At what point is it pertinent to declare that a government is "bankrupt"? A bankruptcy is noticed when the first default on a scheduled payment occurs, but technically a government is bankrupt when its assets no longer exceed its liabilities.

Malaysia is in the process of preparing a budget of government expenditures for the year 2001. For the past three years the budget has been a deficit one, and this deficit has added to the total debt burden of the country. At the present time the debt service requirement is over 20% of the estimated income of the government from all sources. The new budget is expected to again be a deficit budget, in spite of all political patter by the pm to the contrary.

Malaysia has embarked on an experiment which entails financial peril that is apparently not recognised by the party in power. There is a pegging of the Malaysian ringgit to the US dollar at a rate of 3.8 to 1. For the past year there has been universal acclaim for the wisdom of this decision, which allows foreign trade contracts to be made without the foreign exchange risk which occurs when the national currencies are allowed to float.

Currencies of a country tend to reflect the stability of the total political and economic situation in that country. These cannot be pegged to the currency of another country. If country A has an income and and inflation rate, this cannot be abrogated by fiat by the politicians of another country. Each country must stand on its own situation, and when country B overspends in an effort to pretend a political and economic sophistication that is absent, then the entire economic climate in country B will reflect this excess, to the distress of the national currency.

Malaysia has made enormous foreign loans to support its infrastructure development program, largely the pipedream of its prime minister. These loans represent a burden that must be repaid. The burden is already large, and now another deficit budget is projected which will increase it. The federal budget is but part of the total picture. Each of the states also carries a large debt burden. Much of the banking industry is technically bankrupt, in spite of massive efforts to move their non-performing loans to state agencies.

Many of the major corporations of Malaysia have debt that cannot ever realistically be paid, and this is true whether dot com schemes and loan reschedulings provide additional breathing space or not. The money required is of such magnitude that it cannot be generated within the country, and foreign sources have now become leery of the faulty judiciary system. There is little help to be expected from foreigners.

Many Malaysian loans must be paid in US dollars, and the inflationary pressures in Malaysia are increasing rapidly. Transit fares, tolls and petrol have been increased, and plans to increase electricity rates are already announced. Inflation tends to deflate the value of the currency of the country in which it occurs, and though the ringgit is now pegged, it cannot indefinitely remain so, because the situation would eventually become ridiculous, if it has not already become so.

Loans that must be repaid in US dollars will become a much greater burden if the ringgit decreases in relative value, as may be noted by observing the neighboring countries of Indonesia and Thailand. Should the ringgit be seen as a comparable currency for international trade, it will be difficult for the Malaysian government to ever remove the peg, because the consequences would be disastrous. The foreign debt would immediately become unmanageable.

If it is the ringgit peg which is the only thing that prevents the bankruptcy of Malaysia, then it will be impossible to remove it in the future. To maintain the peg, however, the Malaysian government must have a source of US dollars, and this is becoming more and more of a problem. US dollars in the amounts required are not easy to acquire, especially when the Malaysian government is continually berating "the West" (meaning the US) for "interfering in the internal affairs" of Malaysia.

The corruption in Malaysia is endemic, which was not widely appreciated until recent events have made this obvious. Advised to clean up the judiciary, the Malaysians have maintained that "our judiciary is just fine, thank you, and please butt out." This approach has not resulted in improved investor confidence. There is nothing in the coming budget which can overcome such arrogance in the face of international condemnation.

The pm insists that all is well, and the infrastructure programs are all well planned and necessary for Malaysia's future. The massive Bakun dam project, which is an environmental fiasco of staggering dimensions, will provide electricity for the tropical paradise of Borneo, in what must be the world's greatest effort in the "field of dreams" approach to national planning. Build electrical power and they will come. Maybe so, but is this a place to risk scarce resources?