Chairman Lodin, come clean on 1MDB, figures don’t lie

November 19, 2014

Chairman Lodin, come clean on 1MDB, figures don’t lie

by Kharie Hishyam

Like a toddler learning to walk, controversial state investment fund 1Malaysia Development Bhd is slowly coming out to refute its critics. But proper explanations are yet to come and its latest public statement only spawns more questions.

Amid the burning fire of controversy over its questionable dealings, state investment fund 1Malaysia Development Bhd (1MDB) has come out and “assured” Malaysians that its investments were carefully made and professionally managed. Alas, the same characteristic of being professionally managed can also probably be said about many of the 23 public-listed companies in Bursa Malaysia’s PN17 list. But what’s in labels anyway?

In the corporate world results, not reputation, is what delivers and one wonders why 1MDB, with all the professionalism within its managerial ranks, has bled losses year after year with only paper gains papering over the red ink.

lodin-wok-kamaruddinA corporate figure once said that numbers tell a thousand stories and it is in 1MDB’s numbers that the story contradicts what its chairman, Lodin Wok Kamaruddin, said about 1MDB’s investments.

So what had 1MDB so prudently invested in? According to its audited accounts, 1MDB invested a total of RM13.4 billion for the financial year ended March 2014 (FY14) in various places globally. This figure includes the RM7.7 billion parked in a structured investment company called a Segregated Portfolio Company (SPC) based in the Cayman Islands, managed by Hong Kong-based Bridge Partners.

And for these investments, 1MDB gained dividend income of RM437 million, which represents a paltry return of 3.26% on its investments. Considering the point that 1MDB could have parked the money in fixed deposit or government bonds and still get similar return — with an added bonus of less foreign exchange risk — it begs the question of why 1MDB bothered to go overseas in the first place.

Of course there is an even uglier side to the investment story: 1MDB’s audited accounts reveal that the investment fund is earning a mere 0.68% interest on its cash pile of nearly RM4 billion.

On the other side of the coin is that 1MDB’s finance costs or interest rates range from roughly 5% up to as high as 18% per annum.In effect, 1MDB is earning much less with its money compared to how much it is paying to have that money in its coffers. Worse, a big chunk of its money is left idle after paying so much to borrow the money in the first place, earning next to nothing in interest.

Why? Simple logic dictates that to make profit, capital must be put to work such that it earns more money than it costs to acquire the capital in the first place. That’s how you earn profit.

1MDBLeaving the capital idle definitely does not qualify as “investing”, unless having idle cash qualifies as investment (a poor one if you have loan repayments to meet). Why incur borrowing costs for nothing?

No wonder 1MDB is finding it difficult to service its loan commitments. Speaking of which Lodin stated that the investment fund believes it can meet its financial commitments.

“Some of the loans are long-term in nature but we believe this financial commitment can be met,” Lodin was reported as saying by Bernama, adding that 1MDB is looking to restructure its short-term loans to match its longer-term investments. “We are also in the process of adding and unlocking value to the assets that we have acquired.”

Najib and 1MDB

Recall that 1MDB already extended its RM5.5 billion bridging loan, originally part of a RM6.2 billion loan from Maybank Investment Bank in 2012, multiple times, even delaying its power assets listing due to negotiations on its debt obligations.

Now this begs yet another question: why borrow on such short horizons if the capital is intended for long-term investments? Would it not make more sense to match the repayment timeline with when the returns on investment are expected to flow in?

And unlocking value to the assets 1MDB had acquired, of course, would not be too difficult. Its properties were acquired cheap from the government, after all, and from there it is simply a matter of bringing valuations up to market benchmarks.

As for its power assets, KiniBiz had previously examined why 1MDB grossly overpaid for them, even borrowing money to do so despite having much cash lying around. Now is this prudent investing as 1MDB Chairman Lodin so generously claimed? Hardly. Numbers don’t lie and in 1MDB’s case, red ink remains red however you call it otherwise.

Perhaps 1MDB is revolutionising investment before our very eyes. Maybe there is a deeper wisdom to its strange madness of borrowing at high cost and making low-return investments.

Or maybe, just maybe, 1MDB simply made poor investment choices and consequently lost some RM5 billion over the past few financial years bar paper gains from revaluing its properties.

In which case what 1MDB seems to be saying right now fits right into the first part of the Kübler-Ross’ five stages of grief: denial. And we have not even talked about its losses of up to RM4 billion from its bond mispricing yet…



The Avaricious, the Corrupt and the Uncaring

November 15, 2014

The Avaricious, the Corrupt and the Uncaring

by Balan Moses

Balan-Moses-ENG NEW-1THE mudflow and landslides that killed five in Cameron Highlands last Wednesday and caused untold misery to scores of others is a tragedy in more ways than one.

The human toll and damage notwithstanding, the price the public had to pay due to official malaise was astronomical. People who had been living their lives peaceably and in harmony with the environment were rudely awakened by mudflows and landslides caused by extensive land clearing and poor management of the same.

They had thought that last October 23rd’s incident where a mudflow had tore up houses and other buildings and tossed cars about was the last of this intrusion into their lives.But they were sadly mistaken as events last week amply proved.

CAMERON HIGHLANDSIllegal Land Clearing in Cameron Highlands

Thirteen months later a rural community that was minding its own business was shaken to its roots by the bitter fruits of the labour of the corrupt, the avaricious, the careless and the uncaring.

While many businessmen will generally do anything they need for the extra ringgit (as can be seen in the case of greedy people in the Cameron Highlands issue), I take exception to the continued malaise of government – in this case, the relevant federal authorities, the state government and its related agencies and the local authority  – in the matter.

The proliferation of farming activities, both legal and illegal, has been ongoing in the former hill station for decades with little being done to monitor such activities.If something had been done at the genesis of the problem, the people of Cameron Highlands, more specifically those in the Ringlet, Bertam Valley, Kampung Raja and surrounding areas, would not have been caught in this most distressing situation.

The rivers became silted over the years, the temperature rose, the beauty of pristine Camerons Highlands was desecrated by vegetable farms.But no one really cared. The businessmen continued with the expansion of their farms and the powers that be with the nominal supervision of such activities.

Last October, there was general umbrage in Malaysia, especially in government circles, over the mudflows amid promises that something would be done to ensure that this would not recur.

But they could not exercise authority over the perpetrators of such environmental carnage. Neither could they control nature, which did what came naturally to it, and moved tonnes of mud down an impossibly narrow and shallow river into  homes and habitation.

At this point, the northern Malay saying comes to mind. Pi Mai, Pi Mai. Dok Tang Tu.’So what happens now? Enough of finger-pointing, I say. It has got us nowhere. The only thing that can be achieved with this exercise is placing fault with those responsible. It cannot change the situation unless people are shocked out of their inertia and into action.

I am amazed that Government and elected officials are telling us the same thing that they did last year when a similar occurrence took place.Statements are now being made that should put the fear of God in those engaged in illegal land clearing. But will they work?

To be fair, I do not really know. The government appears to be well-intentioned in making these statements as it did the last time around. Only time will tell.

I believe the key to a change in the situation in careful and accurate mapping of the entire Cameron Highlands area by the local authority with the necessary equipment to perform the task in a particularly difficult terrain.

Helicopters may be the answer to this long and tedious task on mapping out areas of legal activity and otherwise. In this respect, I am astounded by statements alluding to the belief that the authorities may not have known the extent of illegal clearings in the Camerons.

This is unbelievable. It may be part of the Malaysians malady of government officials sometimes not seeing and acting on problems that overtly affect the people. One thing is sure: We need dedicated and conscientious officials who are willing to go the extra mile to keep our hills safe for future generations.

I believe I speak for all Malaysians when I say that we are unwilling to see another tragedy anytime down the road. We must act now. There is no other choice.

Preventing Mega Deals

November 11, 2014

Preventing Mega Scandals

by Khairul

Najib and 1MDB

Notorious mega scandals — past and present — involving huge companies and projects such as  BMF (Bumiputra Malaysia Finance), Bank Negara Malaysia’s foreign exchange (forex) trading, Bakun dam and PKFZ (Port Klang Free Zone) were characterised by massive loss of public funds, inadequate oversight, lack of transparency and accountability.

Many of these scandals were invariably linked to the government or government linked agencies, as well as top politicians. Not even a company like PETRONAS (Petroliam Nasional Bhd), perhaps Malaysia’s biggest multinational and renowned worldwide, is immune from scandal.

Is the pervasive presence of government and politics in huge projects at the heart of the problem? No less an authority than Tengku Razaleigh Hamzah (Ku Li), former Finance Minister and former Chairman of PETRONAS, seems to think so, citing Petronas as a prime example.

Political interference and abuse


“There has been consistent political interference (in PETRONAS), even though it is a professionally well-run corporation. It is being abused and treated as the piggy bank whenever the government needs cash in a hurry. Government has relied on PETRONAS to help outfits with strong linkages to the government get out of financial trouble since 1985,” said Ku Li earlier this year.

Tengku Razaleigh Hamzah

The Gua Musang MP (Member of Parliament) mentions several high profile cases where the federal government has utilised PETRONAS to finance or rescue troubled projects.

“In 1985, Bank Bumiputera was rescued with a RM2.5 billion bailout and again in 1991 when it coughed up another RM1 billion. In 1997, PETRONAS had to rescue the financially ailing Konsortium Perkapalan Bhd (KPB) for RM2 billion. The national oil company was also made to underwrite the construction of the Twin Towers in the heart of the KL golden triangle for RM6 billion and the building of the extravagant Putrajaya for RM22 billion,” said Ku Li.

Over 37 years from 1974 – 2011, the government had been paid approximately RM529 billion in dividends, taxes, petroleum proceeds and export duties from the national oil company. According to Dr. Ong Kian Ming, Serdang MP, the involvement of the Malaysian government in big business has evolved rapidly over time.

“Previously, it was just the awarding of government contracts. Now, the government has been able to use more instruments at its disposal to influence and be involved in business,” said Ong to KiniBiz. He cites the increasing use of Public Private Partnerships (PPP) in order to push through development projects without incurring more government debt.

“Projects like the MRT (Mass Rapid Transit) are considered off-budget items either as government investments or loans. Other examples include the increasing use of MOF (Ministry of Finance) incorporated companies who get involved in the private sector, like 1MDB (1Malaysia Development Bhd) in the power generation sector, the increasing use of GLCs (government linked companies) to push through ‘crony’ projects (e.g. PKFZ via PKA – Port Klang Authority) and the use of government funds in private equity to take over certain sectors of the economy (e.g. Ekuinas in education and F&B),” said Ong.

Loss of investors’ confidence

The Serdang MP says that one of the major concerns over the mega scandals is the loss of  investors’ confidence in the transparency of Malaysia’s financial market in the long-term.

“There is uncertainty over how much the Malaysian public has had to pay for these scandals. For example, how much did the Malaysian government fork out to bail out Tajudin Ramli  from MAS (Malaysian Airlines)? How much did the Perwaja Steel scandal cost the government? The government’s financial statements still lists an outstanding loan of RM3 billion to Perwaja that has not yet been paid.

“How much will the PKFZ scandal cost the taxpayer? PKA’s debts to the government is Dr.Mahathircurrently more than RM3 billion after it was given a soft loan to pay the proceeds of the PKFZ bond payments. There’s also uncertainty over how much ongoing and future scandals will cost the Malaysian taxpayer. For example, how much will 1MDB ultimately cost the taxpayer if and when a bailout is needed?” Ong said.

Ong also adds that these mega scandals have persisted over the last decades because the underlying structure of these contracts haven’t changed.

“No open tender, no public debate on the Requests for Proposals (RfP). Most, if not all, are done via direct negotiations. It still allows for the use and abuse of the power of the Prime Minister (PM) and the Finance Minister in terms of awarding these contracts,” said Ong.

Dr.Yeah Kim Leng, Dean of the School of Business at Malaysia University of Science and Technology (MUST) agrees with Ong, saying that these huge scandals persist mainly due to weak governance as well as ineffective enforcement.

“I scratch your back, you scratch my back”

“The ‘keep-one-eye-closed’ attitude for buddies, and warped self-beliefs such as “if I don’t do it, someone else will” and “I scratch your back, you scratch my back” could have fostered such scandals,” said Yeah to KiniBiz.

The Dean also adds that although there may be cases to justify the use of public finances and GLCs such as PETRONAS to rescue financially distressed companies, there are obvious downsides too.

“The disadvantage is that such rescues create an implicit guarantee or moral hazard, whereby the principals will continue to engage in risky behaviour knowing well that the government will step in should they fail. Another negative consequence is the perpetuation of a ‘soft anti-corruption environment’ whereby if the stakeholders engage in illegal behaviour, they can expect either a ‘look-the-other-way’ or a lenient penalty should their illegal actions be discovered,” said Yeah.

He also adds that Malaysia was ranked 36th in 2000 but had since slipped to 53th position in Transparency International’s Corruption Perception Index in 2013.

“While the slide is consistent with the incidence of scandals, the current standing may not be alarming considering that there are more than 170 over countries. Relative to the country’s GDP (gross domestic product), the mega scandals may also appear to be small.

MACC should be “let loose”

“The critical concerns are the missed opportunities, high costs, negative externalities, and long term deleterious effects that corruption imposes on the economy. Investors turned off, businesses abandoned, domestic capital moved abroad are some of the difficult-to-measure-and-detect impacts of corruption. To the government’s credit, corruption had been incorporated as one of the seven National Key Results Areas (NKRA),” said Yeah.

Abu Kassim

So what does Malaysia need to do to prevent further mega scandals? “The setting up of the MACC (Malaysian Anti-Corruption Commission) is a necessary condition but certainly not sufficient. It has to be ‘let loose’ i.e. completely independent to pursue corruption cases without fear or favour.”

“Equally important for the society as a whole, the values system and incentives for businesses, regulators and politicians have to be aligned towards ‘good ethics and integrity pays’ and not ‘corruption pays as long as you’re not caught’,” said Yeah.

Similarly, Ku Li points to corruption as the root cause of the problem. “The link between politics and wealth is quite plain for us to see,” Ku Li said. “The tendency is to grab a bigger slice of the pie rather than making that pie bigger. The consumer suffers in the end.”

The former Finance Minister admits that corruption is Malaysia’s number one problem. If the country can get rid of corruption, it can get rid of some if not most of the problems in the country, says Ku Li.

“A lot of money is wasted away. We are bearing the costs. Everything is inflated. Cost of projects, cost of doing things. Too expensive now. So much so that it’s passed on to the consumers.

“The people at the bottom have to bear the additional costs. The government has to grab the bull by its horns and go after corruption. There’s no two ways about it,” said Ku Li in an interview last year.

Business vs. Economics

November 3, 2014

Business vs. Economics

Malaysia as seen from Washington DC

October 29, 2014

Malaysia as seen from Washington DC

By Kean Wong, Special to the Malaysian Insider

 The White HouseThe White House, 1600 Pennsylvania Avenue

Prime Minister Datuk Seri Najib Razak had just outlined the robust prospects for Malaysia’s economy and was busy posing for photos with Malaysia’s new Ambassador to the United States Datuk Awang Adek and various Manhattan dignitaries on stage when a few visiting Malaysians and an American businessman familiar with what he called the “heyday of Mahathir’s Malaysia” opened up around the coffee stand about the challenges that needed trouncing today if the weather was to clear up in the weeks and months ahead.

Like President Obama – who considers PM Najib a close Asian confidante, andNajib and Obama according to Washington insiders, a “most reliable friend” amid an anxious region – the Prime Minister has sought comfort in foreign policy wins over the often thankless and truculent realities of domestic politics.

So the ringing global endorsement of Malaysia as a new UN Security Council member next year that handily coincides with its much-awaited chairmanship of ASEAN (after Cambodia’s recent vexed leadership) is justly deserved and celebrated, avers a veteran former Asian diplomat now at the United Nations in New York.

Razali IsmailThanks to Malaysia’s “inspired and markets-friendly” global leadership during the Mahathir years, and fondly remembered diplomats like Tan Sri Razali Ismail, Malaysia still glows on the world stage.

The country represents a “necessary and useful” example and plays an international role as a globalised, Muslim-led country at a time of fraught Western relations with the Muslim world, notes a senior American diplomat echoing a common view at Washington-based think-tanks like the Council on Foreign Relations and the Center for Strategic and International Studies (CSIS).

In the current campaign against Isis and its unravelling of Iraq and Syria, where the Obama administration has been desperately keen on stitching together a better “coalition of the willing” (Muslim) nations to combat such extremism, the Najib government is a stalwart ally.

Despite American concerns raised over the alleged use of the Sedition Act to crackdown on Malaysian dissent and an expectation that this week’s Datuk Seri Anwar Ibrahim trial will turn out poorly for the opposition leader, there is a prevailing Washington agenda about terrorism, China’s rise and related trade deals like the Trans-Pacific Partnership (TPP) – not necessarily in that order – that should not be derailed.

John KerrryAs a senior US State Department official explained in a briefing ahead of Secretary John Kerry’s series of bilateral meetings in Jakarta following President Joko Widodo’s inauguration, “at the top of the list (is) the international effort to degrade and ultimately destroy (Isis)… we hope that the individual countries can do more and cooperate more to ensure that, in the first instance, Southeast Asia remains immune to the proselytizing efforts of Isis; and secondly, that these countries assist effectively beyond what they’ve done already to rebut the false ideology.”

“Of course, Malaysia, Brunei, and Singapore are also members of the TPP negotiations. That’s a topic that is likely to be touched on (in bilateral talks),” Kerry said. “Malaysia, I would flag for you, has just won a seat on the UN Security Council circa 2015 and will take over from Burma in 2015 as the next chair of ASEAN. So there’s a lot of good work to be done in the meeting with Prime Minister Najib.”

Yet it was the mixed results so far of Najib’s Economic Transformation Programme (ETP) and worries over the Prime Mminister’s political future that coloured the backdrop of conversations accompanying a slew of Malaysian leaders over the past month of American visits.

For one traveling Malaysian businessman, speculating about life after a Najib Prime Ministership was apparently commonplace among his peers. He was concerned that the “many good ideas and sincerity” of the Prime Minister’s team in pushing Malaysia forward could be jeopardised by the various UMNO-linked pressure groups like PERKASA and ISMA, which “did not understand” how the globalised Malaysian economy worked.

Perhaps surprisingly, his American businessman friend was more adept at working out the realpolitik, contrasting Washington’s acute polarisation of politics and culture by going through Malaysia’s possible list of successors, and echoing what some in UMNO Youth have argued is the ascendancy of leaders like Khairy Jamaluddin to break political deadlocks (and stasis).

But as another visitor remarked, where does that leave the present incumbent? With looming defeat expected at next month’s polls for the Democrats – where losing control of the US Senate means souring prospects for Obama’s domestic agenda and legacy – perhaps navigating past lame-duck leaders will be the corporate world’s biggest challenge on both sides of the globe.

Yet the bilateral relationship between Malaysia and the US has “never been better”, Malaysian Defence Minister Ahmad Zahid Hamidi, pictured in 2010greased along by a “strong” personal bond forged between the Prime Minister and President Barack Obama, explained a diplomat travelling with Home Minister Datuk Seri Ahmad Zahid Hamidi to Washington last month.

As a measure of the depth of bilateral ties, and in time for the current campaign against Isil and related security threats, Zahid was feted across Washington in long meetings with key Obama administration officials such as Homeland Security Secretary Jeh Johnson, CIA Director John Brennan (where Zahid spent three hours at the Langley HQ), and Attorney-General Eric Holder.

Zahid later explained at a Malaysian Embassy dinner that our “strong ties, trust” will also help propel along the likelihood of Malaysians being granted coveted visa waivers to the US, in another sign of the strengthening “people to people” links that are a key feature of bilateral ties.

In an embassy reception marking both Hari Merdeka and Armed Forces Day, Zahid as a former Defence Minister also listed in his speech the various ongoing Pentagon-funded programmes and regional exercises where Malaysia plays a key part, that was as much a legacy of Malaysia’s anti-communist Cold War role as today’s delicate exigencies over the South China Sea.

The Minister waved away concerns over domestic politics by referring to the “national interest”; moreover, as a senior officer working for the Pentagon’s Joint Chiefs staff saw it, Malaysia’s domestic uncertainties paled by comparison to the jostling ASEAN faces in the South China Sea with China and there was “much to look forward to with Malaysia’s ASEAN chairmanship”.

J YunAt a discussion a few nights later at nearby American University, the visiting US Ambassador to Malaysia Joseph Yun (left) also echoed the Home Minister’s celebration of our American relationship, and explained that Malaysia was on track to join the US visa waiver programme as our “5% visa refusal rate” trends down towards a 3% criterion.

While the US envoy was perhaps more circumspect than usual in deference to the Malaysian Ambassador in the audience, Yun did note American concerns over the “social, political challenges” that included vexed differences over religious issues and the ‘politicised’ TPP negotiations.

The audience chuckled along when both envoys agreed the Malaysian government faced such dilemmas in a polarised atmosphere “just like Washington”, blaming much of it on “hard to control” social media and the Internet.

Yet as the former US Ambassador to Malaysia, John Malott, points out, strongambassador-john-malott bilateral ties notwithstanding, Malaysia has been a skilled diplomatic player in an increasingly anxious region, which knows its interests may be between that of the US, China and Asean over immediate issues like the South China Sea – and the need to recalibrate responses to China as it asserts its economic weight and ambitions.

“I find it amazing the US puts so much store in the TPP with Malaysia when there are other economic and trade interests that are just are important to American companies, when American companies don’t get a fair shake because of the problems of corruption, a lack of transparency in such areas as ‘no bid contracts’,” Malott said.

Perhaps a more attractive future Malaysia shimmered into view a week later when the increasingly popular Yuna took the stage at George Washington University’s Lisner auditorium downtown. As the gaggle of so-called “hijabsters” danced, clapped and swayed in the aisles, Yuna charmed the rest of us with her mix of polished pop tunes and modest tales between songs about her experiences as a Malaysian taking on the Los Angeles music world.

In the crowd queueing for photographs and autographs afterwards, the Malaysians who turned out in force for their homegirl merged seamlessly with the wider America on display. The future seemed within grasp for now.



Malaysian Prime Minister’s 2015 Budget Speech

October 15, 2014

Malaysian Prime Minister’s 2015 Budget Speech

Below are my comments:

Najib at the Press ClubThe Budget Speech was a pathetic demonstration of our Prime Minster’s inability to come clean or present the big picture. The point is not about what he said but what was not said. Most of the 30 pages of the speech were devoted to the spending side which essentially was all about handouts and a laundry list of projects that will benefit  UMNO warlords and their cronies.

Very briefly:

GST & Income Taxes: The GST will yield RM 23.2 billion but with the repeal of Sales Tax (RM13.8billion), net increase will be RM 9.4 billion. This means a net burden on middle and low income households whose incomes are stagnating . This burden is on top of the hit from the withdrawal of subsidies on fuels. True enough the PM hands back in some by way of an increase in BR1M and a few other handouts. Nevertheless, the net outcome is that middle and low income households will bear the brunt. He next lowers corporate and personal income tax – the beneficiaries are the rich, the well-connected and the tycoons and their corporations.The budget ignores all sense of equity and fairness. The effect is that the wide income disparities that exist will be further widened.

Macro-Economic Picture: Najib’s speech hardly provides any details about the basic fundamentals that were used. He essentially painted the usual rosy picture – 5 to 6% growth in GDP. This is higher than what the IMF has projected ( 5.2%).  Najib does not say a word about inflation. Note IMF is projecting inflation at  4.1 % in 2015 a jump from 2.9% in 2014. The tables in the Treasury Economic Report show some detail — key is that Private Consumption and Investment growth will be slower in 2015. Overall growth will thus depend on the public sector.

The critical issue of public debt is dismissed in a sentence or two. He is telling us like the snake oil salesman “ Trust me, the deficit will be 3.0 % next year!” No details are given on how we  can get there! Nor are we told what the hidden contingent liabilities are or how much off budget borrowing there has been or will be in the year ahead. There is not  even a whisper about the ballooning size of private household debt last reported to be in excess of 85% of GDP.

 Najib also hardly makes mention of the huge illicit capital flight that continues or the brain drain that directly impact adversely on his vision of a knowledge based, innovative, high tech economy. He repeats the mantra of joining the ranks of the developed high income countries by 2020. That is a pipe dream given the lower rates of growth experienced in the recent past and now projected.

Here is a bombshell about which we hear not a pip from Najib or for that matter in the media. The bombshell is reported in the Treasury Economy Report. The Economic Report discloses that Malaysia’s external debt totals RM 729 billion, equivalent to 67.6 percent of GDP. This compares with a debt level of RM 335.6 billion or 31.1 percent of GDP before the revision. This more than doubling of the external debt cannot be swept under the carpet.  It should be sounding alarm bells.

The Report goes into a long discourse about revised international standards for debt reporting being the reason for a sudden rise in the level of foreign debt. Under the new definition non-resident holdings of local currency debt, loans and credits and non-resident financial flows are treated as external liabilities.

The Treasury Report offers a weak justification for the high level of external debt asserting that the rapid growth of the bond market has led to sizable increases in the participation by non-residents in lending in the Malaysian market.

However, the Report fails to point out that a sizable part of the debt is short-term (with a ratio of 47.6 percent to GDP). Such short term debt is by nature volatile and subject to flight in periods of uncertainty.  It would appear that we did learn lessons from the 1998 East Asia Crisis which was triggered by the withdrawal of short term funds. It is highly irresponsible to ignore the dangers and not have clear policies to address a potential devastating crisis.

 By the way, speaking of the Treasury Economic Report, here is an indication of sheer incompetence: Take a look at Table 1.3 – Key Economic Data of Selected Developing Countries. Yes, the Whiz kids in the Treasury have taken upon themselves the task of reclassifying Australians and the Russians as part of the Developing World.  It is also noteworthy that Asia’s third largest economy (India) does not merit mention.

Bottom line: Judging by the way the Government is managing the economy, by 2020 we shall as a country, already trapped in the middle income group,  move into the sub-category of Highly  Indebted Countries.

How I wish I could be more generous. For a more sympathetic commentary please read Tan Sri Dr. Ramon Navaratnam’s article [

–Din Merican