By FINTAN NG
PETALING JAYA: Consumers should tighten their belts in this period of economic uncertainty and not spend unnecessarily despite the lower base lending rates offered by several leading banks. Universiti Malaya Professor Dr Mohd Nazari Ismail, who teaches international business and recently gave a talk on financial crises and whether they were preventable, said easy credit would only lead to more unrestrained consumption and perhaps build the foundation for a future credit crunch.
Prof Mohd Nazari Ismail “Consumers at this point should cut down on their spending; there’s no need to take up a loan for that extra car,” he said.
Nazari said it was easy credit and unrestrained borrowing by companies wanting to expand as fast as possible that led to the financial crisis. “If we don’t want a debt-laden future and have our children pick up the tab, I suggest we bite the bullet because spending our way out of a recession right now is just postponing the problem,” he told StarBiz.
Nazari said measures taken by governments to lower interest rates, fiscal stimulus packages and bailouts would just increase debt for the future.
“Debt is bad although it’s what fuels business expansion. Frugality is a virtue but it’s more challenging to practise it now since we’re all encouraged to spend,” he said, adding that fiscal stimulus packages such as infrastructure development or measures taken to stimulate consumption might not always work.
Nazari said Japan was an example of how infrastructure development had not helped. “The bubble burst in the early 1990s but despite all the spending on infrastructure, Japan’s growth has not been exceptional although to be fair, it’s a large economy,” he said.
Japan’s public debt stood at 195.95% of gross domestic product.
He did not see a cut in spending happening anytime soon in major economies. “Barack Obama was voted in because US voters believed that he would be able to solve their problem.” He said it would be a challenge for the US or other countries to not spend their way out of a recession but they would have to be wary of taking on too much debt.
It is inevitable that the public debt in the US would be much larger in the years to come. “The Obama administration will have no choice but to spend; not to spend will be political suicide.”
Prof Mohd Nazari Ismail Nazari said it was easy credit and unrestrained borrowing by companies wanting to expand as fast as possible that led to the financial crisis. “If we don’t want a debt-laden future and have our children pick up the tab, I suggest we bite the bullet because spending our way out of a recession right now is just postponing the problem,” he told StarBiz.
Nazari said measures taken by governments to lower interest rates, fiscal stimulus packages and bailouts would just increase debt for the future.
“Debt is bad although it’s what fuels business expansion. Frugality is a virtue but it’s more challenging to practise it now since we’re all encouraged to spend,” he said, adding that fiscal stimulus packages such as infrastructure development or measures taken to stimulate consumption might not always work.
Nazari said Japan was an example of how infrastructure development had not helped. “The bubble burst in the early 1990s but despite all the spending on infrastructure, Japan’s growth has not been exceptional although to be fair, it’s a large economy,” he said.
Japan’s public debt stood at 195.95% of gross domestic product.
He did not see a cut in spending happening anytime soon in major economies. “Barack Obama was voted in because US voters believed that he would be able to solve their problem.” He said it would be a challenge for the US or other countries to not spend their way out of a recession but they would have to be wary of taking on too much debt.
It is inevitable that the public debt in the US would be much larger in the years to come. “The Obama administration will have no choice but to spend; not to spend will be political suicide.”
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