Wednesday, August 15, 2007

PKFZ bailout: The CRONYNOMIC / EKORNOMIC rationale

You must have read by now the intense scrutiny in the blogs about the impending financial bailout of PKFZ (Port Klang Free Zone).

Screenshots: Kong Choy must explain. Kong Choy must explain?
Rocky's Bru: Bailing out disaster zone
Aisehman: Intelligence-free zone
Malaysians Unplugged: Port Klang Free Zone (PKFZ) Scandal: Stinks All the Way Up to Government and UMNO Politicians
Malaysiakini: PKFZ: Cops blamed for RM3 bil waste of funds

Business Times confirms it as follows:

THE Government will step in to rescue troubled companies only if it is in the long-term national interest to do so, a top Government official [2nd Finance Minister lah, since the 1st Finance Minister doesn't know squat about finance] said, amid growing speculation a RM4.6 billion lifeline may have been thrown to the Port Klang authority's free trade zone project.
They go on to highlight Nor Mohd's rationale for the bailout:
"We don't see the Government going out and bailing out failed entrepreneurs. That's not our policy ... has never been our policy. But sometimes we put money in to create confidence for the overall economy, and we will do that."

“Every country does it,”
And he's right, you know. Every country does do it.

I'm not saying that bailouts are the right way to manage a national economy, but nations have and are doing it... even the self-appointed protector and guardian of free economy, the USA.

But instead of shutting up when he's ahead... Nor Mohd tries to run with it... and comes up with this gem of a quote, as a rationale for bailouts:
"We didn't bail out the major shareholders, we just created value for the minority shareholders, really. So in that sense, it's not a bailout of the majority shareholders ... it's a 'bail-in' of the general public and the minority."
Ummm... okay... errr... forgive me if I seem to be struggling with his logic here. Obviously they didn't teach me cronynomics (crony-economics) in university.

How do you choose which shareholders to bailout? For example, in this case where the bailout is a soft loan, how do the proceeds and benefits of the loan accrue to the minority shareholders but not the major shareholders?

If the loan is used to stave off PKFZ's creditors, has the finance ministry checked to make sure that the directors and major shareholders of PKFZ do NOT hold any significant interests in those creditors? If they do, you are just paying them off..., leaving the minority shareholders (and taxpayers) stuck with the white elephant!

If the loan is used as working capital or funding for long term assets, it will benefit the company as a whole, including (...especially) the major shareholders. And if the turnaround succeeds, and the PKFZ becomes profitable... are the major shareholders going to forego the dividends of that subsequent profit, in favour of the minority shareholders?

'BAIL-IN' pulak...

Mr Minister, I'd like to see the finance degree hanging on the wall of your office. I suspect there might be a slight typo on it... "DEGREE in EKORNOMICS" perhaps?

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