Most people nowadays are saddled with heavy debts and are struggling to make repayments, including Brunei. The move made by MOF on capping on personal loan few years ago and curbing credit card debt last year had been met with a slow down on consumer spending in the country. In effect this had affected the country's GDP's growth. I do not know if this had been anticipated by MOF.
To me, the action taken by MOF had been a double edge sword. On one hand, the country is proactive in limiting and protecting the population from debt but on the other hand, it also slows down the country economic activities.
Now the questions are how do we get the country economy moving again? Should the government "pay" the population debts in order to get the economy humming again?
Printing money to extinguish private sector debt seems like a good plan. However, it doesn't take into consideration that a lot of the debt was incurred to finance non-productive endeavors, such as asset speculation. In other words, this plan would be like printing money without increasing productive capacity. This would likely lead to inflation. It's so much better to print money in exchange for work which leads to productive capacity. Plus, paying people for their debts is unfair. What would that tell people going forward? That it pays to get into debt? And what if people in the future get excessively into debt in order to get ahead, i.e, bid up asset prices while trying to corner assets in the economy. In the end, you'll have people with all the assets and no debt, and then people who never went into debt and don't have any assets. Not fair, and could lead to gross misallocation and crises.
But then, I see that this scenario causes the newly-printed money to be destroyed (along without the debt), and hence not cause inflation. It also frees private sector from the peachy burden of deleveraging, and get private sector demand moving again. Therefore, I gee that there should be an element of debt write-down in solving the current mess, but there should also be a rule that says people forgiven their debt should not turn around, and use their now increased net equity to again speculate on more assets. after all, with their debt erased, they can now sell their assets and bid up on new assets,(and especially if GDP proponents are listened to, and money is thrown to people to BORROW again. After all, if people don't borrow, how does GDP grow constantly?) If this scenario happens, we'll now have inflation, and we're right back to people with heavy debt.
