Although this is not a new phenomenon in the country, I have recently noticed some concerted effort at raising public funds through bonds. This only raises the hairs at the back of my neck. I have a gut feeling that tells me that this is not a good practice to keep up. Since I am not an economist, I casually asked an economist friend of mine about this last weekend.
I am of the opinion that our government is possibly having some cash flow problems, brought about by the stark drop in oil prices. Our last budget was planned on the basis that oil would stay at about $125 per barrel. However, it has dropped to less than half that value. Hence, it is very possible that our government is experiencing some cash issues.
So, the easiest solution out of this would be to issue bonds. Bonds are basically promises from the government to repay the money at a specific time in the future, with specific terms. Bonds are a good instrument for solving temporary cash flow problems as it is essentially what everyone does, borrow some cash to make more cash and then repay the loan with some interest.
But to me, this is borrowing against the future, to repay present debts. For some reason, my logic just cannot reconcile this positive feedback loop. If we are borrowing against the future, we are actually hedging that we will be able to repay those debts in the future. The trouble happens when we do not have enough cash to repay those debts, we will need to issue more bonds, to borrow even more money.
Somehow, I have a feeling that this is not sustainable and that the bubble will burst at some point. This is what our venerable TDM has described as ‘making money out of thin air’. Our government is literally ‘printing money out of thin air’. It is digging itself into debt with the rakyat. When it defaults, we are literally screwed because we have a vested interest in not letting it default.
Oh my, the picture just became even darker for me. I think that I should go run and hide away from all the Sukuk and Amanah Saham issues.