Malaysians still count on bolder economic reform


November 13, 2018

Malaysians still count on bolder economic reform

Author: Editorial Board, ANU

ww.eastasiaforum.org

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READ ON: http://news.iium.edu.my/2016/04/10/book-review-a-new-malaysia-by-joaquim-huang/

The widely unanticipated ousting of Malaysia’s government in May not only left political analysts scrambling for explanations. It also had economists wondering what was in store for the economy.

The Najib Razak government had presided over relatively strong growth (5.9 per cent in 2017), low unemployment (around 3.5 per cent) and sound macroeconomic fundamentals. The eclectic group that gathered around former prime minister Mahathir and Pakatan Harapan (Alliance of Hope) to send the former government on its way had a less than stellar economic resume. Its campaign was mobilised around restoring good governance and unabashedly populist economics.

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Finance Minister Lim Guan Eng –Emulate Tun Tan Siew Sin-Take Care of our money and please don’t sleep on the Job

The promise of a sounder revenue base was abandoned with the scrapping of the goods and services tax (GST). The future of economic reform and sound economic management looked distinctly uncertain. The government’s first move on the economic front saw it outsource consideration of pressing economic and other national issues to a Council of Eminent Persons. The Council consulted widely with key academic, business and government stakeholders in developing an agenda for economic reform and delivered a report to government in August.

Despite the promise of transparent governance, the contents of the Council’s report have remained confidential. Meanwhile Finance Minister Lim Guan Eng focused his early efforts on exposing the former government’s accumulation of debt and corrupt contracting, alongside abolishing the GST and reintroducing petrol subsidies — prudent if poorly sold policies of the Najib government. While there has been silence on economic reform, there’s been a hive of activity from the new government on the governance front.

Mahathir sent a clear message to ministers that elected officials and civil servants are expected to act in the people’s interests. The pursuit of former prime minister Najib and his associates on corruption charges, the separation of powers for key agencies, push back on the empire that had developed around the Prime Minister’s Department and promises to end the most egregious political appointments are among the promising early signs of large-scale governance reform. Economic governance is also set to benefit under the recently updated Eleventh Malaysia Plan priorities. It affirms commitments to improve fiscal frameworks, tackle corruption-affected tender processes, strengthen the competition regulator and enhance frontline service delivery. The 2019 Budget released on 2 November supports these reforms with specific measures and resources. Action and optimism surrounding getting institutions fixed has staved off criticism about the lack of action on economic reform.

The revised Plan and the government’s first Budget were expected to provide clarity about the new government’s medium-term economic reform agenda. Despite the short-term fiscal bind, the hope was that ambitions for economic reform would match those for governance.

As this week’s lead article by Stewart Nixon notes, the commitment to reform in key areas is underwhelming.

‘The Mid-Term Review provides a blueprint loaded with high-level aspirations that would represent an impressive reform agenda if translated into successful policies,’ says Nixon. ‘But aspects of the Review raise questions about the government’s real capacity to navigate medium-term risks. The 2020 balanced budget target has been abandoned and the budget deficit has widened to 3.7 per cent of GDP (with an aim to reduce this to 3 per cent of GDP by 2020), while public investment — most notably in major rail and pipeline projects — is set to contract.’

Malaysia has a low level of taxation revenue and public expenditure, but the government’s role in the economy is still pervasive. As Nixon observes, ‘The highly centralised top-down federation (that cripples local government initiative) and government ownership of more than half the local stock market ensure that the vast majority of economic activity is directly affected by the state.’ There is a worrying disconnect between government rhetoric recognising the need to act in these areas and policies under the Review and Budget that would achieve the opposite.

Perhaps the biggest drag on Malaysia’s economic performance and handicap to its breaking through the middle-income trap is flailing human capital development. Nixon writes, ‘It is therefore a positive that human capital retains high policy priority in Malaysia — commanding its own pillar in the Mid-Term Review and the highest share of budget expenditure.’ But while the government is pursuing worthwhile measures to address immediate skills mismatches, invest in school infrastructure and raise the quality of education, it still lacks a plan to address key shortcomings, including an outdated learning culture, centralised decision-making and politicisation.

As Nixon identifies, ‘The large program of policies favouring Malays and other indigenous groups (Bumiputera) in the Mid-Term Review is another possible economic destabiliser.’ The hope that Mahathir’s more representative government would bring an end to the country’s long-running and ill-targeted affirmative action program is still just a hope. The Review simply reaffirms the government’s commitment to continuing it while the budget extends discrimination into the digital arena. ‘Outdated and divisive policies serve to perpetuate negative perceptions of the majority Malays, deter investment and encourage the brain drain of discriminated-against minorities,’ says Nixon.

The challenge over time will be to build the tax base and put in place a transfer system that targets need and addresses universal problems of inclusiveness. Reforms that reduce pervasive federal government presence across the economy and influence in local governance are a high priority. Without these changes, tackling corruption-riddled systems of political patronage will be a job that’s never properly done.

The continuation and extension of pro-Bumiputera policies represents a disappointing failure to promote a more inclusive approach to ethnic relations. Fixing Malaysia’s floundering education system is also now a top priority.

If ever a government had the mandate and popularity to progress a bold reformist economic agenda in Malaysia it is now. Taking the leap to developed economy status rests on challenging reforms in areas of well-publicised and politicised weakness. Instead, the government’s first major economic policy announcements delivered mixed messages on debt reduction, unproductive handouts, minimalist tax tinkering and increased dependence on SOEs and their dividends.

Post-election uncertainties affecting investor confidence, the looming global trade wars and emerging-economy financial risks all call for more determined fiscal re-prioritisation and bolder structural reform to send a strong signal that the new government has the nous and determination to meet the people’s economic expectations.

The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.

 

 

Budget 2019:Tough Times Ahead for Malaysia


Budget 2019:Tough Times Ahead for Malaysia–The Price of UMNO’s Fiscal Indiscipline

Domestic Demand to grow at 5 and 4.8pct in 2018 and 2019

by Bernama@www.malaysiakini.com

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BUDGET 2019 | Domestic demand growth is expected to remain resilient at five percent and 4.8 percent this year and in 2019 respectively, steered by sustained private sector expenditure.

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https://www.malaysiakini.com/news/450171

According to the Economic Outlook 2019 report released by the Ministry of Finance today, private sector growth expenditure is expected at 6.5 percent this year and 6.4 percent in 2019, constituting about 72 percent of the Gross Domestic Product (GDP).

Meanwhile, the report said public sector expenditure is anticipated to further decline to 0.9 percent in 2019, after recording a marginal growth of 0.1 percent this year, mainly due to lower investment by public corporations.

“Private consumption will remain the major growth determinant, expanding by 7.2 percent and supported by a stable labour market, benign inflation and conducive financing conditions.

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“Other factors such as the zerorisation of the Goods and Services Tax, subsidised pump prices, the general elections, FIFA World Cup season, and termination of toll collection on two highways, provide further impetus to household spending,” the report said.

Private investment, the report said, is expected to grow 4.5 percent this year, accounting for 17.3 percent of GDP with capital outlays concentrated in the services and manufacturing sectors.

It is expected to post a higher growth of five percent next year, attributed to capital spending in technology-intensive manufacturing and services sectors, it added.

According to the report, as Malaysia moves towards digital technologies and the Industrial Revolution 4.0, investment will focus on catalytic industries.

These include the Internet of Things (IoT), software, advanced electronics, smart machinery, automation and robotics, automated guided vehicle, aerospace and medical devices.

On the other hand, public consumption is anticipated to expand marginally by one percent this year, in line with the continuous efforts by the government to rationalise and optimise expenditure without compromising the quality of public service delivery.

In 2019, the report said, public consumption is expected to expand 1.8 percent on account of higher spending on emoluments as well as supplies and services.

As for public investment, it is expected to decline 1.5 percent and 5.4 percent in 2018 and 2019 respectively, mainly weighed down by public corporations’ lower capital spending.

Nevertheless, sustained federal government capital formation is expected to continue to support overall growth of public investment. Despite lower capital spending by public corporations, some of the ongoing projects are expected to continue in the oil and gas industry.

The report said capital spending in the utilities and transport segments is projected to continue to expand capacity and upgrade services.

Meanwhile, federal government development expenditure will be channelled mainly to upgrade and improve transport, infrastructure and public amenities, as well as enhance the quality of education and training.

“In line with steady economic growth, Gross National Income (GNI) in current prices is expected to grow 5.6 percent in 2018 to RM1.4 trillion, while gross national savings (GNS) is anticipated to increase marginally by 0.4 percent to RM387.8 billion with the private sector accounting for 82 percent of total savings.

“With the level of GNS continuing to exceed total investment, the savings-investment gap is expected to record a surplus between 2.5 percent and three percent of GNI, enabling Malaysia to continue to finance its growth primarily from domestic sources.

‘’Growth momentum in GNI is also expected to continue next year expanding 7.1 percent to RM1.5 trillion, with the private sector accounting for 86.9 percent of total savings, while GNS is anticipated to grow 3.4 percent,” the report noted.

Total investment is projected to increase five percent to RM366.8 billion, leading to lower savings-investment surplus, ranging between two percent and three percent of GNI.

Gearing Up for the next Financial Crisis


October 22,2018

Gearing Up for the next Financial Crisis

by Andrew Sheng

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http://www.eastasiaforum,org

In July 2018, the Bank for International Settlements (BIS) asked whether the world was heading towards a perfect financial storm, with the US stock market heading for record highs even as emerging markets like Argentina and Turkey were running into foreign exchange problems. Twenty years after the Asian financial crisis of 1997–98 and the global financial crisis of 2007–08, storm clouds are gathering once again.

Conventional economic models failed to predict the last two crises because the technical definition of financial risk is measured volatility. The global financial crises proved that current models of financial risk, largely used by banks and financial regulators, are totally blind to Black Swan or Grey Rhino events of unmeasurable uncertainty.

This time round, the consensus is that the Grey Rhino (an event with high probability and high impact, but where the trigger is uncertain) is the looming rise in US interest rates in response to a domestic economy that is running at nearly full capacity, with low unemployment levels and signs of creeping inflation. As the BIS has warned, non-financial borrowers outside the United States owe US$11.5 trillion dollars, of which US$3.7 trillion is owed by emerging markets.

Turkey’s recent currency woes are symptoms of domestic policies badly managed, aggravated by the US threat of economic sanctions. Turkey alone has US$467 billion of foreign debt. As global risks rise, capital is flowing back to the booming US stock market and potentially higher interest rate yields. Emerging markets have no alternative but either to allow exchange rate depreciation or defend themselves with higher interest rates that depress their own growth potential. Recently both Indonesia and Hong Kong had to defend their exchange rates through higher interest rates and intervention, respectively.

The tricky thing about US interest rates is that economies with high domestic and foreign debt are vulnerable to tighter liquidity and financial fragility, because their interest rates and credit-risk spreads rise non-linearly. Doomsayers of East Asia’s financial collapse argue that China’s debt of 250 per cent of GDP is the tipping point.

Financial risks are rising not just in China, but globally. Dun and Bradstreet’s Global Risk Matrix, published in May 2018, suggested that US interest rate rises could trigger a fresh debt crisis, sending the global economy into contraction. Echoing this sentiment, the International Monetary Fund’s July 2018 World Economic Outlook argued that rising trade tensions are threatening growth recovery in Europe, Japan and Britain more than predicted. Any overheating in the United States would trigger currency crises for some emerging markets.

In short, we cannot separate financial risks from geopolitical risks. Any unforeseen event arising from a geopolitical miscalculation, climate change disaster, war or cyber-induced disruption could trigger another round of financial crises.

Global financial fragility comes from two structural imbalances. First, the United States is the leading deficit country in terms of trade and debt, owing the world a net US$7.7 trillion, or 39.8 per cent of GDP. This amount is growing because of rising fiscal debt and the low level of national savings. Second, below-par global growth since 2008 has been underwritten almost completely by central bank unconventional monetary policies, which have brought interest rates to an unsustainably low level.

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Market fears that the large central banks will withdraw quantitative easing — QExit — threaten to jeopardise the current frail recovery, which is why US President Donald Trump is also against the Federal Reserve raising interest rates.

If geopolitical risks trump financial risks, what could go wrong in the coming months?

Western analysts think that the trigger will be a Chinese debt meltdown. But Chinese debt is internal debt, as China has foreign exchange reserves equivalent to 188 per cent of its foreign debt and still runs a current account surplus. China’s debt problem is an internal debt issue, very much like that of Japan. While Japanese debt is owed largely to Japanese households, Chinese debt is largely owed by state-owned enterprises and local governments to state-owned banks. In such a situation, China is well positioned to rewrite its national balance sheet, a privilege not possible for more privately dominated markets.

A possible Black Swan (a low probability but high impact event) is an unexpected sharp increase in the yen–dollar exchange rate. Japan is the third largest economy after the United States and China and has been increasing its overseas assets since the 1990s. Between 2007 and July 2018, the Bank of Japan has grown its assets the most among the major central banks (to US$4.9 trillion, or just over 100 per cent of GDP). By the end of 2017, Japan’s gross foreign and net assets grew to US$9 trillion and US$2.9 trillion respectively, equivalent to nearly one quarter of US growth in gross foreign liabilities during the same period.

US trade deficits have been sustained by foreign inflows (which had central bank origins) in which Japan is a major player. During the Asian financial crisis, sharp volatility in the yen–dollar exchange rate caused a dramatic withdrawal of Japanese bank loans from Asia, aggravating a regional liquidity crisis that was already spurred by speculative currency attacks.

What complicates today’s financial fragility is Trump’s attempt to control the US trade deficits. He assumes that bilateral negotiations can reverse the unsustainable growth of national debt, which tripled in the last decade and may grow to 100 per cent of GDP in another decade. But tariffs only increase inflation for the consumer, which would trigger higher interest rates and jeopardise the fragile financial stability achieved through unsustainable monetary policies.

The next global crisis will most likely be triggered by geo-political mistakes. In an age when politicians are proving fickle in their decisions, central bankers are perhaps the only professionals who appear able to do something about financial risks. But since Trump does not care much about professional advice, Asian markets worry less about measurable financial volatility than unmeasurable personality risks.

Andrew Sheng is Distinguished Fellow at the Asia Global Institute, University of Hong Kong. 

This article appeared in the most recent edition of East Asia Forum Quarterly, ‘Asian crisis, ready or not ’.

Malaysia: Pakatan’s First Budget will be a tough one


October 19, 2018

Malaysia: Pakatan’s First Budget will be a tough one

by P. Gunasegaram

http://www.malaysiakini.com

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Malaysia’s Finance Minister Guan Eng

QUESTION TIME | Pakatan Harapan’s first budget to be announced on November 2 is going to be a terribly tough one because there are not going to be many sources of extra revenue nor many avenues for cost-cutting.

There is a reason why the Harapan government does not have enough money – and it isn’t debt that they claim they didn’t know about until they came to power. The real answer is the scrapping of the goods and services tax.

The cash crunch that resulted from the abolition of the GST in favour of the inferior sales and service tax will result in a yearly tax revenue loss of a massive RM22 billion initially, rising as the economy expands. Add to this the cost of fuel subsidies of RM3 billion, and the yearly shortfall is RM25 billion at least.

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That is the kind of yearly gap in revenue that Putrajaya faces. Using projected 2018 figures, according to 2018 Economic Report, the RM25 billion loss of revenue represents 10.7 percent of the projected operating expenditure of RM234.3 billion for 2018.

No tax that the government imposes will come anywhere close to breaching the RM25 billion gap. If it were to impose substantial taxes to recover this money, it will result in hardship to the people along with rising prices – which Harapan said it intended to contain with the abolition of GST in the first place.

A wrong move

The truth is, the abolition  of the GST was a terribly wrong move, and has needlessly strait jacketed the Harapan government and led to a deterioration of its financial position.

As I have said before, it should not even have been a campaign promise as the consumption tax was no longer contributing to higher prices, having been implemented with considerable difficulty back in April 2015.

Also, the GST affected the poor very little because there was a very large list of exemptions which ensured that the prices of essentials would not rise as a result. It is a tax on consumption, and therefore those who consume more (the rich) will pay more, catching in the tax net those who evade income tax. Also, GST records can be used to investigate tax evasions.

If there was one manifesto promise that Harapan broke, it should have been the abolition of GST. That would have ensured that the government finances are in good shape as reforms are being implemented – which could even have included more targeted benefits for the low-income group.

The main reason for higher prices was currency depreciation, a problem that continues to plague us despite the removal of a kleptocratic government. In fact, abolishing the GST may have contributed to currency weakness because analysts and funds view the revenue shortfall as negative in terms of the financial condition of the country.

Finance Minister Lim Guan Eng actually said last month that the ringgit strengthened relative to most countries, despite the transfer of power and weak external demand, but the period he used was incorrect – beginning with end-2017. He should have used May 9, the date of the election.

The table below shows how the ringgit performed relative to the currencies of the Asean-5 from May 9 to yesterday.

The table clearly indicates that the Malaysian currency significantly under performed all the ASEAN-5 countries – barring Indonesia, which has considerable economic problems of its own.

Tightened belts?

Hopefully, the new government and Finance Minister can demonstrate through the budget that they have a proper grasp of the issues at hand and how to handle it to reverse the currency trend.

It won’t be easy. While Lim has argued that the national debt exceeds RM1 trillion – and this has become wrongly used as the debt figure now – it is not. The debt as revealed in the 2018 in Accountant General’s Report for 2017 is still RM687 billion, and increases to over RM1 trillion only if contingent liabilities and guarantees are included, as I have previously explained.

Even if some of the contingent liabilities and/or guarantees have materialised as debt and are not classified as such, the interest on them will still have to be paid. Therefore, there will be little material increase in the overall costs of interest, even if they are reclassified into debt. The problem remains the RM25 billion shortfall.

Some potential positives include increased oil prices and more dividends from government companies, but these are likely to be well under RM10 billion incrementally.

An examination of government costs shows that salaries, retirement benefits and debt service charges account for 57.6 percent of total operating costs of RM234.3 billion. These can’t be cut.

There is more room to cut ‘supplies and services’, and ‘subsidies and social assistance’ accounting for a total of RM60.2 billion, or 25.7 percent of total operating expenditure, but the cuts will have to be pretty sharp. Also, this will probably take away targeted aid to the poor if cash grants under the old BR1M are cancelled.

Harapan is finding out too late that they left themselves too little wriggle room when they abolished GST. Unless they reinstate it – and they aren’t likely to do that because it will be an admission of a major blunder – they have to find other ways to raise revenue or cut costs.

Since the best, broad-based, value-added tax which goes by the name of GST here and implemented in over 160 countries around the world seems no longer available to them, and revenue-raising measures are limited, tightening the belt and prudent cost-cutting may be the order of the day.

If they do a good job of it, and come with a plan of also stimulating the economy to put growth on an upward trajectory again, analysts, fund managers, and most of all Malaysians, will show more faith in them and start putting money into the country.

It would also help to put the ringgit back on an upward path and suppress rising prices, or even lower them over the longer term. That entails honesty, openness, consultation, competency and a willingness to put the country and people above all. Malaysians expect no less from the new government.


P GUNASEGARAM is disappointed that the new government has not always been honest and open. Email: t.p.guna@gmail.com.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

Safeguarding A Rules-based Trading System against America First Trade Economics


October 16, 2018

Safeguarding A Rules-based Trading System against America First Trade Economics

by Dr. Mari Pangestu, Universitas Indonesia

http://www.eastasiaforum.org

 

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“Without concerted effort and a coalition of willing leadership, including from the EU and East Asia, the future of the rules-based trading system will remain under threat.”–Dr. Mari Elka Pangestu

Despite expectations that the US Federal Reserve would raise interest rates, capital flows to the United States have led to the appreciation of the US dollar against most major currencies.

The hardest hit countries are Argentina and Turkey, which are experiencing fiscal issues complicated by their political situations. Brazil, South Africa and the emerging countries in Asia have also been affected — albeit at a lower rate of depreciation of their currencies in the 10 to 12 per cent range. Even Australia and China have experienced depreciation of around 8 per cent and 5 per cent respectively.

The level of depreciation experienced by different economies reflects how investors perceive their different fundamental macroeconomic conditions, especially the level of their current account and fiscal deficits and policy outlooks.

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The rising US dollar raises questions about the capacity of emerging economies to service their dollar-denominated debts and the vulnerabilities this could expose in their financial systems. Even if the current economic conditions point to a low potential for contagion from Argentina and Turkey, IMF Managing Director Christine Lagarde recently warned that ‘these things could change rapidly’. The uncertainty that already exists is a clear and present danger.

The uncertainty in the world economy has been increasing since Brexit and the election of President Trump in 2016, and in 2017 as the United States left the Trans-Pacific Partnership and announced many threats to impose trade restrictions. This uncertainty has heightened since January 2018 when US President Donald Trump made good on his threats to remedy bilateral trade deficits — what he sees as ‘unfair trade’ practices against the United States — by imposing tariffs on imported solar panels and washing machines, followed by aluminium and steel.

Since March, the greatest uncertainty has been from the brewing tit for tat trade conflict between the United States and China, which started with the imposition of 25 per cent tariffs on US$50 billion worth of China’s exports to the United States. China retaliated with the same sized tariffs on the same amount of trade from the United States. Trump then escalated the trade war further in September with the announcement of 10 per cent tariffs on US$200 billion worth of China’s exports to the United States.

The US–China trade conflict and the uncertainty surrounding it is expected to have knock on effects on global trade and investment flows. The impact of the reduction in China’s exports to the United States on China’s growth will reduce China’s imports, which in turn will impact the many countries that China has become a major trading partner for.

This means that China and other countries facing US trade restrictions will look for new markets for their goods. The situation has already led some countries to impose restrictions or initiate trade remedy investigations, for instance on steel. This uncertainty has and will continue to influence trade and investment, as businesses evaluate how the increased restrictions will affect their supply chains.

It is too early to tell how large the disruption will be, as it is not easy to dismantle supply chains. But the costs down the line could be great as businesses re-evaluate their trade and investment decisions to insulate themselves from tariffs rather than to maximise their competitiveness.

The most concerning aspect of all this is that, after 75 years of being its greatest advocate, the United States is now the biggest threat to the future of the rules-based trading system that has provided predictability and fairness in the way the world engages in trade. There is no clear light at the end of the tunnel.

The key question is: what is Trump’s intention? Is it to change the rules of the game to benefit the United States and address China’s ‘non-market-oriented policies’ or is it just anti-trade and America First? Assuming it is the former, there are at least three important responses needed.

First is safeguarding the stability of the World Trade Organization (WTO) as the overarching framework to provide predictability, fairness and stability. To this end, it is vital that the WTO dispute settlement mechanism continues to operate. The test case is the Chinese and EU case against US steel and aluminium tariffs and getting past the blocking of panel judge nominations by the United States.

Ensuring that the United States does not use blunt unilateral instruments to address its concerns also means that reforms to the WTO rule book are needed. More must be done to address concerns around intellectual property rights, investment, the environment, labour, competition policy, subsidies, tax, digital data and the treatment of developing countries.

Second, the process of opening-up must continue, with or without the United States. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership is a good start. And it is of the utmost importance that the Regional Comprehensive Economic Partnership negotiations are concluded in November this year. These are all important processes to signal the continued commitment of East Asia to expanding markets and fostering flows of trade and investment.

Third, and what most will agree is the most important process, is unilateral reforms. Given increased global uncertainty and limited policy space for fiscal stimulus, structural reforms are a must for East Asian countries, especially China. These range from trade and investment reforms, as well as reforms related to competition policy, intellectual property, the role of state-owned enterprises and sustainability. As in the past, unilateral reforms are more successfully undertaken when there is peer pressure and benchmarking from international commitments.

Without concerted effort and a coalition of willing leadership, including from the EU and East Asia, the future of the rules-based trading system will remain under threat.

Dr. Mari Pangestu is former Indonesian trade minister and Professor at the University of Indonesia.

This article appeared in the most recent edition of East Asia Forum Quarterly, ‘Asian crisis, ready or not’.

Political financing reforms should top PH Government’ s political agenda – Jomo


Political financing reforms should top PH Government’ s political agenda – Jomo

Koh Jun Lin  |  Published: September 27, 2018@ http://www.malaysiakini.com



Reforming how political activities are financed in Malaysia should be on top of the government’s political agenda, said the former Council of Eminent Persons member Jomo Kwame Sundaram.

He said Malaysia has a “very decadent” political system that had been abused, giving examples such as the 1MDB scandal and the inflated costs of the East Coast Rail Link (ECRL) project and two gas pipeline projects that have since been cancelled.

“It is important to recognise that we have a system of political financing which has been so abused that we cannot get ourselves out of this, unless we develop a legitimate, accountable, system of political financing. “So, I would put the whole system of political financing at the top of the list of political priorities that needs to be addressed by the current government,” he said.

He was speaking as a panellist at a talk titled “The Way Forward for Malaysia” last night together with Rembau MP Khairy Jamaluddin Abu Bakar in Kuala Lumpur last night. The event was organised by the Oxford and Cambridge Society of Malaysia and was attended by approximately 170 people.

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Former Prime Minister Najib Abdul Razak has been accused of siphoning money from 1MDB and SRC International and using part of the money to fund political activities through his personal bank account. Najib had maintained that the money had come from foreign donors.

Malaysiakini set up a microsite in July detailing some of the outflows from one of his bank accounts to political entities.

After Najib was implicated in the 1MDB scandal in 2015, he set up the National Consultative Council on Political Financing (JKNMPP) that went on to produce 32 recommendations to reform political financing in Malaysia.

However, the reforms were not in place in time for the 14th General Election.

ECRL ‘a hoax’
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As for the ECRL project, Jomo described it as a hoax that is not part of China’s Belt and Road Initiative projects, and would not be able to pay for itself even if its development expenses are written off.

The government has claimed the cost of the project is RM81 billion – compared to the previous administration’s estimate for RM55 billion – adding it is worth no more than RM30 billion.

China Communications Construction Company Limited (CCCC) Vice-President Sun Ziyu has defended the cost of the project.

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Meanwhile, Jomo said there needs to be consensus involving all political parties in Malaysia on what needs to be done to tacklecorruption, where political financing is only a part of the problem.

Otherwise, he said there won’t be much progress in the area.

“I have a great deal of concern with addressing other sources of corruption, and this of course is very, very important and necessary to address. But we have a very decadent and corrupt economic system as well as a political system. In other words, we have been thoroughly compromised,” he said.

Read More: How political financing is done in other countries https://www.malaysiakini.com/news/444827