The financial chickens have come home to roost! flip-flop policies which end up with the Rakyat as the losers yet again
Creditors facing a potential default on the MRCB Southern Link project bonds have been offered a lifeline after the federal government said last Thursday that it would take over the new Eastern Dispersal Link (EDL) in Johor Baru from the troubled concessionaire.
Fears that MRCB Southern Link was heading for a default in as little as four months prompted the government to step forward. The saviour in this case, however, was also the offender: it was the government’s ban on collecting tolls for the new highway project that caused default concerns in the first place.
The fact that the toll ban is legal under a concession agreement highlights the regulatory risks faced in privatised projects in the country.
The timing is not great for such a lack of regulatory clarity. Malaysia is in the middle of ramping up a massive infrastructure development programme that will need billions of dollars from the bond market. The federal government is on a RM230 billion programme to build a host of infrastructure projects, including power plants, toll roads, railways and property projects.
Some of the projects have already been awarded to private operators and tapped the market this year, including Prasarana’s RM2 billionn dual-tranche deal two weeks ago, Tanjung Bin’s RM3.29 billion funding in March and Tenaga Nasional’s RM4.85 billion financing last year.
Infrastructure projects are expected to drive the ringgit bond market to a record RM100 billion in volume this year, surpassing last year’s gross volume of RM67 billion.
But the government has shown in the past that it is not immune to public sentiments. It has interfered and caused concession agreements to seize up. After the global financial crisis, the government halted toll rate hikes in several projects, forcing some bond issuers to restructure debt.
The latest stumble came in March this year. The federal government banned MRCB from implementing toll charges on a newly completed EDL in Johor Baru. That road opened on April 1 and has since then seen no cashflow.
The concessionaire managed to meet its previous interest payment obligations. But investors were not certain the next payment, due in December, would come through. RAM Ratings suggested as much when it reported that MRCB made an unexpected RM40 million payment to its engineering, procurement and construction contractor, despite private assurances that it would keep aside enough funds to pay the interest in December.
This leaves only RM21 million in the company’s cash reserves, hardly sufficient to meet a RM47 million cumulative interest payment due December 21 on its RM1.04 billion senior and junior sukuk, as well as on a RM220 million syndicated bank loan. The shortfall is a reason RAM Ratings downgraded the long-term ratings on the RM845 million senior bond to BB3 from A2 and the RM199 million junior sukuk to C1 from BBB2.
Earlier last week, there was no sign from MRCB that it planned to fund any shortfall in meeting the debt obligations, the RAM report said. The company has not breached any of the technical covenants in the bonds, and the payment to the EPC contractor has not triggered an event-of-default clause for bondholders.
If MRCB defaulted on its payments, it would be one of the first toll road concessionaires to do so.
A default would impinge on an otherwise booming bond market. MRCB had been in talks since March with the federal government about plans for compensation in lieu of the toll revenues. But the discussions had dragged on without any conclusive details until last Thursday.
Officials from the Prime Minister’s Office said the government would take over the project but it was short on details. Final details of the takeover are expected only before the end of December. But the market will expect the government to take on the debt and possibly impose a smaller toll than the proposed RM6.20 under the original concession.
The government’s move was not completely unexpected. It has resolved troubled concessionaires in the past by extending the concession, reducing the toll or water rate, or buying bonds.
In June, the government established Pengurusaan Air, which sold a RM5.8 billion sukuk in June 11 to buy various debt facilities from several water concessionaires.
“Regulatory risks have increased compared with the past, but the government has in general shown that it would treat equitably those concessionaires hurt by its edicts,” said one credit analyst.
But detailed negotiations for MRCB may be impeded by an impending general election that could make decision-makers wary of undertaking any unpopular actions. Elections were expected to take place after September. But preparations for the Haj in October and the annual Umno assembly in the last quarter of the year may further push back the elections to next year.
In the meantime, the company is thought to be seeking creditors’ consent to amend terms on its sukuk, particularly to waive certain covenants such as the finance service reserve account bank guarantees to allow drawdowns for the toll road operations to continue. — Reuters
Umno has manipulated, plotted and schemed itself into a quagmire of stinking moral rot and financial irregularities from which we may never extricate ourselves – without imprisoning all those responsible and starting on a clean slate.Creditors facing a potential default on the MRCB Southern Link project bonds have been offered a lifeline after the federal government said last Thursday that it would take over the new Eastern Dispersal Link (EDL) in Johor Baru from the troubled concessionaire. A clear example of Gov mismanagement with privatization of public facilities and flip-flop policies which end up with the Rakyat as the losers Quote: “The federal government is on a RM230 billion (US$73.77 billion) programme to build a host of infrastructure projects, including power plants, toll roads, railways and property projects.” Assuming that the corrupt Umnoputras siphon off about 30 percent (Mahathir, who got rid of TNB chief Ani Arope so as to push through the crooked IPP deal is rumoured to have collected 30 percent), it means they will be stealing about RM69 billion of the people’s money. That explains why they are using every dirty method they can think of to win the next elections and stay in power.n We are discussing symptoms here, not the cause of failure of privatisation in this country. The government banning the collection of tolls is a symptom. Regulatory risk is another symptom. Bond default is yet another symptom. The real cause behind these symptoms is concession holders went into each of these projects with their eyes closed. The bond issuers and bond holders have also done so with their eyes closed. All privatised projects must be based on proper cost and return analysis. Right now, it is any project, at any cost and at any toll. The concession holders think the government is bearing the risk. The government think the rakyat are willing to pay whatever tolls and tariffs as stipulated, whether or not it is justifiable. Well, the rakyat think differently now, and the government no longer has the luxury to ignore the rakyat anymore. Privatisation in Malaysia is handled by nincompoops in government and the private sector who probably have not studied Finance Najib wants BN ‘wall’ around Putrajaya In the riskdisaster political risk business, local Putra Jaya firemanonly “half reassured” by the wall that had been constructed between Barisan and the pakatan sea. Sure,, in the prefecture of Futra Jaya, had been cited Najib had come to visit this double system of ramparts, the second of which rises 11 meters in height.
UMNO Sheltered behind this immense mass of concrete that cuts off the superb view across , the UMNOPUTRAS lived in what resembled an ancient fortified BARISAN CITY. Most thought that they were protected from the PAKATAN waves that, at regular intervals, had destroyed their party in the past. The worst of these catastrophes swept away all their HOUSE MEMBERS, All over, this destruction has vigorously revived opposition to this “wall policy,” This opposition affirms that these precautions have above all made the NEWS SPINNERSs richer, while it would have been better to dedicate the money to improving HARDCORE POOR CITY PEOPLE
On being questioned by a British parliamentary committee about graft allegations, Robert Clive remarked that he “stood amazed by my own moderation”. Taking a leaf out of the book of the robber baron – who was described as “a tawny nabob with a bad liver and a worse heart” prime minister Najib recently advised officers in Putra Jaya to practise moderation in corruption.
najib told the assembled officers that if they worked hard to give benefits like potable water to the people, they would be quite justified in stealing “a little bit” but should not fall prey to the temptation of becoming “dacoits” and indulging in “big loots likein MAHATHIR ERA”. The prime minister , who previously had dismissed the gruesome Altantuya Shariibu said it is a law and order issue, is known for what might be called unorthodox views on a number of subjects. But his latest piece of advice to his officers may well be endorsed by those who, having accepted the fact that corruption in various forms has become systemic in our polity, would argue that we might as well go a step further and make such practices systematic in scale and operation, perhaps by drawing up an official rate chart for how much graft may be taken for any specific service rendered.PWD minister Samy is familiar with the works of Aristotle. But the mantriji’s view on corruption in moderation would seem to chime with the Greek philosopher’s advocacy of the Golden Mean, which implies that a little bit of almost everything you might fancy is good for you, but an excess of anything is bad. In other words, while ‘mota maal’ – to use a term much in use in current political discourse – is unacceptable, what might be called ‘chhota maal’ may judiciously be winked at as an excusable indulgence.
Indeed it has often been argued that in order to keep the wheels of progress turning smoothly, the application of a certain amount of grease in the form of what is sometimes called ‘speed money’ is inevitable. The problem arises when – in their hurry to make money hand over fisc, as in the country’s fiscal deficit – graft-seekers break the tacitly approved ‘speed limit’ and so draw undesirable attention not only to themselves but to the entire institution of rent-seeking in its many diverse avatars.
Going by what deserves to be called the Najib principle of moderation, the problem is not so much corruption as conspicuous corruption. In other words, a little ‘chai-paani’ is fine. But don’t turn ‘chai-paani’ into the equivalent of the Queen’s tea party in Buckingham Palace, as ‘Moderation’ Clive might have said. Datuk Seri Najib Razak today called on members of all Barisan Nasional (BN) parties to together erect a “political barrier” to foil the attempt by Pakatan Rakyat (PR) to capture Putrajaya in the next general election.
The prime minister said that in the process, the BN should emerge as the coalition that would be not only victorious but also win big and in style.
“They (the opposition) may flaunt the ‘Road to Putrajaya’ slogan, but we want to stop their march to Putrajaya. We do not wish to set up a police roadblock, but we will put up a political roadblock because they are not qualified to occupy the seat of Putrajaya.
“We are the ones who developed Putrajaya. They are not eligible because they have uttered lie after lie. They have not fulfilled promises, and many of their so-called plans are left hanging,” he said when opening the Putrajaya Umno Division delegates meeting, here.
Najib’s wife, Datin Seri Rosmah Mansor, and BN and Umno secretary-general Datuk Seri Tengku Adnan Tengku Mansor, who is also Putrajaya Umno Division chief and Putrajaya MP, were also present at the event.
Najib said the Umno division here was the symbolic representative of the Federal Territory of Putrajaya and, as such, the success or failure of the division would be a determinant in the effort to safeguard the reins of the country.
“Therefore, we must strengthen Putrajaya Umno. We must be spirited, and never tire and cannot tire, in continuing with our struggle.
“We must ensure that we will not retreat an inch or even for a second, but will march forward to ensure a more glorious future for the country,” he said.
Najib said Umno’s struggle ran parallel to the struggle for independence, even with the need to deal with various challenges while negotiating a difficult path.
“Many had predicted that the country will have to put up with a difficult journey to become a successful country, but it is evident after 55 years of independence that the predictions were totally misplaced. Today, our country is regarded as a model for success,” he said.
There are very few things that observers of Malaysian politics can regularly agree on.
However, there will be much concurrence with the suggestion that there are two significant traits for those who follow the local political scene very closely — a sense of humour, and a dose of masochism. Naturally, the agreement will be because those involved deem these traits necessary due to the ineptitude of those on “the other side”.
An unhealthy and extreme partisanship has evolved in Malaysian politics since 2008. This is even more obvious to anyone who follows political “commentary” on Twitter (to whom my use of the inverted commas would be obvious).
There is nothing wrong with a bit of banter and partisan one-upmanship. The disconcerting thing is when the immaturity comes from elected representatives, who forget (or perhaps never realised in the first place) that they are supposed to represent everyone, not just those who voted for them or their party.
Despite the frustration and disappointment, I do still follow some of these tweets, including the propaganda offered by full-time political commentators who are prominently featured in national newspapers. I did mention masochism earlier on.
However, the recent discussions about the Merdeka theme have taken things beyond what should be acceptable to any Malaysian, political or not.
I waited some time before putting my thoughts into writing, as I harboured some hope that the theme would be scrapped following the incessant criticism. Perhaps those responsible would hold their hands up and admit that it was a mistake? Silly me.
When announcing the theme — “55 Tahun Merdeka, Janji Ditepati” (55 Years of Independence, Promises Fulfilled) — Prime Minister Datuk Seri Najib Razak said “we can already see that the promises made by the Barisan [Nasional] have been implemented”.
The theme has since been widely criticised. Some say the criticism is unjustified. It is important to put the theme in context, and consider the facts.
BN have been running a nationwide “Janji Ditepati” tour to highlight the promises that they have delivered to the people.
The theme speaks of the fulfilment of promises, which implies a need to be grateful. Whose promises? To whom are we to be grateful? How do we display this gratitude?
If the answers to these questions were not obvious enough, helpfully, there is an official song. The chorus goes, “Janji siapa? Janji kita!” (Whose promises? Our promises!). The verse serves up the kicker, “Janji sudah ditepati, kini masa balas budi” (The promises have been fulfilled, now it is time to repay our deeds).
Merdeka is supposed to be a celebration by all Malaysians of our nation’s independence. An official theme sets the tone for the entire occasion — and undoubtedly the message of the theme will seep into everything involved in the celebrations.
For this reason, the “Janji Ditepati” theme is fundamentally flawed. It is self-serving, and immediately alienates anyone who does not support Barisan — which, lest we forget, is a choice that Malaysians are entitled to.
I am not surprised that it has come to this. The political campaigning and posturing that has been putting “Malaysia” in the back seat has now extended to our Merdeka celebrations. It looks like this will continue at least until the general elections are finally called. Or perhaps even beyond then — the “winning at all costs” mentality that politicians on both sides of the divide have adopted is unlikely to result in either side losing graciously.
Is there an alternative? Perhaps a Merdeka celebration organised by a coalition of NGOs (no, not that coalition of NGOs)?
For the past two years, an alternative Malaysia Day celebration called “Malaysiaku” (My Malaysia) has been held in Bangsar, organised by Ed Soo. It brought together many NGOs and featured talks, film screenings, cultural performances, forums, stalls, and food.
It was a true celebration of the joy and privilege of being Malaysian, free of the stain of political campaigning — which really is what Merdeka should be about. Unfortunately, the event is not being organised this year. The Janji Ditepati theme means the absence of Malaysiaku is even more keenly felt.
Merdeka Day is already upon us, and Datuk Seri Rais Yatim has firmly said that the theme is fixed. He also asked the Opposition not to ignore Merdeka Day over political differences. This is where the sense of humour I mentioned earlier comes in, seeing that some argue that it is BN who have in essence ignored Merdeka with their unsuitable theme.
Datuk Seri Nazri Aziz said that BN has the right to determine the theme, as it is the BN component parties who fought for independence in the first place. This sentiment unfortunately encompasses all that is wrong with the government’s approach to this year’s Merdeka celebrations.
The unfortunate victims amidst all this politicking are, as always, the Malaysian public. The political stakes are too high for the government to back down without seeming to be giving in. The political temperature that has been rising for months has gone past boiling point and scalded the Merdeka celebrations.
While all this is going on, we ordinary Malaysians will just have to celebrate Merdeka in our own ways, forcibly distanced from official themes and events.
It is unfortunate that, in our 55th year of independence, it has come to this. We expect our leaders from all political parties to conduct themselves in a manner that shows a respect and acknowledgement of the maturity of Malaysian society.
The BN government, in insisting on a theme that is unbecoming of the meaning of Merdeka, have allowed immature politicking to pollute this year’s Merdeka celebrations, and in doing so have disappointed and disrespected many Malaysians
The financial chickens have come home to roost! Europe was always looking for that financial edge (I had been told it was under way when I was living in Munich in 1993) to equal or supersede America’s world standing economically. The deal was being organized since the late eighties, maybe early nineties and after a vast amount of multinational negotiations, deregulations resulting in the big banks (belonging to France and Germany) buying everybody else the new millennium brIngs about a new global powerhouse…or so it seemed, right? Well something that required half to three quarters of a century being executed in just two decades, give an additional four or five years more and voila! You now have today’s disaster which the United States saw the origin of the multinational deal, analyzed the possibilities and you can rest assured predicated the current situation we are all bearing witness to. Way to do yourself in Europa, way to go…the greedy always reap what they sow, believe that!Greeks deny en mass that they are the architects of their own situation. The U.S. has a chance to learn this lesson before it’s too late. Why aren’t we? One theory: Political correctness makes it taboo to criticize any culture or national character (except one) as flawed.Resources dwindle while technological unemployment grows at a rate surpassed only by that of the population itself. We can do better in the future.
And the elephant in the room is the debt… fraudulently stolen from the people (government) by Central Banks (Private Elites) created by Fiat (computer strokes) at debt with no mechanism for repayment (intentional) all for the purpose of control (exploitation) and manipulated (LIBOR) by these same ancient parasitic families… for the purpose of a tyrannical one world government.
It is obvious the controllers have used the same plan for centuries and what did Einstein say about repetition?America has far less debt as a proportion of GDP than Greece and most other developed nations. Further, unlike Greece, America can print its own currency and pay its dollar denominated debt with it. It cannot default, unless we see more hijinks like the House Republicans voting against raising the debt ceiling – for money already spent – in a move of political brinksmanship.You cannot have decency in the absence of economic growth. Growth is what pays for universal health care, pensions for the elderly and disabled, public education… If your population continues to grow and the economy does not, there are less resources available to everyone.
How that growth is distributed among the population is another question. But even redistribution to the poor and needy, which is at the heart of the much-admired Scandinavian model, works only because those Scandinavian economies are growing quickly.
Investment + economic development = greater well-being for the entire population, if that wealth is property redistributed. I seriously doubt Greeks wish to return to a closed economy with no foreign investment.
In fact, when the ratings agencies lowered the debt rating of the US, it was not due to a diminished capacity to pay, but rather due to the changed political atmosphere which has caused political parties to actively fight against the interest’s of the nation.
The rate of increase in Federal spending under President Obama is at the lowest level since the Eisenhower years. However, tax rates are being held at the lowest level in decades to support a nascent recovery from the depth of the near Depression caused by reckless Republican policies.
Greece needs specialized teams to focus on areas that need government help: producing large quantities of private sector jobs by interacting with all of its local business communities, increasing tourism stats even more despite bad press, maintain healthy, clean banks and Greek bank auditing, have businesses produce healthy goods and services that will benefit mankind as they did in Ancient Greece, reduce corruption when they can, and promote Greece internally and externally.Another example of the naivity of modern economic thinkers. Kicking Grece out of the Euro will not improve anything. How can the economic state of a country of 11 million make any difference in solving the fiscal crisis of the whole European Union? Once Greece goes, the markets will turn on Portugal, Ireland, Spain and Italy. Each of these will be dropped until the whole thing collapses. Make no mistake, this is the begining of the end! Greece is really only serving as a dike, containing all the market speculators from betting against the economies that really matter. Destroy the dike and you will have an economic Katrina.Is it true that Greece is trying desperately, as the author of this piece states, to avoid defaulting on its debt? Or is that an example of journalistic drama inserted in the first paragraph to pull in reader attention?The monetary union was every bit as foolish in its attempted universality as Krugman never tires of advising us; and for precisely the reasons he gives. Greece has practically nothing in common with northern Europe, the only place where the currency is NOT currently a noose around the necks of less productive, more corrupt and far, far more protective economies in the south.For 2 years, it has been apparent to the politicians of Europe that Greece would eventually default. However, European politicians were faced with a difficult problem: they had to prevent an immediate Greek default (which really would have wreaked havoc with the greater European economy), while at the same time not allow the Greeks to fully understand that they, the Greeks, had Europe by the tenders.
So the European politicians have acted in a play, where they hold before the Greeks some hope that they, the Greeks, can solve their hopeless fiscal mess. A haircut here, a low interest rate loan there. In the meantime, the European politicians have been making disaster preparations for the inevitable day when Greece defaults.
That day is quickly approaching, and the European and world economy are in a much better position to weather the turbulence.
No one cares about Greece, a mere 5% of the European economy. It is an acceptable casualty. It is Italy and Spain where the firewall must be built. If Italy or Spain fall, the consequences will be much more severe, because of their much larger economies.
This view has been well known in the British press (e.g., The Economist) for some time.
Greece will introduce a newly-nationalized drachma and default on its debt. The savings of its people will be destroyed; they will will be forced to sack their immense public sector because nobody will buy the funny-bonds that they offer to finance the unsupportable cost of that public sector; and their people will be miserable for a generation.
But control of their own currency and a generation of reform and re-building may allow them a measure of prosperity again. Or not, absent the reform.
But look for a lot of social destabilization and violence while that’s all happening.
The amalgam of news articles over many months about Greece is one in which Greece, conflicted and sluggish, appears anything but desperate.
Greece should rebound in the next 1-2 years.
It would seem a sovereign nation has some power. The new, current government was not the same government as the one prior to Pappandreou’s.
The people of Greece are waiting to see positive changes.
The choices the Greek government are making, they must see forward in the short term and the long term.
They need to move forward to a clean, healthy pathway.
Germany and France are reaping what was sown when they accepted unrealistic, perhaps untrue, budget and financial tables from certain new markets. Every one of those places now seems unworthy of Euro membership and unwilling to create real economic, commercial, ad fiscal books. The huge new markets never expunged the fake figures, and now Europe faces the end of the Euro memberships he never should have permitted. Political union might have allowed open books, regulation, and accounting accountability. Instead, they gor illusions of grandeur followed by real collapse. Domestically, West Germany did something similar when the Wall came down, valuing the East German economy way too highly and making similarly under-sized figures for needed investments. Caveat emptor — let the market giants beware!
the questions is: who shapes reality? I bet to a large degree the media. And, unfortunately media reporting today reduces the concept of Europe to a financial problem.
The Euro gets bad notes again with business starting in September, and analysts and speculators and their friends or foes, editors, back at their desks. The summer was pleasant (in economic terms not in wildfires) and the stock market recovered…the editors were on the beaches and the front pages less turned on the Euro-crisis despite no changes in the situation, a prove that a hands-off approach of the media pays.Why is the Eurozone complicating a simple thing? Greece is bankrupt. They don’t have any money to pay their debts. So allow them to sell their land. They do have assets that can increase their exports ten fold i.e, they have a few islands. They have a debt of $ 500+ billion. Sell 50% of the islands they have and they can reduce their debt by 90% (the Japanese will come up with the money to buy since they have the need for land). What is holding the Greeks from doing this? Surely it can’t be national pride – this is a shameless situation they have gotten into. It can’t be national security either – they gave it up a long time ago when their debt crossed 200% of their GDP and their nation is pretty much an extension of Germany now.The country is dysfunctional and corrupt. There are 3x staff than is necessary to run their government administration; with numerous ghost employees on the books collecting paychecks. Corporate entities perform ongoing assessments of the effects of possible events – however unlikely – to their clients. These might range from how a non Obama reelection might affect a range of existing or potential clients to Global worming. The vultures are at work. Greeks are working hard. The rest of Europe will cope. But, in U.S., as usual, the short sellers are at work. Maybe they need it to cover their faults and desperately make money from whatever comes.Those who manage the mood ( for market investors benefit) for the world economy has played this correct from the start they at first downplayed the possibility Greece being tossed and bankrupt and bought time to shore up banking systems contained loans underwater by managing the amount that goes back to market to keep price sustained as possible
World governments bought bad debit where they can to keep a marginal safety valve within the finical systems when and where possible. Now the day has almost arrived where a county will fail financially and they will let it happen, because they have to if for no other reason than prepare other counties to make and uphold like sacrifices for continued bailouts. Will there be suffering? Yes, a great deal of it and those most hurt will be the elderly poor. Once the world economy starts to stabilize to the degree bailout are being repaid and cuts have been made the scales of reduction will then tip toward and put a bead on US social programs to deal with our massive acquired debit, politicians will be brutalized like no other time in history.
The elderly will be hit hard followed by the failed underfunded work-site pensions that the government pension insurance will then take over at 20% payout rate. The states employees’ severely underfunded pensions fund will be cut by 40% I predict. This will come about once the first state declare bankruptcy’s .
Elevating risk assessment to”news” is interesting -sells papers but contributes very little, if at all, to global fiscal stability.
The tax department collects no taxes. And tax inspectors are discouraged from collecting revenue.
Greece entered the Eurozone under the auspices that they would reform, modernize and thrive as a country once admitted; instead, the bear continued to eat the honey, and now is too fat to leave the cave.
Greece has NOT executed any of the reforms agreed upon as part of the last tranche of bailout money of the ECB. Greeks continue to retire at age 50; pensions continue to be pegged at 80% on the average last 3 grossing years. In addition, Greeks continue to collect 16 months of salary per year, instead of 13 as in most of Europe.
All in all Greeks are like drug addicts who can’t clean themselves up and are blaming and pointing fingers at other countries for not helping them feed their addiction.
Greeks blames the Government for their woes and vote only for politicians who promise more of the same.
I look forward to cheap vacation in Greece once the Drachma is back.
If only the Greeks started an auction for their islands, they would be debt free in 90 days, after which they can withdraw from a meaningless single currency, decide their own interest rates, manage their deficits, pay and get paid in their currency and live on their own terms. Better that, than this “lviing dead” state with all their islands.
But now all’s back to normal and things get awry again. The fourth power hits hard.
To take your share of responsibility and improve the scenario: put the financial infos and comments back to the economic and financial section of newspapers, were true experts can discuss them and those less interested may avoid them. Do not frighten the general public with daily news on the issue! And put proves of the greater idea of a diverse and peaceful Europe on the front pages. Check anxiety and stock markets before and after such reporting changes. And pay me the dividend of these reporting changes on society and the financial markets.
Even as Greece desperately tries to avoid defaulting on its debt, American companies are preparing for what was once unthinkable: that Greece could soon be forced to leave the euro zone.This is W2K hysteria and end of the world virus attacks all over again when software developers and hardware manufacturers were fanning fear so that clients buy their consulting services and new equipment and software. We all know what happened then: NOTHING, except for consulting firms that made a bundle. It is not surprising that once again, consulting firms are the ones fanning the fears for exactly the same reason. I find it telling that European companies seem to be quiet about the issue while all the action is being made public by American consultants. there is so much corruption that the only way to spread the pain is not through attempts at tax collection because no one is honest enough to collect or pay. Hyper inflation hurts everyone, unfortunately, including the corrupt. That seems to be what they are left with.
Banks and consulting firms are reluctant to name clients, and many big companies also declined to discuss their contingency plans, fearing it could anger customers in Europe if it became known they were contemplating the euro’s demise.
All the “US Companies” mentioned in thes article or nothing but the financial monsters (banks and ‘financial consultants’) who brought about the problems that Greeca, Spain, Ireland and the US now face.
These companies shouldn’t be portrayed as sympathetic characters in a Dickensian novel but rather as the asocial, pscopthic greed mongers they are.
These aren’t “American” companies. They’re internationals with their only reason for existence, money, having no nationality. If the Republicans get their way and repeal Dodd-Frank, we’ll be on the hook for these losses as well as we were in the past. I wonder how the taxpayers feel about that. I already hate these financial institutions for their irresponsible behavior that threw us into chaos. And I wouldn’t dream of voting for anyone who would make me or any of my fellow taxpayers responsible for their ridiculous greed.
But some corporations are beginning to acknowledge they are ready if Greece or even additional countries leave the euro zone, making sure systems can handle a quick transition to a new currency.
In Europe, the holding company for Iberia Airlines and British Airways has acknowledged it is preparing plans in the event of a euro exit by Spain.
“We’ve looked at many scenarios, including where one or more countries decides to redenominate,” said Roger Griffith, who oversees global settlement and customer risk for MasterCard. “We have defined operating steps and communications steps to take.” He added: “Practically, we could make a change in a day or two and be prepared in terms of our systems.”
In a statement, Visa said that it too would also be able to make “a swift transition to a new currency with the minimum possible disruption to consumers and retailers.”
Juniper Networks, a provider of networking technology based in California, created a “Euro Zone Crisis Assessment and Contingency Plan,” which company officials liken to the kind of business continuity plans they maintain in the event of an earthquake.
“It’s about having an awareness versus having to scramble,” said Catherine Portman, vice president for treasury at Juniper. The company has already begun moving funds in euro zone banks to accounts elsewhere more frequently, while making sure it has adequate money and liquidity in place so employees and suppliers are paid without disruption.
FMC, a chemical giant based in Philadelphia, is asking some Greek customers to pay in advance, rather than risk selling to them now and not getting paid later. It has also begun to avoid keeping any excess cash in Greek, Spanish or Italian bank accounts, while carefully monitoring the creditworthiness of customers in those countries.
“It’s been a very hot topic,” said Thomas C. Deas Jr., an FMC executive who serves as chairman of the National Association of Corporate Treasurers. Members of his group discussed the issue on a conference call last Tuesday, he added.
American companies have actually been more aggressive about seeking out advice than their European counterparts, according to John Gibbons, head of treasury services in Europe for JPMorgan Chase.
Mr. Gibbons said a handful of the largest American companies had requested the special accounts configured for a currency that did not yet exist.
“We’re planning against the extreme,” he said. “You don’t lose anything by doing it.”
Bank of America Merrill Lynch has looked into filling trucks with cash and sending them over the Greek border so clients can continue to pay local employees and suppliers in the event money is unavailable. Ford has configured its computer systems so they will be able to immediately handle a new Greek currency.
No one knows just how broad the shock waves from a Greek exit would be, but big American banks and consulting firms have also been doing a brisk business advising their corporate clients on how to prepare for a splintering of the euro zone.
That is a striking contrast to the assurances from European politicians that the crisis is manageable and that the currency union can be held together. On Thursday, the European Central Bank will consider measures that would ease pressure on Europe’s cash-starved countries.
JPMorgan Chase, though, is taking no chances. It has already created new accounts for a handful of American giants that are reserved for a new drachma in Greece or whatever currency might succeed the euro in other countries.
Stock markets around the world have rallied this summer on hopes that European leaders will solve the Continent’s debt problems, but the quickening tempo of preparations by big business for a potential Greek exit this summer suggests that investors may be unduly optimistic. Many executives are deeply skeptical that Greece will accede to the austere fiscal policies being demanded by Europe in return for financial assistance.
Greece’s abandonment of the euro would most likely create turmoil in global markets, which have experienced periodic sell-offs whenever Europe’s debt problems have flared up over the last two and a half years. It would also increase the pressure on Italy and Spain, much larger economic powers that are struggling with debt problems of their own.
“It’s safe to say most companies are preparing,” said Paul Dennis, a program manager with Corporate Executive Board, a private advisory firm.
In a survey this summer, the firm found that 80 percent of clients polled expected Greece to leave the euro zone, and a fifth of those expected more countries to follow.
“Fifteen months ago when we started looking at this, we said it was unthinkable,” said Heiner Leisten, a partner with the Boston Consulting Group in Cologne, Germany, who heads up its global insurance practice. “It’s not impossible or unthinkable now.”
Mr. Leisten’s firm, as well as PricewaterhouseCoopers, has already considered the timing of a Greek withdrawal — for example, the news might hit on a Friday night, when global markets are closed.
A bank holiday could quickly follow, with the stock market and most local financial institutions shutting down, while new capital controls make it hard to move money in and out of the country.
“We’ve had conversations with several dozen companies and we’re doing work for a number of these,” said Peter Frank, who advises corporate treasurers as a principal at Pricewaterhouse. “Almost all of that has come in over the transom in the last 90 days.”
He added: “Companies are asking some very granular questions, like ‘If a news release comes out on a Friday night announcing that Greece has pulled out of the euro, what do we do?’ In some cases, companies have contingency plans in place, such as having someone take a train to Athens with 50,000 euros to pay employees.”