Malaysia’s Government Contingent Liabilities

A fast one (seems like all I have time for these days are fast ones), on contingent liabilities (excerpt):

Analysts say Govt’s contingent liabilities likely to rise

...In recent years, the Government has relied on what is called contingent liabilities, or off-the-books debt, to fund major development projects. Big-ticket items such as the rail lines cost billions of ringgit, and with Government debt close to its self-imposed ceiling of 55% of gross domestic product, the use of special-purpose vehicles (SPVs) that take the debt burden off the Government’s books has been almost the preferred way of funding such mega projects.

Cumulatively, contingent liabilities amount to RM178bil worth of guaranteed debt by the Government. With government debt at RM630.5bil at the end of last year, the off-the-books debt that is guaranteed by the Government is worth 28% of the public sector’s total debt.

...Structuring debt in such a way is by design, according to economist Datuk Dr R. Thillainathan, who is the former president of the Malaysian Economic Association....

Your Deposits Are Safe

…from 1 January next year, at least if you have less than RM250,000. Perbadanan Insurans Deposit Malaysia is also working on a similar protection scheme for insurance and takaful policy holders.

There’s always a potential moral hazard issue with a deposit insurance scheme – since depositors are protected from bad management by banks, that might make banks more willing to take on more risks. On the whole however, the empirical evidence is mum on this issue in the nearly 80 years such schemes have been used.