The economics of empathy in action via moratorium extension

YES, the government has done enough to revive the economy such that most actual data that have been announced so far show the economy now is on a recovery trajectory, but on the ground the sufferings of the rakyat are still clear for all to see.

And so, in line with the economics of empathy, the government should consider a blanketed three-month extension of bank loan moratorium that has expired this month in order to alleviate these sufferings.

There are many anecdotal evidences of the sufferings of the rakyat, complete with heart wrenching pictures that have gone viral. From car boot hawking sprouting like mushrooms around many carparks in Selangor and Kuala Lumpur, with the hawkers’ small children sleeping in the passengers’ seat of the car exposed to the hot sun; to a pregnant lady caught for stealing in order to buy food to survive.

Moreover, the government through the banking sector has the capacity and capability to dish out the three-month extension in moratorium based on the fact banks are projected to enjoy an after-tax profit of RM32 bil in 2019, while the extension in the moratorium will cost only RM6.4 bil.

This cost is in actuality not a cost but a deferred profit which the bank will enjoy once the economy is on a firm footing and the moratorium is rescinded, whichever comes first. Compared to the borrowers whose incomes are permanently lost, it is still fortunate for banks to be able to make up for the ‘loss’ when times get better.

Public requests for the government to extend the loan moratorium for individual and SME borrowers appear to have not tapered off as people and businesses are still trying to recover from the unprecedented economic and health crises.

For the moratorium extension, since it is not targeted, it should be made automatic and the borrowers should be given the option to opt out, as some borrowers might be able to repay their loans.

At the same time, communications and procedures between the banks and borrowers should also be made transparent and adequately clear to avoid conflicts and confusions.

The introduction of moratorium in April to September has indeed helped the rakyat to have access to immediate cash and provide the opportunity for them to contribute to a rising consumption expenditure that is needed to lift up the economy, as consumption is one powerful engine of growth to rev up the economy especially during an unprecedented economic downturn like the one we are facing now.

There is a need for empathy to weather through this difficult time. The ground reality of the livelihoods might not be as rosy as it is reflected by some of the actual economic data.

Although the current statistics look better than the bleaker episodes during the first few phases of the movement control order (MCO), retrenchments, pay-cuts and business closures are still taking place.

The Malaysian Reserve recently reported over 51,000 retail stores will be closed down across the country within the next four to five months on the back of the changing retail landscape. This will then contribute to future unemployment figures.

Tourism industry is also not spared from this economic catastrophe as a series of cost-cutting measures have been pursued by the companies in the industry.

Malindo Airways Sdn Bhd is expected to lay off around 2,200 workers – more than 50% of its workforce of 3,200. Before Malindo, AirAsia Bhd and AirAsia X Bhd confirmed its second round of retrenchments on Oct 9 involving 10% of its workforce.

Although the latest data shows the number of unemployed went down by 3,500 in August, there remains 741,600 who are still unemployed, and this is in August alone. The outcomes for September and this month remain uncertain given the unstable health and economic condition.

With the reintroduction of conditional MCO (CMCO) beginning October 13-14 in Sabah, Selangor, Kuala Lumpur and Putrajaya due to rising Covid-19 infections, the economic situation will possibly worsen albeit minimal according to analysts, as businesses have to adhere to limitations in their business operations and consumer sentiment will continue to weaken.

The businesses especially the SMEs which represent 98.5% of business establishments in the country are still experiencing challenging situation as they are in need of more support in order to survive.

According to the Malaysian Employers Federation, as much as the employers are appreciative towards the government for supporting them through the crisis, they face difficulties to remain afloat as many companies’ requests to apply for repayment assistance from the banks have been rejected or postponed.

Additionally, a survey conducted by the SME Association in August revealed that 20% of total respondents were considering permanent closures in the next six months. In terms of cash flows, 22% have enough cash flows to sustain only for a month, 27% until November and 31% until December.

It can be obviously observed that financial anxiety has become more evident after the first round of loan moratorium ended and unfortunately, Covid-19 cases have also been on the rise, and the appearance of vaccines on the scene remains elusive.

Until a significant portion of Malaysia’s population has been vaccinated, balancing lives with livelihoods through shifting levels of the MCO is expected to be followed with the corresponding ‘new normal’ of seasonal spikes and infection waves, as is happening now.

So far, no confirmed Covid-19 vaccine deals have been announced. Close to a dozen potential vaccine candidates are in the late stage trials, but at the moment none have been approved.

Furthermore, there have been reports involving the few leading vaccine developers in late stage trials being paused due to unexplained illnesses. Even in assuming all goes well, Malaysia’s early access to vaccines may be jeopardised by advanced purchase deals by higher income countries.

Though it was recently reported China has agreed to include Malaysia as one of the priority recipients for a successfully-developed Covid-19 vaccine, so far there is little certainty on the timeline.

Malaysia’s ability to look elsewhere may also be limited when it comes to US pharmaceutical companies due to past historical issues. A US pharmaceutical group and a biotech industry trade organisation has urged the Office of the United States Trade Representative in 2019 to put Malaysia in the list of Priority Foreign Country – the worst designation for a US trade partner.

Even when Malaysia has successfully secured a safe and proven vaccine supply, the massive logistical requirements for packaging, storage, and the cold-chain logistics for a nation-wide vaccination programme carry with it risks of operational and supply-chain hiccups.

The key takeaway from the above-mentioned points is that vaccine availability and the people’s access to it may take some time, hence prolonging the health crisis and the ensuing socio-economic issues.

In July, the Finance Minister Tengku Zafrul had highlighted the banking sector would face a total loss of RM6.4 bil between April and September with an estimated loss of RM1.06 bil per month during the moratorium period.

But these losses can still be recovered by the banks when livelihoods become better, as borrowers would eventually have to repay their loans later. This is on the back of officials’ and analysts’ expectations that the economy will begin to recover next year.

It is crucial to bear in mind that unprecedented times need unprecedented actions so now is the time to think about not so much what the rakyat want but what they need.

By addressing this need of the rakyat, the government will be seen as moving from being sensitive (prihatin) to the needs of the rakyat to the next level where it is in empathy with the needs of the rakyat.

By : Jamari Mohtar, Sofea Azahar and Ameen Kamal (EMIR Research) – FOCUS MALAYSIA

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