UMNO and all its linen are out on the international washing line


June 20, 2015

UMNO and all its linen are out on the international washing line

by Terence Netto@www.malaysiakini.com

COMMENT The unremitting battle between Dr Mahathir Mohamad and Prime Minister Najib Abdul Razak has now overflowed domestically to reach the pages of the New York Times (NYT).

Foreign Minister Anifah Aman  has taken to the letters column of the NYT to denounce Mahathir’s washing of allegedly fabricated linen in overseas media outlets.

Anifah’s letter is in presumable response to adverse comments made by Mahathir to the NYT on the imbroglio surrounding sovereign wealth fund, IMDB, and other issues affecting Prime Minister Najib Razak.

In an intervew with the NYT, Mahathir has described Najib’s conduct as verging on the “criminal”, a term that must have prompted Anifah’s epistolary response which contains the accusation that it was Mahathir who created the “yes men” culture in UMNO, a charge that is certain to beget another round of bitter recrimination in an already acrimonious tussle between the ex-PM and the sitting one.

Reverberations of domestic disputes in foreign capitals are a sign that the the crisis has raged past the point of local containment; it is the closest thing one could have to confirmation that the contretemps has gone beyond the bounds amenable to mediation and negotiation.

In times past, UMNO-BN leaders would lambast opposition politicians whenever the latter spoke badly about the government in foreign councils and shores.

This practice of hanging dirty linen out to dry in foreign forums has come in for a bad rap in domestic circles since the time Australian Labor Party leader Arthur Calwell hailed Lee Kuan Yew as a progressive leader during a visit by the PAP chief Down Under in the mid-1960s when Singapore was part of the federation.

“But he has some tough nuts to crack in UMNO,” quipped Calwell, whose remarks touched off a barrage of criticism of Lee from UMNO types at the time.

Thus began the era in Malaysian politics where domestic critics who vent their spleen about their country in foreign circles are held up to the opprobrium reserved for fornicating preachers and shady scientists: they are told that their betrayals consign them to the lower rungs of the social totem pole.

Even when these criticisms are uttered by somebody of nonpartisanTun Suffian Hashim stature such as Suffian Hashim (photo), the former Lord President who in 1990 told a Singapore audience that had sought his views on the judicial crisis involving Salleh Abbas’s impeachment in 1988, that the average UMNO leader cared only for his Mercedes Benz and other perks, the reaction is unseemly adverse.

In recent months, with respect to Mahathir’s differences with Najib on the IMBD issue, the former PM has made similar remarks about the moral fibre of UMNO leaders to that made by Suffian to his Singapore audience a quarter century ago.

Marking a nadir in relations

Mahathir joined in the imprecations hurled against Suffian at the time of former judicial chief’s oft-repeated public dismay at what had happened to Salleh Abbas and how it marked a nadir in relations between the executive and the judiciary in Malaysia.

The issue of the morality of berating one’s country abroad aside, the spilling of the crisis between Mahathir and Najib in the newspaper of record in America represents the first time a local conflagration has generated publicity in far away places.

On the Richter scale of political earthquakes, this dispute is not far short of 10. Previously, reverberations from domestic political earthquakes would only register in one or two ASEAN capitals, Jakarta more likely than the others, because of ties of language and kinship between Indonesia and Malaysia.

Even then, interest in Jakarta in what some luminary from Malaysia says about someone under interdiction in Kuala Lumpur would not bulk large in the public estimation.

One remembers the derision that Tun Ghafar Baba was subjected to when he went to the Indonesian capital to explain the action taken by Mahathir against Anwar Ibrahim in late 1998 after the Prime Minister had sacked his deputy from government and UMNO and had him charged with corruption and sodomy.

Tun Ghafar Ghafar (photo) hurriedly returned home after he reacted caustically to Indonesian cynicism about the accusations against Anwar by saying that Malaysia did not want leaders of Anwar’s alleged sexual orientation but that if Indonesia did, Malaysia would be glad to offer them to its neighbour.

The remarks caused a furore that was doused only by Ghafar’s swift exit from the Indonesian capital and Wisma Putra’s backroom diplomacy at mollifying ruffled Indonesian feathers.

Malaysia’s domestic imbroglios usually do not resonate in capitals beyond the ASEAN perimeter, but the IMDB contretemps, due to the transnational reach of its money trails and the subterranean alleyways in which some of its operatives appear to have forged its schemes, is the juiciest thing to have happened since sovereign wealth funds became a matter of interest to unelected business coteries blithely unmindful of French novelist Honore de Balzac’s warning – that behind every great fortune there lies a crime.

Honore de Balzac

For these reasons, 1MDB has become an issue whose reverberations have drawn the attention of the NYT, still the biggest name among newspapers of record. Now UMNO and all its linen are out on the international washing line, a dubious distinction in this the 69th year of its founding.

 

Malaysian leader gets a needed dose of real talk


June 19, 2015

Malaysian leader gets a needed dose of real talk

by William Pesek

Mahathir Mohamad-2014Asia-based journalists have missed Tun Dr Mahathir Mohamad since he left office in 2003. The former Malaysian Prime Minister’s mercurial governing style and fiery rhetoric made for great copy. I was in a Hong Kong ballroom in 1997 when Dr Mahathir ― the man credited with turning the agricultural backwater Kuala Lumpur, which literally means “muddy river,” into one of Asia’s most impressive skylines ― responded to his country’s crashing economy by castigating hedge fund managers. He singled out George Soros as a “moron.”

Dr Mahathir now has a new target – Datuk Seri Najib Razak, Malaysia’s current Prime Minister. The daily squabbling between Najib and his predecessor has unsettled Malaysian markets, with the ringgit falling to its lowest value in a decade. But Najib has nobody to blame but himself for the attacks, given the country’s underlying economic distress. Malaysia’s prolonged slow growth, which has Fitch now threatening a downgrade of the country’s credit ratings, traces back to Najib’s refusal, or inability, to make good on his pledges to dismantle race-based policies that strangle innovation, feed cronyism and repel multinational companies.

You don’t have to take Dr Mahathir’s word for it ― Malaysia’s most successful entrepreneurs say the same thing. Just ask Tan Sri Tony Fernandes of AirAsia.

Tony-Fernandes-007The man often referred to Asia’s Richard Branson has been waging his own battle with the government on Twitter. Fernandes has been decrying, 140 characters at a time, the Malaysian government’s misguided priorities and its utter lack of accountability. “Government and opposition spend so much time on race and religion. Will there ever be a truly Malaysian party that puts people first?” he tweeted recently. Another message reads: “Good education, good hospitals, fair distribution of wealth, an economy that creates jobs, honest clean government. Transparent leadership.”

My favourite was Fernandes’s take on the kind of national culture the government should be cultivating: “Where all Malaysians respect each other’s culture, religion but work together to benefit all. If you need an example look at AirAsia.”

This last point deserves closer attention. AirAsia has admittedly had a rocky six months, beginning in December with its first crash (killing all 155 on board) and culminating in today’s share-price plunge (its accounting practices are being questioned by GMT Research). But Fernandes has earned his status as a major player ― and Malaysia’s most recognisable face ― on the global stage. With his Bransonesque daring and social-media savvy, the billionaire Formula One team owner personifies the heights to which the Malaysian economy might climb if the country’s dysfunctional politics didn’t stand in the way.

Indeed, AirAsia might never have gotten off the ground if Najib had been in office at the time of its inception, rather than Dr Mahathir. Fernandes had three big strikes against him when he started out 14 years ago: He’s not Malay (the majority ethnicity coddled by Malaysia’s affirmative-action policies); he was intent on challenging the flagship Malaysian Airlines; and he was starting an airline just as the September 11, 2001 terrorist attacks in the US was sending the industry into the throes of an existential crisis.

Nonetheless, Dr Mahathir’s government gave Fernandes the green light to create the company. In the interim, AirAsia has literally changed the world. Although the company’s “Now Everyone Can Fly” slogan seemed somewhat trite at the time of its founding, it has gone on to inspire myriad developing-world copycats.

Malaysia needs more homegrown success stories that raise living standards and the country’s global status. Sadly, when Malaysia makes headlines these days, they’re often about the government’s dysfunction ― whether the never-ending effort to jail opposition leader Datuk Seri Anwar Ibrahim on sodomy charges, legal tussles over who exactly is permitted to utter the word “Allah,” or clueless castigations of foreign tourists (a group of whom allegedly caused an earthquake by taking nude photos atop Mount Kinabalu).

Najib and the Mad Mullah of PASSince becoming Prime Minister in 2009, Najib should have worked to level Malaysia’s playing field for would-be entrepreneurs. Instead, he has protected race-based quotas and deepened the economy’s reliance on oil and gas production. Najib seems to be more concerned about retaining power for his ruling Barisan Nasional coalition, which has been in power for almost six decades, than attending to the aspirations of Malaysia’s 30 million people.

Meanwhile, some of his supposed reforms are dragging down the Bloombergeconomy. A case in point is 1Malaysia Development, the state investment company Najib created, and which Dr Mahathir claims is missing “huge sums of money” and buckling under debt. The scandal has contributed to the plunging of Malaysia’s currency some 13 per cent over the past 12 months.

The ringgit’s fluctuations are a decent summary of the country’s wayward course in recent years. It’s now close to 3.80 to the dollar, the level where Dr Mahathir pegged it during the 1997-1998 Asian crisis. Dr Mahathir now says it may be time to peg the currency anew to stabilise it. That speaks to how little progress Najib has made internationalising the economy ― and how urgent new political leadership (or a return to old political leadership, as it were) would be for entrepreneurs like Fernandes.

http://www.themalaymailonline.com

Getting our Politics Right Again with Leadership Change


June 19, 2015

Getting our Politics Right Again with Leadership Change

by *P. Gunasegaram

*P GUNASEGARAM is founding editor of KINIBIZ which produces an online business news portal and a fortnightly print magazine.

QUESTION TIME: 1MDB’s impact on the financial markets is more than just worry about whether potential defaults will impact the banking system and whether the government’s finances will be adversely affected when it stands by to honour 1MDB’s many obligations.

These questions have been largely answered – the central bank, Bank Negara Malaysia, has already said that 1MDB does not pose a systemic risk to the domestic banking sector, although it may depress the profits of some banks.

Various analysts believe that the federal government, which owns all of 1MDB through Minister of Finance Inc, has the capacity to take care of 1MDB’s obligations, which amount to RM42 billion.

So why is the ringgit more depressed than it should be and what is really the concern about the situation in the country? The problem is not directly related to the economy but politics. An increasing number of people are considering how the overall political situation in the country will change if Najib Abdul Razak, for whatever reason, decides to step down.

It is more than likely that it is the political situation which is causing the ringgit to be even more volatile than the currencies of other countries that have yo-yoed against the US dollar, but generally trended downwards against the greenback. That the US dollar is strengthening is indisputable, the roots being the strong possibility of upward increases in US interest rates some time later this year.

The pressure on Najib increased when former Prime Minister Tun Dr Mahathir Bin Mohamad stepped into the fray over the 1MDB issue, accusing the self-styled strategic development company of not being able to account properly for its debts of RM42 billion. Now, that’s something that lots of others agree with.

However, Mahathir’s premise for his interference has not always been from the perspective of high moral values – he often repeats that the reason why Najib has to go is that if he stays on he may well lead UMNO and Barisan Nasional into defeat in the next general elections. The elections have to be held on or before 2018, still some three years away.

Najib has maintained, without offering much by way of evidence, that 1MDB is in good shape and that all monies are intact and can be accounted for. This runs counter to the many reports written on 1MDB and its various shenanigans, which includes pieces written by both KINIBIZ online and KINIBIZ magazine.

In fact KINIBIZ online was the first anywhere to write an extensive series of reports on 1MDB outlining its various mistakes, including underpricing bonds, overpaying for assets, paying too much to Goldman Sachs, dubious investments, suspicious money trails, influence from outside parties and so on.

Position full of holes

All analyses indicate that Najib’s position with respect to 1MDB – that basically the company is okay and only needs time to put its affairs in order – is full of holes and does not hold water. There is much that 1MDB has not given satisfactory answers to and it looks like for many questions, there will be no good replies.

The billion ringgit questions then are, will Najib step down? And if he does, who will take over from him?

Najib will not take on Mahathir directly – he pointedly avoided one confrontation at the so-called ‘Nothing2Hide’ forum. But behind the scenes he would be quietly accumulating support from his loyalists.

His Deputy and UMNO Deputy President Muhyiddin Yassin is already testing the waters. In a leaked video of a meeting, he made some strong remarks against 1MDB, which some take to mean that he is ready to step into Najib’s shoes.

Meantime, rumours of a cabinet reshuffle swirl and there is speculation that Najib’s alternative choice, if he should decide to leave, might be Home Minister Ahmad Zahid Hamidi, with Defence Minister Hishammuddin Hussein as Deputy.

If that is being passed around by Najib’s camp it may be a signal to Muhyiddin to watch his step, for the power of incumbency in UMNO cannot be denied. Jumping ship too early might result in a step into the  deep ocean.

It is very difficult to mount a challenge against an incumbent president who holds wide powers. Just to contest, a challenger has to get nominations from 30 percent of the branches. Considering that the President will have considerable influence over branch officials, that is very unlikely to happen in the current scenario.

Many like to say that former Prime Minister Abdullah Ahmad Badawi was forced out from his position, mainly by Mahathir. That’s probably not true. Abdullah made no attempt to cling to power but was likely ready to step down from the rigours of political office of his own free will.

Najib will not leave so easily. If he is going to leave, then a deal has to be struck – that’s always been the UMNO way. There will be some face-saving, and there will be assurances that he himself will be immune from any kind of prosecution over 1MDB or any other matters.

One possible deal could be that he stays but when the next elections are within sight he will make way for the next person to take over the mantle. Whether that will be Muhyiddin or someone else is not clear at this point of time. But any UMNO politician who makes too quick a move against Najib is likely to pay for his recklessness.

If Najib gets no such assurance, then he has no choice but to fight tooth and nail to keep his position, for to give it up may well mean opening himself up to further action against him in future.

Nearly impossible to mount a challenge

Najib is not likely to be removed against his will. Ironically this is because of all the measures that Mahathir put in place to make it nearly impossible to mount a challenge against the incumbent President in the wake of the bruising challenge against him in 1987 by Tengku Razaleigh Hamzah and  Tun Musa Hitam.

It’s an irony, too, that the votes of Najib’s supporters, who firmly swung to Mahathir in the last leg of the Razaleigh/Musa campaign against Mahathir, probably contributed to Mahathir’s narrow win in 1987 and that they now stand on opposite sides of the divide.

But despite all of Mahathir’s fighting qualities, it looks like the only way Najib will leave is if a deal is made. Mahathir himself has ensured that by the changes to UMNO’s voting rules.

Meantime, the political uncertainty will add to the woes of the country, contributing to currency volatility and confidence erosion.–http://www.malaysiakini.com

To Captains of Malaysian Industry: So don’t be timid, mute and dumb.


June 14, 2015

To Captains of Malaysian Industry: So don’t be timid,  mute and dumb.

COMMENT: Well done, Tan Sri  Tony Fernandes, for speaking up. It is true Din Merican2that politicians on both sides of political divide ought to be told that they were elected to serve the people.

During elections, they all campaigned with all sorts of promises to the people but the moment they are sworn in as Parliamentarians and Ministers in the Cabinet they become arrogant and susceptible to corruption and abuses of power; they waste our time throwing bricks and dirt at each other to divert our attention, instead of tackling problems and issues which can make a difference to the future of our country. They no longer serve the rakyat; they help themselves. They use religion and race to keep us apart.

The private sector has been timid and cowardly. As a group through their Chambers of Commerce and Associations, business leaders form a powerful  group of citizens who can demand action from the government and the opposition. Their failure to act is costly to the country. Stand up and make your critical views heard. The time to be polite is over.

If the private sector takes a collective effort to apply pressure on politicians in government (and the opposition) that there is nothing that the government can do to you. The government will only be hurting itself if you  take your money to invest in countries where the governments are open, transparent and accountable and the investment climate is conducive and  business friendly.

Stand up for customers who are the people who will decide whether they will buy your good and services or not. Without your customers you have  no business. So don’t be timid, mute and dumb. To Captains of Malaysian Industry, let me quote William Shakespeare:

ShakespeareIt is refreshing to note that Tony Fernandes has expressed his views on the state of our politics. I congratulate him for standing up for his Malaysian customers. The AirAsia CEO knows well that people make this famous low cost carrier what it is today. –Din Merican

Air Asia’s Tony Fernandes delivers a Message to our Politicians

by Vathani Panirchellvum
http://www.thesundaily.my/news/1452650

AirAsia Bhd Group CEO Tan Sri Tony Fernandes has hit out at both the government and the opposition for failing to put the people first.

Tony Fernandes

In his Twitter account today, Fernandes said: “These are very strange times in Malaysia. There is no accountability. No one putting people first. These are disappointing times.”

He added: “government and opposition spend so much time on race and religion. Will there ever be a truly Malaysian party that puts people first. (sic)”.

Fernandes muses if Malaysia would ever see a political party that focuses on putting the people first instead of themselves or their ambitions.

Another tweet reads: “Good education, good hospitals, fair distribution of wealth, an economy that creates jobs, honest clean Government. Transparent leadership. Where all Malaysians respect each other’s culture, religion but work together to benefit all. If you need an example look at AirAsia.”

Fernandes was applauded for taking charge and facing the public when the AirAsia QZ8501 crash occurred. He did not disappear from the social media front, but provided regular updates and messages when the disaster happened.

In view of the earthquake disaster that has struck Sabah, he said that Ais in existence because of Sabah.”Our commitment to the people of Sabah will never waiver despite all the obstacles,” he tweeted.

Siregar’s RM26 Billion Dodgy Deal: Next 1MDB?


June 12, 2015

Siregar’s RM26 Billion Dodgy Deal: Next 1MDB?

by Khairie Hisyam

khairie@kinibiz.com

How did a little-known company, wholly owned by the government, come to be sitting atop a RM26 billion debt pile in a matter of several years? KINIBIZ traces the strange way Putrajaya’s private finance initiative vehicle raised its billions in funding.

pembinaan-pfi-issue-inside-story-banner-B________________________________________________________________________

Would you pay rental to yourself to use property that you already own for years – and have already long fully paid for at that?

That is exactly what Putrajaya is doing, having paid some RM5.77 billion in rental over the past two-and-a-half years to use 186 land parcels it already owns. And it will continue to pay another RM23.4 billion in total over the next 12 years or so.

FLC’s-payment-of-sub-lease-rental-to-PFI

The recipient? Pembinaan PFI Sdn Bhd, an obscure company wholly owned by the Ministry of Finance. “This is a left pocket to right pocket transaction,” said Kulim Member of Parliament and Public Accounts Committee (PAC) member Abdul Aziz Sheikh Fadzir at a media briefing in mid-March this year.

This strange and convoluted deal came about from the implementation of the federal government’s private finance initiative (PFI) initiative, first announced during the time of fifth prime minister Abdullah Ahmad Badawi, which sought to adopt a concessional procurement model widely practiced in other countries such as the United Kingdom and Australia.

However, there are a number of things wrong with how Putrajaya has proceeded with this procurement method. While the established practice for PFI projects to have the private sector source for their own financing, the Malaysian version sees the government providing the funds.

And these funds, totalling RM30 billion so far, were raised in a roundabout manner which critics say was intended to keep things off the government’s balance sheet. Transparency is lacking too: project awards are shrouded in secrecy and even appear unnecessary in some cases, with no known process for evaluation and accountability.

Most curious of all is the apparent intention of the entire PFI idea, which seems to provide contracts and concessions to bumiputera contractors. This raises questions on who these contractors are and whether they are benefiting from political connections in receiving these project awards.

In this part of the series KINIBIZ looks at the dodgy manner of Pembinaan PFI’s fund-raising and its implications as well as why Putrajaya is driving PFI in the wrong lane.

Putrajaya’s perverse PFI

The concept of PFI is not new, having seen wide practice in the United Kingdom and Australia between the 1980s and 1990s. However, the way Putrajaya had done its own PFI drive worryingly departs from the established norm.

Under the established practice for the model, the public sector basically contracts a private contractor to build and operate public infrastructure such as roads and hospitals. The private contractor is to find his own funding to do this and must meet the public sector’s specifications in terms of quality and timely delivery.

In return for the financing risk, the private contractor then receives regular payments under a concession, which normally range between 25 and 30 years in lifespan. A common condition of such concessions is that contractors must meet set quality and service delivery standards before they receive payments.

The idea is novel, premised on the notion that the private sector boasts superior efficiency over the public sector in terms of performance and delivery. A PFI undertaking also relieves some burden on the government’s budget–by stretching payments for public infrastructure over a longer time period, the government avoids forking out huge sums immediately, which eases cash flow and budget management.

In the words of Andrew Tyrie, the United Kingdom chairman of the Treasury Select Committee: “PFI means getting something now and paying later.”

But the UK PFI experience was not positive. An official audit found rampant cost overruns and late delivery. Patronage concerns and unduly expensive costs for public infrastructure also became pressing points. A particularly stark example of specifications unduly distorted to benefit contractors was when two hospitals in Coventry followed by a replacement hospital worth GBP410 million (RM2.15 billion) – both were originally slated for GBP30 million in upgrades and refurbishment by the public sector.

Pembinaan PFI and Ministry of Finance Malaysia inside story generic 02

The Malaysian federal government was apparently undeterred by the UK experience and instead pursued a different, questionable approach. In awarding public infrastructure projects to selected private contractors through the PFI model, Putrajaya also provides the necessary financing to the contractors.

Therefore, the only gain by the public sector is the private sector’s supposed efficiency. The government still bears the financing risk. In turn, all the private sector needs to do is show up – yet some fail to do even that in the case of Putrajaya’s PFI drive. In other words the efficiency gain did not materialise in some cases.

The net effect: Not only does Putrajaya still need to foot a good portion of the upfront costs to have these public infrastructure built, it also bears the financing risk that should be borne by the contractors and independent financiers. And Putrajaya also built up billions of debts in the process in order to provide the financing.

A possible argument is that, given the intention of the PFI initiative to provide contracts to smaller bumiputera contractors, government financing is vital as smaller bumiputera players may not be able to raise sufficient financing on their own.

However, this does not hold water considering the PFI model entails concession awards kicking in after projects are completed. Essentially, the private contractors would have iron-clad income streams, locked in for a long number of years, that can be used to procure financing.

And if the private contractors cannot obtain financing even with concession awards in hand, this in turn casts a troubling question: should they have been awarded the projects at all?

Jumping through hoops

In any case, the perverse way Putrajaya had forged ahead with its PFI initiative had led to a convoluted lease-sublease arrangement in which the government essentially pays rent to itself.

The point: To indirectly pay for RM20 billion in borrowed funds that Putrajaya obtained as seed funding for its PFI drive.

Pembinaan PFI lease-sublease arrangement 110515The chain of events leading to this strange transaction goes back to a term loan from the Employees Provident Fund (EPF), which extended RM20 billion to Pembinaan PFI in August 2007. This loan was to be repaid in full, inclusive of interest capitalised, 60 months later unless another date was agreed to between the parties.

And the interest rate was the rate of five-year Malaysian Government Securities (MGS) – published on Bank Negara Malaysia’s website – plus 0.5% per annum, applicable on successive six-month periods. The drawdown of this loan was staggered over a number of years and the funds were advanced to the government.

However, this loan was subsequently restructured multiple times after EPF consented to a restructure in a letter sent in November 2010. Eventually, in August 2012, Pembinaan PFI and the Federal Lands Commissioner (FLC) signed two agreements.

The first was a lease agreement for a period of 10 years and two days expiring June 16, 2022. Under this agreement the FLC would lease 186 land parcels to Pembinaan PFI in exchange for RM5.788 billion in total rental payment.

This follows a principal agreement signed in 2007 between Pembinaan PFI and the federal government, in which the latter agreed to get the FLC – the registered holder of the land parcels on Putrajaya’s behalf – to lease them to Pembinaan PFI in exchange for the RM20 billion.

The second agreement was a sublease agreement through which Pembinaan PFI turns around and subleases the 186 land parcels back to the FLC. In return, the FLC would pay a total of RM29.18 billion in 30 twice-yearly payments from 2013 to year 2027.

What the transaction essentially does is create a revenue stream for Pembinaan PFI, albeit artificially. This allows PFI to service its loan from EPF, which had been restructured into one with an instalment payment plan.

However, in practical terms the federal government is paying for the loan taken out in 2007, even if the flow of funds is indirect and through a convoluted mechanism.

Hiding a liability

If the point of the convoluted exercise is to pay back a loan from EPF, why then is the government tying itself up in knots for such a simple undertaking? The answer may lie in another effect of the transaction – obscurity.

Najib Abdul Razak

In mid-March this year, Prime Minister Najib Abdul Razak revealed in Parliament that Pembinaan PFI’s total debts currently stand at RM26.6 billion. This figure arose from two tranches of financing – the original RM20 billion term loan as well as a second RM10 billion financing in 2013.

For a government-owned entity, that debt figure is no trivial sum. The auditor-general’s report for 2013 listed Pembinaan PFI as having the third largest liabilities among government-owned entities as of end-2013, behind state oil giant Petroliam Nasional and sovereign wealth fund Khazanah Nasional.

Despite this recognition by the Auditor-General, however, Pembinaan PFI’s liabilities does not appear in Putrajaya’s list of contingent liabilities in years 2012 and 2013, according to information from the Accountant General’s Department. In perspective, this list includes entities such as controversial 1Malaysia Development Bhd (1MDB), Khazanah Nasional Bhd and government-linked companies such as Tenaga Nasional Bhd, among others.

However, in practical terms this is mere technicality. While not listed as a contingent liability for the government, the liabilities of Pembinaan PFI is still being repaid by the government in an indirect manner through the lease and sublease arrangement involving the FLC.

The implication is that by going through Pembinaan PFI to raise some RM30 billion in total, the government was able to do so without also adding RM30 billion to its list of contingent liabilities.

And the emerging purpose of Pembinaan PFI then was to raise additional funds off balance sheet. Interestingly PAC chairman Nur Jazlan Mohamed, in mid-March, called Pembinaan PFI an “innovative financing” method for the government in a strange interpretation of the term.

While questions dog the roundabout and dodgy manner of Putrajaya’s PFI financing, the billions raised by Pembinaan PFI had been silently spent over the years – with little transparency and accountability.

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READ: Billions silently spent through ‘innovative financing’

Japan Needs a New Mechanism to Bridge the Public and Private Sectors


June 11, 2015

East-West CenterNumber 313 | June 10, 2015

ANALYSIS

Japan Needs a New Mechanism to Bridge the Public and Private Sectors

By Jun Makita

In a democracy, politics and public policy must reflect the voice of the general public. Thus, a democratic society inevitably needs some way to bridge the public sector (including politicians and bureaucrats) and the private sector (individuals and various types of organizations). This is critical if democracy is to function well. The systems and structures that play such a role are different from country to country.

In the United States, there is a “revolving door” between the public sector–whether it be government employees, appointees, or elected officials–and the private sector, represented primarily by businesses, lobbying groups, think tanks and universities. Thanks to this system, personnel involved in policy planning and research can move back and forth through that “door.” This serves as one bridge between the two worlds.

 In the case of Japan, on the other hand, these American-style bridges do not exist. Labor mobility is quite low and the movement of policy experts across the border between the public and private sectors is still very rare. Furthermore, experts like lobbyists, who can access the Diet and the government, do not play a role in the policy process.

Nevertheless, this does not mean that there are no mediators in Japan. The key actors playing such a role are the various economic and industrial organizations. In Japan’s private sector, there are a number of organizations that have been established by various industries, and these organizations are vigorously involved in the policy process.

The most famous and influential Japanese private entities are the so-called “three economic organizations,” the Japan Business Federation (Keidanren), the Japan Chamber of Commerce and Industry (Nissho), and the Japan Association of Corporate Executives (Doyukai). Their memberships consist of leading companies and executives in each industry. The private organizations represented by the above three associations actively participate in the Japanese policy process, making policy proposals and appealing to the political and administrative executives to implement their requests as public policy. These groups represent their member companies, and what they do and say reflects the voices of the current economic frontline. Accordingly, policymakers–and particularly politicians who need corporate support in elections–cannot ignore their requests. This means that the influence of such organizations on policymaking is substantial.

Arguably, then, Japanese economic organizations wield political power as they bridge the public and private sectors. Nonetheless, in recent years the gap between the two sectors has become larger and it cannot be bridged by the existing organizations. In short, the Japanese industrial structure has changed, and these traditional organizations fail to deal with the new policy demands presented by emerging industries.

In the high-growth period from the 1950s to the 1970s, manufacturing was at the very core of Japanese industry. Producing goods like cars and electric appliances, exporting them abroad, and increasing the national wealth–that was Japan’s national business model. Yet from the 1980s, the relative presence of manufacturing has gradually decreased, and in its place, the share held by the service industry has increased. Looking at each sector’s share of GDP in the postwar period, we find that while manufacturing accounted for 34.9% in 1970, it had declined to 18.2% in 2012. Meanwhile, the service industry has grown from 9.3% in 1970 to 19.9% in 2012.

Within the service industry, IT service companies are particularly conspicuous. According to one source, while the growth of real national GDP from 2005 to 2010 was ¥2.9 trillion, the growth of Internet-related industries, which is one of the main parts of the IT industry, in the same period was ¥4.9 trillion, while that of other industries declined by ¥2.0 trillion. This means that the national GDP growth over those five years was almost equal to that of Internet-related industries, which shows the tremendous importance of IT service companies in the evolving Japanese economy.

Still, because IT service is a very new industry, there are many gaps between the actual business activities performed by emerging companies in the field and the existing public institutions and rules. A typical example is the principle of “face-to-face communication and paper-based documentation.” In most cases, Japan’s government applications and procedures–including getting a Certificate of Residence at the local government office, signing a real estate contract, and so on–require that you go in person and fill out hand-written documents. While these processes could be simplified by utilizing basic IT services like email, Skype, or an online application system, thereby eliminating the need for face-to-face meetings and paper-based documents, those alternatives are currently prohibited by regulations. Obviously, the IT service companies are not pleased with these old rules that hinder their economic activities.

The existing Japanese industry organizations are basically consisting of  traditional companies, including manufacturing, and are not necessarily able to accurately represent the opinions of the newer industries. Therefore, Japan needs a new mediating organization that can represent the fresh voices of emerging business sectors and convey them to policymakers, thereby bridging the public sector and core elements of today’s industrial sector.

New actors are now emerging that could play such a role, the most noteworthy being the Japan Association of New Economy (JANE). This new economic organization was founded in 2012 and consists of major Japanese IT service companies. JANE’s policy proposals are based on the voices of the new economy, and its influence is quickly increasing, reflecting the expanding importance of the IT industry.  For example, JANE’s Representative Director Hiroshi Mikitani, CEO of Rakuten, and Director Yasufumi Kanemaru, CEO of Future Architect, are both members of the Japanese cabinet’s Council for Industrial Competitiveness. It is quite unusual that two executives of such a new organization would become members of a government council chaired by the prime minister, and this indicates JANE’s political potential.

In short, the relationship between the public and private sectors in Japan has changed dramatically in recent years, and because of this, a new actor that can adeptly mediate between the two fields is necessary. It is too early to say whether JANE can become such an actor, but a change in the policy process is happening–belatedly but certainly–in accordance with the industrial transition of Japanese society.

 About the Author

Jun Makita is a visiting researcher of political science at the Institute for Comparative Research in Human and Social Sciences, Tsukuba University, Japan. He can be contacted at makitaj1@hotmail.co.jp.

Related Articles:

Economic and Security Reform in Japan: Harder Than It Looks, by H.D.P. Envall, Asia Pacific Bulletin, No. 277, August 19, 2014

Innovation, the “Third Arrow” and US-Japan Relations, by Sean Connell, Asia Pacific Bulletin, No. 246, January 10, 2014

Abe’s Real Challenge is the Japanese Economy, by Hiroaki Kuwajima, Asia Pacific Bulletin, No. 226, August 5, 2013

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