Anwar Ibrahim for Selangor: Let the people of Kajang decide.


January 31, 2013

NOTE: My close friend, who calls himself Horse when commenting on this blogDin MericanX and whose political insights I value, told me that Anwar Ibrahim’s decision to contest in Kajang and then with the consent of his Pakatan partners he becomes the Menteri Besar, Selangor upon his electoral victory was a stroke of political brilliance with serious implications for  Selangor under Pakatan Rakyat.

As Menteri Besar, Anwar will be able to participate all policy discussions at the national level. As Leader of the Opposition, he is denied that opportunity since unlike in the UK and the US, the Leader of Opposition and the US Senate Majority Leader and Speaker of the House, he is shut out of policy deliberations and issues of national importance. Here is his vast experience as a legislator, former Cabinet Minister, and Deputy Prime Minister cum Minister of Finance, will prove invaluable in his role as Menteri Besar, Selangor.

It is true that Khalid Ibrahim has  done a good job as Menteri Besar and we must acknowledge and thank him for that. But given the present difficult circumstances for PKR, he has agreed to step down as Menteri Besar, once the people of Kajang have spoken. It would save PKR from further agony if the tussle between Azmin Ali and him were to drag on. Anwar knows both Azmin and Khalid well and recognises their respective contributions to the party and their deliberations in Parliament and Dewan Negeri.

I for one suspend my judgement on this issue. I look forward in the ensuing days to hear what Anwar Ibrahim and his Pakatan colleagues have to say on the state of Selangor politics, and his decision to contest in Kajang. But looking back the Permatang Pauh situation in 2008 when Dato Seri Wan Azizah made way for him to contest for her seat, I can say that it was a very strategic move for PKR and Pakatan Rakyat. Without discounting Wan Azizah’s contributions as Member of Parliament, Anwar’s role as Leader of the Opposition since that time was effective and constructive. His speeches, which are now part of the Hansard, provide ample evidence of the quality of his thinking and policy and legislative proposals. –Din Merican

Anwar Ibrahim for Selangor: Let the people of Kajang decide.

by M. Manogaran@http://www.malaysiakini.com

OPINION: There is a lot of talk and debate on this issue. There are many views opposing Anwar Ibrahim as the next Menteri Besar of Selangor. And, many are reluctant to even try and understand the reason behind such a strategy.

One must understand that any political party is entitled to strategise. In fact, it must, for its survival and for the betterment of the party and the coalition it represents. What is so wrong in Anwar becoming the next Menteri Besar of Selangor? This must be looked into from several angles.

Besides the fact that any party having its right to strategise, several other problems can also be resolved by Anwar (left) becoming the Menteri Besar, with the immediate settlement of the Abdul Khalid Ibrahim-Azmin Ali being one.

Selangor will also have the advantage of getting the PKR supremo as its head of government.Furthermore, Anwar is already the Economic Adviser to Selangor. This shift in political position will only help him steer Selangor to greater heights and Selangorians will enjoy being led by the top leader of Pakatan Rakyat.

What could be a better opportunity to showcase to the people of Malaysia how a state should be run? The people of Malaysia can look to Selangor as a model of how the country can be governed in future.

As to the view that the Sultan of Selangor may not agree, I think this is presumptuous. His Royal Highness will surely know that ours is a constitutional monarchy, where the leader of the party which commands the majority support in the legislative assembly will have the right to lead and form his cabinet, or executive council, as the case may be.

Anwar has much more experience

Comparatively, Anwar comes with much more experience than Khalid. No doubt that KhalidAzmin-Khalid has performed remarkably well, for Selangor has grown to be a prosperous state under his leadership. Good governance and integrity were instilled rightly and the overhaul in governance has resulted in doubling revenue collections. No doubt about this.

But if the party wishes to change leadership, democratically there is nothing to stop it. It does not mean a candidate vying to be the Prime Minister of the country cannot be the Chief Minister of a state as well.

Instead of taking the narrow view, this issue should be seen from a wider perspective. Just look at examples around the world. In India, for instance, the Chief Minister of Gujarat state, Narendra Modi, has already been announced by his party to be the presidential candidate.

India is the largest democracy in the world and Indians accept that the BJP party in India has got the right to nominate a state Chief Minister to be their presidential candidate. Drawing an analogy, the effective leader of DAP, Lim Guan Eng, is the Chief Minister of Penang. So what’s wrong with Anwar, the de facto leader of PKR, becoming the Menteri Besar of Selangor?

On the political point of view, and this is I think is the most important, Anwar becoming the Menteri Besar  of Selangor will have serious implications on the BN. Rest assured that Selangor will be under Pakatan for a long, long time to come if Anwar becomes the next Menteri Besar. Selangor will be forever lost to BN, and this is what BN is afraid of. Isn’t that wonderful?

We must not forget the bigger picture. Do not zoom in on the trivial issues like how it is being done but rather why and how are we going to benefit from it. Let us not lose sight of our common enemy. Let us educate ourselves to be a little more visionary.

*M MANOGARAN is the former Member of Parliament for Teluk Intan.

When America Becomes Number Two


January 27, 2014

When America Becomes Number Two

by Kishore Mahbubani(01-21-14)

professor-kishore-mahbubaniKishore Mahbubani is Dean of the Lee Kuan Yew School of Public Policy and author of “The Great Convergence: Asia, the West and the Logic of One World.” 

In 2019, barely five years away, the world will pass one of its most significant historical milestones. For the first time in 200 years, a non-Western power, China, will become the number one economy in purchasing power parity (PPP) terms. America will become number two. Yes, it will take longer for China’s economy to overtake America’s in nominal terms but the trend line is irresistible. And in PPP terms, China’s economy could be twice that of America’s by 2020.

The big question for our time therefore is this: is America ready to become number two? Sadly, it is not, even though Bill Clinton wisely tried to wake up his fellow Americans as far back as 2003. In a very subtle speech at Yale, he asked whether “we should be trying to create a world with rules and partnerships and habits of behavior that we would like to live in when we’re no longer the military political economic superpower in the world.”

Unfortunately, Bill Clinton was too subtle. He was trying to hint to his fellow Americans that America should create a model of rules-based behavior that would then serve as a model for China when it emerged as the number one power in the world. His hint was ignored. Hence, few Americans today are aware that America’s national interests change dramatically when it becomes number two in the world. When it is number one, it is in America’s interests to see that the number one power has complete freedom to do whatever it wants to do. When it is number two, it is not in America’s interests to see that the number one power has complete freedom to do whatever it wants to do. Catch the difference?

Why have American leaders failed to prepare the American population for this significant change of interests? There are at least three reasons. Firstly, it is political suicide for any American politician in office to speak on America as number two. As I document in The Great Convergence, no serving American politician can use the words, “If America is number two…” or “When America becomes number two…” In the land of free speech, there is no effective freedom for serving politicians to speak undeniable truths.

Secondly, most American intellectuals continue to indulge in wishful thinking. In their minds, there is a deep ideological conviction that democracy represents the future and Communism represents the past. Since China is still run by the Chinese Communist Party, it can only represent the past, not the future. Many American intellectuals also believe that since they live in the world’s freest society, they cannot possibly be prisoners of any ideology. This is massive self-deception. When it comes to understanding China, Americans have allowed ideology to trump mountains of empirical data. This is why they cannot even conceive of China becoming number one.

Thirdly, and very sadly, China’s emergence is taking place at a moment of great political paralysis and disunity in the American body politic. If Nixon and Kissinger were managing American foreign policy today, they would have focused on the most critical challenge that America faces and found ingenious ways and means of implementing the wise advice that Bill Clinton offered in 2003 and prepared for a new geopolitical environment. The days of wise foreign policy management are long gone in Washington, DC. Furthermore, with Washington, DC being completely divided and polarized, the challenge of dealing with becoming number two is the last thing on the minds of American policymakers.

Sadly, the last thing on the minds of American policymakers will come true in five years. Will America wake up to this new reality before or after it happens?

http://www.huffingtonpost.com/kishore-mahbubani/when-america-becomes-numb_b_4603125.html 

Respect the Girl


January 7, 2014

Respect the Girl for Talent and Ability

by Naomi Wolf

wolfCLICHED: Language is used to deny women credit, power and agency when it comes to attributing their success

WHEN Mary Barra was named Chief Executive Officer of General Motors  early last month —  the first woman to head a major American automaker — it seemed to many to be a milestone in women’s struggle for equal rights and opportunities. But, in a climate in which, as Catalyst, the feminist glass-ceiling watchdog, points out, only 4.2 per cent of US Fortune 500 CEOs are women, is Barra’s promotion really a victory?

One way to answer that question is to consider who is doing the judging. In the United States, by one count, two-thirds of professional journalists are men, and men account for almost 90 per cent of bylines in economics and business reporting in traditional media. In fact, the reflexive worldview of male-dominated business-news coverage invalidates all talk of a victory, whether for Barra or for the rest of us, including impressionable 15-year-old girls seeking role models and a message of empowerment.

GM's Mary BarraGeneral Motors’ Mary Barra

Feminist analysts of language and media in the 1970s, notably the critic Dale Spender, examined how language is used to deny women credit, power and agency when their successes are noted. That critique remains valid today.

Many news stories about female CEOs and other high-achieving women are coded with a set of reliable clichés: they lucked into their new roles (and thus do not deserve them), inherited them from male relatives or spouses (and thus do not really hold the reins of power) or will not be there for long. If all else fails, coverage concentrates so narrowly on gender that a woman’s very leadership is weakened.

These clichés not only undermine successful women’s reputations; in the case of CEOs, they also reduce their value to their companies. And, all of these clichés were reproduced in the coverage of Barra’s appointment at GM.

For example, CNN covered the story by referring to Barra’s “knack for climbing the corporate ladder” — a phrase with some suggestive undertones and one that would never be used with a man at the top, for whom, presumably, hard work, talent, ambition and dedication constitute more than a “knack”. It concluded by suggesting that Barra will have succeeded when people no longer call her “car girl” but “boss” — though the report offers no evidence that anyone is in fact calling Barra “car girl” rather than “boss”.

Likewise, the New York Times led with Barra’s father, and its headline suggested that she was “born to” her role, as if ambition and hard work had nothing to do with her ascent. It notes the car her husband drives and describes her as “soft-spoken”. And, it includes an excruciating quote from her predecessor, Daniel F. Akerson: “Mary was picked for her talent, not her gender.” Promoting Barra, he goes on to say, “was almost like watching your daughter graduate from college.”

It is difficult to imagine a black male middle-aged CEO (Barra is 51) being introduced to reporters with the assurance that “he was not picked for his race”. And, it is difficult to imagine his white colleague telling the national press that watching this 51-year-old man lead is like watching a 22-year-old “son” receive his BA.

Then, there is the “Potemkin CEO” approach, which implicitly assumes that powerful men would never really choose a woman to lead an important institution. According to this cliché, Barra’s promotion must be a public relations ploy, with men retaining the real power behind the façade.

So, we get this headline from Fortune magazine: “Is GM’s board setting up Mary Barra to fail as new CEO?” The article goes on to explain that being surrounded by male rivals for her job may fatally weaken Barra, as if male CEOs were not also surrounded by would-be rivals.

Perhaps that is because she really is just a lady first, not a manager. An interview in The New York Times’ business section manages to focus the entire discussion on how things have changed for women at GM rather than on what Barra intends to change at GM as CEO, or even on how things have changed in the car industry — surely an important question.

The interviewer even asks at the end whether her husband is a GM employee. With coverage like this, news becomes more than news; it becomes a real-world outcome that negatively affects a company’s bottom-line.

Why would a major corporation, especially one like GM, which suffered a serious crisis that led to a massive government bailout in 2008, risk appointing leaders, no matter how talented, who are bound to generate devaluing news coverage such as this?

I cannot fathom why serious journalists commit such egregious breaches of basic professional norms of fairness and impartiality. When they do, they are performing the role of guard dogs of an endangered patriarchy, defending, and thus strengthening, the glass ceiling.– Project Syndicate/www.nst.com.my

Book Review: ‘The Firm’ by Duff McDonald


November 16, 2013

Bookshelf

Book Review: ‘The Firm’ by Duff McDonald

McKinsey remains the gold standard of consulting. What does it do to earn those hefty fee

Sept. 6, 2013 4:10 p.m. ET

McKinsey-logo1Midway through “The Firm,” financial reporter Duff McDonald’s book about McKinsey & Co., the author recounts a hypothetical scenario once described to a new client by one of the consulting firm’s partners: “Let’s say a client asks us what time it is. . . . If you ask Booz Allen, their response will be ‘What time do you want it to be?’ If you ask A.D. Little . . . they will tell you ‘It’s 9:45:20, Greenwich Mean Time.’ But if you ask McKinsey, we will say ‘Why do you want to know? What decisions are you trying to make for which knowing the time would be helpful?’ “

Not a bad characterization of the way McKinsey thinks of itself and its approach to its work. The firm has been compared to the Jesuits and the U.S. Marines for its rigorous mind-set and disciplined work ethic. A ruthless “up or out” policy for new hires ensures that only those who do outstanding work survive; that’s one out of five.

There have been other books about this American icon, but “The Firm” is an up-to-date, full-blown history, told with wit and clarity, about a remarkable enterprise that has had a profound effect on the way businesses operate and has staffed corner offices and boardrooms around the world—but has also made its share of mistakes.

Mr. McDonald (right) nicely decodes the elusive mystique thatDuff McDonald McKinsey has so marketed over the years—the idea that it sees things in much better focus than its clients. Or, for that matter, its rivals. Some McKinsey partners have long sniffed that The Firm has no competition.

Not quite true. Boston Consulting Group and Bain & Co. have their own impressive accomplishments and distinctive toolboxes. Unlike McKinsey, Bain made inroads by representing only one client in an industry group, staying with that client right through the implementation of its proposals, and by making stock-price appreciation a top priority. Carving out its own niche, BCG focused on selling “products” like the “experience curve,” a way of demonstrating how economies of scale and innovation drive costs down over time. In the 1970s, both firms rattled McKinsey’s cage loudly. “BCG and Bain were the Apple to McKinsey’s Microsoft,” Mr. McDonald notes.

Whatever McKinsey is selling, it has certainly been able to get away with charging a teeth-chattering premium above what others do. In a 1989 competition with Booz Allen for a lucrative deal with a financial-services firm, Booz said it could take up to 4½ months to deliver its analysis, at a cost of about $675,000. McKinsey said it needed up to six months and would require $1.2 million. The low bidder didn’t win.

AT&T paid McKinsey $96 million for five years of hand-holding in the 1990s. Tanzania shelled out so much to McKinsey in the early 1970s to help plan its future that the fees became a line item in the country’s budget. Initially stunned by the proposal, Julius Nyerere, Tanzania’s president, eventually gave in: “If you offer peanuts, you get monkeys,” he said. Never mind that while McKinsey was cashing the checks, tyrant Nyerere was running the country into the ground.

But what exactly does McKinsey do to justify numbers like that? To oversimplify, it sends in a team of supersmart, driven young M.B.A.s to break down the stated problem—say, “we need to increase market share”—into key issues like product quality, sales practice and pricing. Then, after an intensive fact-gathering exercise, the team does its analysis, and constructs a list of actionable options, sometimes relying in part on what the firm has done for other clients with similar needs.

The proposed actions might be just what the client wanted to do to begin with—raise prices or cut costs—but McKinsey’s seal of approval, backed up by a heavily fact-based argument, gives management validation for whatever it wants to do: “de-layer” its management structure, lay off 10% of its workforce, close half its widget plants. To some McKinsey clients, that validation alone—helping to placate board members, shareholders and employees—is worth the hefty fee.

The FirmAnother key to McKinsey’s success: 85% of the firm’s roughly $7 billion in annual revenues comes from repeat customers, with whom it has what McKinsey calls “transformational relationships.” In the 1990s, American Express had so many McKinsey teams at work over an extended period that the consultants were listed in the Amex phone book. “God, we were sucking off that teat for so long,” one McKinseyite is quoted saying.

Mr. McDonald is generally more critical here than he was in “Last Man Standing,” his 2009 book that came perilously close to bestowing sainthood upon James Dimon—he of J.P. Morgan Chase and a man whose halo and wings had to be recently recalled after that unpleasantness about a $6 billion rounding error in trading losses.

The author walks us through many McKinsey achievements. General Electric, for instance, hired the firm in 1968 to study its strategic planning. The recommendation was to transform the conglomerate’s 360 departments into 50 “strategic business units” and make each of them focus “outwardly” on external market forces rather just fret about the cost of paper clips. There is a strong argument that the reorganization enabled future CEO Jack Welch to accomplish all that he did later. And McKinsey effectively launched the consolidation of the banking industry when it walked Wells Fargo through its acquisition of Crocker bank in 1986.

But Mr. McDonald doesn’t flinch from examining McKinsey’s missteps, including its bad advice to General Motors in the 1980s, when the auto maker was reeling from Japanese competition. Instead of dealing with things that could directly address the threat—increasing productivity, using fewer parts in each car, improving quality—McKinsey focused on structure. It reorganized GM into units by type of vehicle (large, small, trucks) instead of by brand. The result was a lot of people-shuffling. No bump in output, efficiency or profits, just more money down the drain—up to $2 million a month in McKinsey fees.

“The Firm” offers a good dissection of the collapse of McKinsey’s most notorious client, Enron, vaporized by the company’s CEO (and McKinsey alumnus) Jeffrey Skilling, now a guest of the U.S. government. McKinsey emerged largely unscathed from that disaster but took a reputational hit a few years later, in 2010, after one of its directors, Anil Kumar, pleaded guilty to securities fraud in the Raj Rajaratnam insider-trading scandal. Even worse, the firm’s former managing director, the respected Rajat Gupta, was convicted of leaking secrets to Rajaratnam as a Goldman Sachs director.

All that is well known, but readers may not be familiar with a major speed bump from the firm’s early days. In 1935, founder James O. “Mac” McKinsey, an accountant by training, landed Marshall Field & Co. as a client. The retailer was awash in red ink and faced a big loan payment. McKinsey’s solution was for the company to shed a wholesale business and some textile mills, then slash costs.

Marshall Field’s directors liked the plan so much that they persuaded Mac McKinsey to come over and wield the ax himself. What he failed to anticipate was the human cost—to the 1,200 laid-off workers and those remaining who were dismayed to realize that management, as Mark Twain might say, “don’t give a dead rat” about them as people. McKinsey himself received death threats, became depressed and, in a weakened state, succumbed to pneumonia in 1937.

Known thereafter as the “McKinsey Purge,” the bloodbath set the precedent for many more “downsizings” to come. Even now, news that “McKinsey is coming” provokes a flurry of fear and apprehension. And the managers who retain McKinsey know it. Condé Nast hired the firm in 2009 in part to send a message that it was serious about cost cutting.

The man who molded McKinsey into what it resembles today wasn’t Mac McKinsey but Marvin Bower, a lawyer by training who wanted to use the law-firm model to make consulting into a “practice,” not a business like selling used cars. Consultants were to put client interests ahead of the firm’s.

As head of the firm in the 1950s, Bower insisted on recruiting only the top graduates from Harvard Business School and wanted his hires to radiate confidence. No bow ties or argyle socks, please. One hapless young recruit who wore the latter triggered a “proper sock wear” memo to the staff.

Today, although the firm can certainly offer nimble, sector-specific advice to a client needing help on a highly focused project, there is still what Mr. McDonald refers to as the “intellectual masturbation” of the “typical McKinsey schmooze fest.” He quotes a McKinsey alumnus, now the head of a financial-services firm, who fumes when McKinsey partners ask, “How are you feeling about progress?” What he really wants is someone to tell him “how to knock five basis points” off his cost base.

Mr. McDonald raises some concerns about how McKinsey will fare going forward. He wonders whether the firm has become too commercial and strayed too far from Bower’s original value system. And whether it’s now so big that it’s hard to manage and can no longer maintain the quality of its consultants or its work. No longer the friendly local banker that Bower wanted the firm to be regarded as, it is now more like an international banking conglomerate.

Time will tell whether these worries are justified and what impact they may have on the firm’s fate. McKinsey has always engaged in its own navel-gazing. But maybe it should just hire itself full-time to find out what it should do.

—Mr. Pinkerton is a former managing editor of Forbes and a former deputy managing editor of The Wall Street Journal.

http://online.wsj.com/news/articles/SB10001424127887323906804579036654158755022

Budget 2014:No More Free Lunches for Malaysians


October 27, 2013

Budget 2014:No More Free Lunches for Malaysians

by Lim Sue Goan@www.themalaysianinsider.com

There could be possibly some brief sessions of free lunches in politics, but they won’t last forever. The national Budget that comes after so many years of generous handouts, it’s now time for Malaysians to pay foot the bill.

From Mahathir, Abdullah to Najib, they have all tabled “painless” budgets during their tenures as Finance Ministers.The size of handouts could vary, it is nevertheless invariable truth that some form of goodies could be expected from them year after year. For example, bonuses for the country’s civil servants.

DATUK SERI NAJIB TUN RAZAK

To please the public, the budgets have remained in the red for the past 17 years, culminating in sky-high public debts. We can no longer be this generous any more. If the government fails to stay prudent in managing its expenses in a bid to lower public debts, our sovereign ratings will be slashed. As a consequence, we have trimmed deficits, zero sugar subsidies and imposition of 6% GST, among others.

Najib has attempted to cut down on expenses ever after he assumed office. For instance, the total allocation for 2010 Budget was 11.2% lower than the previous year at RM191.5 billion. Unfortunately because of overdraft, the government still needs to seek parliamentary consent for supplementary bills every year.

To improve its chances of re-election, the BN government has been offering generous aids, resulting in uncurbed expenses. Administrative expenses have reached the level of 80% of total government allocations.

From the themes of budgets tabled over the past five years, we could see that Najib has strived to pursue economic prosperity.In 2010 we had “1Malaysia, shared prosperity,” in 2011 “Transformation into a high-income nation, ” 2012 “National transformation program to preserve economic prosperity,” 2013 ” and for 2014 “Strengthening economic resilience, accelerating transformation and fulfilling promises.”

But, from the developed status advocated by Mahathir to Najib’s high-income country, despite the fact that the government has been handing out so much of subsidies and assistance over the years, many Malaysians remain financially strapped. Why?

If we can achieve the goal of developed nation status two years ahead of our deadline in 2018, i.e. with a per capita income of US$15,000, why do our household debts remain at a staggering RM784 billion?

Judging from the ratio of household debts to disposable income of 194% in 2012, we are at a more alarming level than that of the United States during the 2008 subprime crisis (130%).

Although we have accumulated more and more wealth at the same time, our credit growth has expanded faster than our GDP at about 83% of GDP, anticipated to expand further to 97% by 2018.

Which means, if we are not going to cut down on household dents, even if we make it to the ranks of high-income nations, we will be hard pressed under mounting debts.

The minimum salary scale and generous distribution of money by the government will only increase the superficial income of the people, as their disposable income has been largely eroded by skyrocketing living costs, debts and property prices. Subsidies and handouts can no longer fix our problems.

According to the survey conducted by Kelly Services, the salaries of Malaysians only grew by a meager 2%-6% over the last ten years, with 34% of employed Malaysians living under the RM720 national poverty
line. The Statistics Department pointed out that the average monthly expenses of Malaysian families rose from RM1,953 in 2004/05 to RM2,190 in 2009/10, up 12.1% at a rate apparently much faster than income growth.

Unless we are able to drastically enhance our productivity, or there is no way for us to see bigger growth in income. Depressingly, the government has allowed unchecked entry of foreign workers into the country, suppressing further the magnitude of upward income adjustments.

On the other hand, high inflation has sent living expenses sky high, and this could be attributed to the failure of self-sufficiency in food supply that makes us vulnerable to staggering international food prices. The weakening ringgit has increased the prices of imported raw materials and manufactured products.

Unless we can truly transform our national economy, from being labor-intensive to knowledge-intensive, we cannot expect faster growth in our incomes, and lower- and medium-income Malaysians will continue to suffer.

Even though the GST is seen as a more equitable form of taxation–as the more a person spends, the more taxes he or she will have to pay–and that many essential items and services are in the exclusion list, poor people still have to pay the taxes as they need to buy clothes and shoes for themselves of their children.

Moreover, the 6% GST rate to be imposed is a little too high, and this will aggravate the inflationary rate and dampen domestic demands. Perhaps the government can consider imposing taxes on the wealthy to fund its social welfare programs.

The 2014 Budget will not address the plight of Malaysian families.The government needs to modify its policies and implement the New Economic Model in order to effectively fix our problems. – October 27, 2013

 

Financial Status of GLCs and Statutory Bodies: A Cause for Concern


October 27, 2013

Financial Status of GLCs and Statutory Bodies: A Cause for Concern

by Dr. Ong Kian Ming (10-25-13) @ http://www.malaysia-chronicle.com

Dr. Ong Kian MingThe Barisan Nasional government will surely play up the fact that it is a prudent government that is managing its finances well resulting as demonstrated by the reduction in the projected budget deficit to RM37billion or 3.5% of GDP in 2014.

But this ignores an extremely worrying problem of a huge increase in the deficit position of the companies which are owned or controlled by the government and statutory bodies – or Non-Financial Public Enterprises (NFPEs). For 2013, the projected deficit is RM93 billion or a massive 9.4% of the GDP. This represents a six-fold increase from the R15.6 billion deficit recorded in 2012.

The NFPEs refer to thirty “government-owned and / or government controlled companies and agencies owned by the government” whereby “ownership and control refer to Government or a public sector agency controlling more than 50 percent of total equity”. They would include companies such as Petronas, Tenaga, Telekom, Axiata, Malaysia Airlines, UEM Group as well as more recent additions such as 1MDB, Prasarana and MRT Co.

The financial position of these companies affect the fiscal position of the government directly and indirectly. These companies contributes directly to government coffers by paying corporate taxes (and the Petroleum tax for Petronas) as well as dividends. They (or via special purpose vehicles related to them) also issue bonds which carry an explicit as well as an implicit government guarantee i.e. the government has to pay for these bonds if these companies run into financial trouble (think PKFZ).

NFEs

What is shocking is that the deficit position of the NFPEs, which had been in surplus for 2010 and 2011, is projected to reach RM93 billion in 2013! This huge growth in the deficit has been driven by a massive spending spree in development expenditure which increased by 70% from RM49.5 billion in 2011 to RM84.0 billion in 2012 and is projected to increase by another 50% to RM126.2 billion in 2013. The NFPEs, in 2013, spent three times as much on development expenditure compared to the federal government.

It will be many years before some of this development expenditure that is being spent can start generating revenue e.g. the MRT project. Some projects may never generate enough revenue to cover operating costs – Prasarana which runs the LRT as well as the RAPID bus systems in KL, Penang and Kuantan is still making losses. Some projects may very well turn out to be very expensive white elephants e.g. 1MDB’s Tun Razak Exchange.

The massive increase in the deficit position of these NFPEs also means that the government’s exposure to these development expenditures have increased. If some of these projects do no bear fruit, the corporate taxes and dividends paid to the government by these NFPEs will decreased. In some cases, the government may be forced to step in to bail out these companies.

What is even more worrying is that the statistics and information pertaining to the development expenditure and financial standing of some of these NFPEs are not publicly available. In a paper presented at the MyStats 2012 forum, the Chief Economist of Maybank Investment Bank, Suhaimi Illias highlighted the ‘black box’ nature of development expenditure in NFPEs and GLCs:

“Despite the significance of NFPEs and GLCs/GLICs in the Malaysian economy, end-users in the private sector has somewhat limited access to their capital expenditure data, other than the information available from major entities like PETRONAS and the large public-listed NFPEs/GLCs (e.g. Telekom Malaysia, Tenaga, Malaysia Airlines) that are used as proxies to impute public sector investment, in addition to the Federal Government’s development spending.

Even then, this NFPEs’ development spending number reflects only the biggest 30 NFPEs with minimum annual sales of MYR100m.”[1]

The government cannot continue to ignore the potential impact of the deficit position of the NFPEs. What is needed now is for the disclosure of the full accounts of all the NFPEs which are not publicly listed including Petronas, 1MDB, Prasarana and MRT Co so that there is full transparency on the development expenditure of these companies.

What is needed now is for a full evaluation on the government’s ability to absorb potential losses arising from their exposure to these NFPEs, perhaps in the form of a Stress Test that has been conducted by organizations such as the IMF for the banking system in the country.[2]

Without concrete actions taken, the continued growth of the deficit position of the NFPEs is a ticking time bomb that may explode unexpectedly with disastrous consequences for the government’s fiscal position and the  economy.

Dr. Ong Kian Ming is the MP for Serdang

[2] http://www.imf.org/external/pubs/ft/scr/2013/cr1352.pdf

http://www.malaysia-chronicle.com/index.php?option=com_k2&view=item&id=179462:glcs-statutory-bodies-a-ticking-time-bomb-for-malaysia-kian-ming&Itemid=2#axzz2iqegLI3H

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