicing of incurred interest rate for loans. Much of it comes from the higher interest rates to service hire purchase, personal financing and credit card loans.

It reinforces my belief that if we take a debt to invest or secure appreciating items such as housing and other valuable assets, they will eventually provide a higher return in the longer term which more than compensates for the interest rate paid on the loans.

My belief is substantiated by Bank Negara’s Financial Stability and Payment Systems Report 2014.

The report states that properties remain an important investment for many households to finance children’s education, provide a form of financial security for the next generation and preparation for retirement.

Our government can help us achieve higher investment on housing and other valuable assets by looking at ways to reduce our dependency on other types of loans.

Reducing dependency

Example, to provide a comprehensive public transportation system by aggressively expanding mass rapid transit, buses, mini buses, and taxi service to cover more areas.

This will reduce the dependency on private vehicles which in turn help us to divert our financial resources to more fruitful areas or secure a roof over our heads.

As shared in my previous article, housing loans in advanced countries comprise an average of 74% of total household debt compared with ours at 45.7%.

This tells me that we, as a nation, are spending too much of our already high household debt (87.9% to GDP) on high interest/high depreciation “bad debt” such as a car, credit card and personal loan.

Now is a good time to relook into our debt portfolio and the interest rates incurred, and check whether we are having a healthy or unhealthy debt burden.

FIABCI Asia-Pacific Regional secretariat chairman Datuk Alan Tong has over 50 years of experience in property development. He is also the group chairman of Bukit Kiara Properties. For feedback, please email feedback@fiabci-asiapacific.com.

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South Korea cuts interest rate as MERS contagion as threat


korea-mers-flagSEOUL: South Korea reported a 10th MERS death as the outbreak of the potentially deadly virus forced the central bank to cut its key interest rate to ward off greater economic damage amid a slump in business.

In what has become the largest outbreak of Middle East Respiratory Syndrome (MERS) outside Saudi Arabia, a 65-year-old man died yesterday after being infected with the virus while receiving treatment for lung cancer at a hospital.

Seoul also reported 14 new cases, including the first infection of a pregnant woman. The new diagnoses brought to 122 the total number of confirmed cases in South Korea, the health ministry said.

Businesses including shopping malls, restaurants and cinemas have reported a sharp drop in sales as people shun public venues with large crowds.

Bank of Korea governor Lee Ju-yeol said slowing exports and threats to business from MERS were central to the decision to cut its benchmark rate by a quarter percentage point, to a record low of 1.5%.

It was the first cut since March, when the central bank made a surprise cut of 25 basis points.

“The full impact of the outbreak still remains uncertain but we thought it was desirable to act pre-emptively to curb its negative impact on the economy,” Lee said.

More than 54,000 foreign travellers have cancelled planned trips to South Korea so far this month, according to the Korea Tourism Board.

Hong Kong has issued a “red” alert warning against non-essential travel to South Korea.

However, Seoul says World Health Organisation guidelines do not warrant such action.

Taiwan raised its travel advisory level for South Korea but stopped short of warning its people against going at all. Other governments in Asia are urging caution but none has gone as far as Hong Kong in warning against non-essential travel.

Residents of Hong Kong are particularly sensitive after an outbreak of Severe Acute Respiratory Syndrome (SARS) killed 299 people in the city in 2003 and sparked global panic.

The MERS virus is considered a deadlier but less infectious cousin of SARS.

On Wednesday, the area around a health clinic inside a metro station in Hong Kong was cordoned off and officials donned protective gear after a woman returning from South Korea showed flu-like symptoms.

Surgical masks reportedly sold out in shops around the station, but Hong Kong officials confirmed yesterday that the woman had tested negative for MERS.

Growing public alarm has forced South Korean President Park Geun-hye to cancel a planned June 14-18 trip to the United States.

Her administration has faced a storm of criticism for perceived slow and insufficient response to the crisis.

Of the 14 new cases, eight were infected at Samsung Medical Centre in Seoul, a major hospital where 55 people have contracted the virus. That is the largest cluster in the outbreak.

A 39-year-old woman in her final trimester of pregnancy was among those confirmed yesterday to have acquired the virus at the hospital.

Another victim contracted the virus at a hospital in Hwaseong City, 40km south of Seoul, and five others are under investigation to discover how they were infected.

More than 3,800 people who came into close contact with those infected are under quarantine, either at their homes or at healthcare facilities.

The first infected patient was diagnosed on May 20 after a trip to Saudi Arabia.

The 68-year-old man visited four medical facilities, infecting other patients and medics, before he was finally diagnosed, sparking criticism that authorities had bungled the initial response. — AFP

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South Koreans fight over jobs


South Korean jobsWhy South Koreans with ‘best jobs’ take only one day off per year

Young and Old Fight Over Jobs in Korea as Generation Gap Widens

With youth unemployment near a 15-year high and the government planning to raise the retirement age, intergenerational conflict over jobs is rising in South Korea.

The jobless rate for workers aged 15 to 29 touched 11 percent earlier this year and is about four times higher than for those aged 40 and above. At the other end of the spectrum, Korea has an underdeveloped pension system and the highest elderly poverty rate in the OECD, as companies push employees in their fifties into early retirement to contain costs.

An overall unemployment rate that’s close to the 10-year average belies the difficulty facing policy makers seeking to balance the needs of the young and the old as society ages and economic growth eases after the heady gains of previous decades.

Working longer would have helped Lee Jong Ho, 59, who retired from Korea Railroad Corp. two years ago and has been looking for another job ever since. Lee’s 2.2 million won ($1,970) monthly pension isn’t enough to support him and his wife, after pouring savings into raising their children.

“Healthy people like me should work at least until 70 given that the average life span of people now is easily over 80,” said Lee. “I know that extending the retirement age could mean fewer jobs for young people. I’m willing to get paid a little less if I can keep working.”

While currently there is no official retirement age in South Korea, a typical worker’s career ends around 53, government data show. After that, many try to get by on a combination of pension payments, savings, part-time work or small business ventures.

A new law taking effect next year mandates that large companies allow employees to work until at least 60.

‘Repeating Class’

Kang Jin Ho, an English major at Hankuk University of Foreign Studies in Seoul, is 26 and still trying to get into the workforce. He’s deferred graduating for years to maximize his employment chances, as many companies limit new entry hires to people still in school. Kang’s applied for more than 70 jobs already in 2015 and has been rejected every time.

“Getting a job was so much easier for my parents’ generation, when the economy was expanding fast,” he said. “The average age of job seekers in my study group is 30.”

Projections from the Organization for Economic Co-operation and Development paint a gloomy picture for Kang and the next generation of students who will follow. The number of people 65 and older in Korea will surge from 11 percent in 2010 to more than 37 percent by 2050, according to the OECD.

Park’s Plan

The unemployment rate for those aged 15 to 29 was 9.3 percent in May, Statistics Korea said Wednesday. That’s the highest figure for May in official data going back to June 1999, and compares with 2.7 percent for people 40-49 and 2.6 percent for the 50-59 group. Young people are also seeking stable jobs and many apply for the civil service exam, which pushes up the youth unemployment rate, said Sim Won Bo, director at Statistics Korea.

President Park Geun Hye’s government will next month announce its fourth set of measures in two years to help ease unemployment among the young.

Previous efforts have included improvements to career training at school and incentives for young people to join small- and medium-sized enterprises, not just the large corporate icons that dominate the public imagination.

This time around the government may begin addressing the problems faced by Lee and Kang at the same time.

Tenure System

According to a finance ministry statement in May, financial support could be offered to companies that keep on older workers, while trimming their wages and using the savings to hire more young employees. The ministry didn’t offer further details.

Labor unions have already voiced opposition to the idea of a peak-wage system, which also runs counter to cultural traditions of basing pay on tenure and age, rather than performance.

“In a rapidly aging society with weak growth momentum, you’re going to get conflict between young and old over how to divide economic benefits,” said Lee Geun Tae, an economist at the LG Economic Research Institute in Seoul. “Young people having proper jobs is important for our growth engine, but there doesn’t seem to be an easy solution.”

Source: Bloomberg

Retirement Redesigned

Baby Boomers, Work and the Endless Vacation

0827_retirement_1433

The baby boom generation already has left its mark on music, fitness and politics. Next up: retirement. While some people dream of the same “golden age” of relaxation, sun and travel their parents enjoyed, many more have looked at the numbers and decided they have to keep working. (It takes a lot of savings to finance a 30-year vacation.) For others, working is a choice. (Why give up a good income and fulfilling career?) Either way, the generation famous for rewriting the rules is now reshaping life after 65.

The Situation

Demographics are forcing changes in expectations for retirement. The number of senior citizens worldwide will swell to 714 million in 2020 from 601 million in 2015, straining government benefit plans. Meanwhile, the world’s birthrate is declining. Fewer workers mean fewer people paying into pension programs. So governments are encouraging or forcing people to work longer. Twenty percent of people over 65 are still working in Japan, whose median age of 46.1 gives it the world’s second-oldest population (surpassed only by Monaco at 51.1). There’s room for growth: Surveys show 80 percent of Japanese seniors want to work. Some are finding it hard to live comfortably on pensions alone. Others share the feelings of a 69-year-old who said: “Life is boring without work.”

Source: Bureau of Labor Statistics

Source: Bureau of Labor Statistics

The Background

German Chancellor Otto von Bismarck offered the elderly the world’s first national old-age pension system in 1889. In the U.S., the first private pension plan was begun by American Express in 1875. By 1929, one-tenth of the American work force was covered under company pension plans. Yet that same year, even before the Great Depression hit, 56 percent of Americans 65 and older couldn’t support themselves. The Social Security law that passed in 1935 included a pension plan. During World War II, wage controls in the U.S. led employers to offer pensions as a way to attract workers. Private pensions expanded through the 1970s until they covered almost half of American workers. By the 1950s, retirees had money to spend and they wanted to play. The number of golf courses in the U.S. doubled from about 5,000 in the 1950s to more than 10,000 in the 1980s. America’s first retirement community, Sun City, opened outside of Phoenix in 1960. Tours and programs designed for older travelers, such as Elderhostel, founded in 1975, helped them see the world. Things began to change in 1980 with the introduction of 401(k) plans, which allowed U.S. workers to avoid taxes on income put aside for retirement. Subsequent tax-law changes removed incentives for companies to maintain traditional pension plans. Savings plans that relied on the stock market lost value with every crash and tough economic times caused many to take early withdrawals from their retirement savings. Fewer U.S. homeowners reaching retirement age have paid off their mortgages. The result: American baby boomers are poorer than their parents who golfed, lived in sunny climates and traveled.

The Argument

Baby boomers are starting retirement without much in the bank. More than one-fifth of Americans 65 and older are working and more people expect to work past traditional retirement age. They may be needed — certain industries, like construction and manufacturing, are facing shortages of skilled workers. Healthy seniors often want to stay on the job even if they don’t need the money, though in areas like academia this may be preventing younger people from advancing. Governments are certainly encouraging older people to work. In 2011, the U.K. abolished its default retirement age of 65; most people can now work as long as they want. The graying of the workforce is likely to continue. When asked what age they expect to retire, 10 percent of American baby boomers say “never.”

The Reference Shelf

Gallup has a series of polls on baby boomers and retirement.

Financial Times Magazine article, “How Japan stood up to old age.”

Bloomberg Visual Data on the impact of an aging world population.

National Public Radio interviewed older workers for its series, “Working Late.”

PBS NewsHour interactive report, “New Adventures for Older Workers.

First Published Sept. 18, 2014

To contact the writer of this QuickTake:

Victoria Stilwell at vstilwell1@bloomberg.net

To contact the editor responsible for this QuickTake:

Anne Cronin at acronin14@bloomberg.net

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