Brace for surge in bankruptcies, warns think tank man

The normally busy Petaling Street is deserted as businesses close in Kuala Lumpur and other cities as part of the movement control measures to contain Covid-19.

PETALING JAYA: A think tank’s research manager has warned of increasing numbers of companies going bankrupt despite government initiatives to take pressure off businesses affected by the Covid-19 crisis and the movement control order (MCO).

Speaking to FMT, Lau Zheng Zhou of the Institute for Democracy and Economic Affairs said the initiatives were “not going to save every single business out there” although he commended Putrajaya and Bank Negara for their emergency policies, saying they might do some good.

“They’re just trying to do their best to minimise and contain the number of bankruptcies,” he said.

He foresees a surge in bankruptcies over the next six months.

A major problem to grapple with, he said, was the unpredictable nature of the Covid-19 crisis. “So it’s very hard for the government and for businesses to plan ahead.”

He suggested that the government take a step-by-step approach in tackling the looming problem and, as the crisis evolves, to identify which areas of the economy to target for support.

Lau also said Putrajaya should consider lifting the MCO for certain industries in stages once the health initiatives had begun to show results. This might be better than relying on stimulus packages to help businesses, he added.

He said the impact of bankruptcies would be immediately felt through job losses and the impoverishment of households and later through reductions in the nation’s production capacity.

“When businesses fail, you have disruptions to the supply chain. Businesses may not be able to find suppliers. In fact, that’s happening as we speak.

“Even if we’re able to one day get out of the Covid-19 crisis, we’ll still be stuck with the economic problems because production has been damaged so much.

“So it’s important to identify critical industries and expand the essential goods list in a responsible manner, just to make sure we don’t suffer too much from the disruption in our production capacity.”

Lifting the MCO gradually and adding more industries to the list of essential services would allow production capacity to go up a little bit, he said.

“If you can expand the list fast enough because you’re able to detect and contain cases, then some of these problems with bankruptcy, non-performing loans and retrenchment can also be addressed.

“The companies in the list will be able to make some money, to retain their people and to create some demand,” he said.