By Ho Kwon Ping

Helping credit flow again

THE top priorities of Minister of Finance Tharman Shanmugaratnam's 2009 Budget are protection of jobs and provision of credit to companies.

This makes sense. For now that the tsunami has washed over the housing bubble and also decimated the global banking system, the final ramparts of defence against a global depression - the real economy of widget-makers, service providers and the like - are being badly battered. If otherwise healthy companies succumb to the strangulation caused by the global credit crunch, there will be nothing to hold back a global economic meltdown.

It's estimated that half of the investment-grade companies in the world will not have enough cash to take them through this year without refinancing their current debts. If we included non-investment grade companies, the number is around 65 per cent. How many companies in Singapore, big or small, urgently need refinancing this year, no one seems to know.

Commercial sources of loans have virtually dried up. Even assuming that healthy local banks can be persuaded to lend, foreign banks will not do so. And private investors will not subscribe to corporate bonds.

Add to that the huge sucking sound of governments issuing bonds to cover their own record deficits, and one can imagine how tough it will be for companies - including the healthiest in Singapore - to refinance their maturing corporate bonds.

The Bank of Japan has already foreseen this problem by expressing its willingness to subscribe to corporate bonds - an unprecedented move for a central bank, but there may be no other choice. The US Federal Reserve and the Bank of England are contemplating similar measures.

The Government should consider what it would do if, later in the year, otherwise healthy Singapore companies are threatened because of the complete drying up of credit. The measure Mr Shanmugaratnam proposes - the Special Risk-sharing Initiative - is a step in the right direction, but applies only to SMEs. Large companies may also soon become vulnerable.

Our central bank may truly have to become the lender of last resort - not only to commercial banks, but also to Singapore companies. Not a comfortable or orthodox thought, but one which cannot be disregarded if the global economy edged closer towards the abyss.

The writer is executive chairman of Banyan Tree Holdings.

This article was first published in The Straits Times on February 03, 2009.