Don't call the bluff

Please don't call the bluff when you can't afford. The government is finally eating the humble pie by discontinue windfall tax on IPPs after seeing billion of Ringgit flowing out from Malaysian bonds market and equities shed a few billions of market capitalization as well. It has domino effects not only higher borrowing cost hit IPPs but the whole Malaysian bonds market as well. Malaysian Government bonds 10 year yield was up from mid-May 3.85% to 6.45% before easing to 4.85% on Thursday(after government announcement of scrapping the tax).

With high borrowing cost, companies refuse to issue bonds that lead to liquidity contraction. Broader economy will suffer. It's a evil vicious cycle will just feed onto itself, don't play play.

Now we all know how difficult it is to make structural change when this IPP agreement was drawn up many years ago. U turn policy for this windfall tax has far reaching implications. For example, I doubt the government has strong will to reduce petrol subsidy as well. If they continue to slash price at the pumps, we can expect inflation to be suppressed again. I am also doubting we can reverse many of bad agreements and policies that being drawn up by the previous and present administration.

At the end of the day, we are still living with subsidy - living with status quo. On the political front, the government is using ISA again. Sigh....................