Emir Research would like to highlight the role and function of the government in times of crisis as buyer (and seller) of the last resort, i.e., in the form of an "Order/Purchase Guarantee" programme.
This means that the government guarantees to order and purchase goods and services from the private sector.
In terms of the government being buyer of last resort (BLR), the government could purchase directly from the private sector, especially our small- and medium-sized enterprises (SMEs) many of which are still unable to operate – at approximately 80 per cent of the total.
This can be done by implementing a special procurement scheme that could be segmented into different categories of goods and services.
This will ensure additional income for participating SMEs in the essential sectors and income for SMEs in the non-essential sectors which could switch to supplying essential goods.
It'll also help to keep the overall supply chain going by re-diverting the "end-user", i.e., the buyer to the government for a certain period.
Method of payment would be by way of the government issuing bills (IOUs) which can be sold by SMEs to invoice factoring agencies (of the government) or the SME Bank for quicker turnaround of payment time.
Since not all SMEs will be able to participate in the government's special procurement programme, it could introduce another scheme for industries in the form of "order book" (i.e., on paper only) but with advanced full payment.
For example, the furniture industry had suffered tremendous losses and potential sales since the first half this year – with up to RM1.6 billion in value.
According to the Malaysian Furniture Council (MFC), a manufacturer had RM2 million worth of orders cancelled in June. Our furniture industry is, of course, a major exporter (top 10 in the world and 80 per cent of products geared for international markets).
The government could guarantee to order and purchase furniture in bulk from participating vendors (e.g., furniture manufacturers).
Only funds by the government are exchanged. The furniture (goods) ordered remain physically with the vendor acting, in effect, as the entire supply-chain (warehouse, logistics, delivery point) in relation to the end-buyer (government).
When the SOP is eased allowing for resumption of operations, then the government can sell back (guaranteed seller basis) the goods previously ordered to the vendor on a discount (e.g., a reduction of 30 per cent of the original price).
The goods which remained with the vendor can then be exported overseas as according to their pre-epidemic contracts, for example.
For the rest of the supply chain (i.e., in relation to the manufacturer) and in the medium term also, the government could instruct SME Bank to issue (physical or electronic/digital) "notes"/"bills".
These notes/bills would serve as "alternative currency", albeit artificial and parallel, and, therefore, serves as effective medium of exchange and barter-like transactions.
They will direct circulate within the supply chain, e.g., between supplier of timber, metal parts and glass accessories to the furniture manufacturer – again on the basis of "order book".
The alternative currency would also help facilitate continuous flow of transactions in the medium-term (i.e., with the easing of SOP) even where demand is slow to pick up (e.g., due to built-up of inventory, sluggish orders from customers)
It can be used for full or partial payment. A sale could be made 50 per cent in ringgit and 50 per cent in the bill/note or 100 per cent in the bill/note.
In turn, the "order book" practice combined with the alternative currency would enhance the credit rating and profile of the SMEs which can better facilitate their applications for loans (i.e., from commercial banks).
Otherwise, participating SMEs could just commit exclusively to either pledging their assets to SME Bank in exchange for the notes/bills as a form of collateralised loan (which under company law can either be "fixed charges" such as land or "floating charges" such as machinery) or otherwise as an unsecured debenture/loan.
Notes/bills received by one SME as seller from the other as buyer can then be redeemed from the SME Bank in RM (since they are meant to be a temporary measure).
As for the government as lender of last resort, it could assume the non-performing loans (NPLs) of SMEs and transform these into soft loans with 0 per cent interest rate but over a longer repayment period plus collateral.
What the government could now do (as in medium- to long-term) is to establish a special purpose vehicle (SPV) to take over bad loans of SMEs (including in the tourism industry). This might become essential in the situation after the loan moratorium is lifted.
The government would assume the loans from the banks and turn these into soft loans – either interest-free or at 0.25 per cent interest per year (but over a longer repayment period).
The SPV – following Danaharta – could issue triple-A zero-rated coupon bonds to institutional investors such as EPF, Khazanah, pension funds and insurance companies to be later exchanged for the NPLs from the participating banks.
Otherwise, the SMEs could borrow from the government via the SPV to pay off (one-time) the banks concerned (again either interest-free or at 0.25 per cent interest and over a longer servicing period).
Either way, loans from the SPV will be collateralised by default, unless otherwise agreed.
The policy proposals – as part of the economic emergency – presented (and re-presented again from EMIR Research's Exit Strategy Plan for Malaysia, among others) are unprecedented.
But, they are needed to ease the flow of macroeconomic (fiscal, monetary) and microeconomic circuits (business) in the economy and allow more space for the debt level and deficit flow to be diverted towards other areas.
The writer is Head of Social, Law & Human Rights at EMIR Research, an independent think tank focussed on strategic policy recommendations based on rigorous research
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times