Malaysia: Protect our Financial and Economic Resilience

August 29, 2018

by Martin Khor

http://www.thestar.com.my

As we found out in the 1997-99 financial crisis, and as the Turkey implosion is now reminding us, it is crucial to defend our economic independence, and that can be done only by keeping out of a debt crisis.

IT’S a few days more to National Day. It’s a good time to remember that nothing is more precious than our independence, where we have the right and means to determine our own economic and social policies.

With that freedom and space, the country and its leaders must then make and implement good policies and practices that improve the people’s lives and well-being.

This is easier said than done. A wrong turn on the road can land the country in trouble, and its independence can even be snatched away.

The new Pakatan Harapan government has highlighted how government borrowings had increased explosively under the previous regime, until the country was on the brink of a debt crisis.

Averting that trap has correctly been a top priority of the government during and after its first 100 days.

Prime Minister Tun Dr Mahathir Mohamad’s trip to China last week was aimed at addressing the high cost of three projects. Their cancellation or postponement results in compensation costs, but these will be less wasteful than pouring money into the over-priced projects.

Malaysia’s ex-Finance Minister thinks that he is a Fiscal Genius. He has been charged with corruption and abuse of power.

There is also the 1MDB saga and many other direct or government guaranteed loans that went sour. If loans are taken for projects that do not yield enough revenue to service the debts, they add to the problem. And if the total loans are huge, the government is in trouble.

Since the federal government debt has reached one trillion ringgit or more, it is imperative to bring it down to a manageable level. Not an easy job at all.

Already a large part of the government budget must be set aside to service the debt, with less available for operations and development.

Some of the Pakatan manifesto promises will have to take longer to fulfil because there is less money. Many understand that saving the country from economic disaster is more important than having goodies now that we can’t afford.

For example, cancelling all highway tolls just can’t be done now, and may be unwise even later; at the least, it should be selectively done. Revenue should be raised for example by increasing “sin taxes” on cigarettes and gambling, and by new taxes on sugar-filled products, including soft drinks.

Many projects on the drawing board or in the pipeline should be reviewed. Even some projects that make sense may need to be postponed. Those that are not economically feasible – they can’t yield sufficient revenue – should not be implemented, unless they are really urgently needed.

Besides their overly high cost estimates, some projects have projected revenues that are unrealistically hiked up, for example, those that rely on over-blown estimates of the numbers of people who will use a highway or a train service.

In designing and carrying out reforms, it is important that the government ensures that the costs of policy adjustments do not fall on the bottom sections of society.

While the focus has been on government debt, it is also necessary to carefully manage the country’s external debt. These are debts owed to foreigners and foreign institutions by the government and its enterprises, private companies and banks.

In recent years, the country’s external debt has been growing, reaching RM936bil at end-June. This comprises the external debt of government (RM184bil), banks (RM354bil), other institutions including companies (RM387bil) and monetary authorities (RM12bil).

About two-thirds of the total debt is denominated in foreign currency (mainly US dollars) and a third (mainly government bonds) are ringgit-denominated.

Though the external debt level is high, Malaysia currently does not have a problem servicing it. The international reserves – RM421.7bil at end-June – are sufficient to cover the debt servicing costs. There is a need, however, to keep close tabs because the international situation has darkened considerably. And many countries, Malaysia included, are affected.

A “perfect storm” has in fact started. The United States has stopped pumping billions into its banking system, thus reversing its quantitative easing policy. So there is now less liquidity and US interest rates are rising.

Funds that surged into emerging economies are moving out. Currencies of developing countries are declining against the US dollar, and their stock markets are declining. The trade war is adding to the gloom.

All that’s needed is a trigger to set off a chain of events. This seemed to have arrived with the currency crisis in Turkey.

The country was already very vulnerable, with a big current account deficit, large external debt, low foreign reserves and high inflation. When the US doubled the tariffs on Turkey’s steel, that triggered an exodus of funds from Turkey and a fall in its currency, which has lost 40% of its value against the US dollar since the start of the year.

The Turkish government is now in full battle mode, trying to keep the country from having to go to the International Monetary Fund for a bailout. It is in a tough fight trying to defend its economic independence.

Spooked by the Turkey crisis, on top of the trade war, foreign funds in the past few weeks have been leaving many developing countries, including Malaysia.

The dreaded term “contagion effect” is increasingly used to describe the situation. Most vulnerable are countries that have high external debts, current account deficits and low reserves. Fortunately Malaysia is not in the frontline of these crisis-prone countries.

But there is global turbulence on the near horizon, and we should prepare for it, on top of the efforts to control the domestic problems of government debt, budget deficit, unviable projects, a high cost of living and a host of social issues.

As we found out in the 1997-99 financial crisis, and as the Turkey implosion is now reminding us, it is crucial to defend our economic independence, and that can be done only by keeping out of a debt crisis.

A country forced to take a bailout loan from the IMF faces conditions that are often humiliating and inappropriate. It loses its independence.

So let us happily celebrate the Merdeka anniversary, for there is much to be glad about this year with a new government that brings the promise of a New Malaysia.

But let us also remind ourselves of the importance of retaining enough freedom to make our own policies, and to ensure we do make the right policies to maintain and defend our economic independence and national sovereignty.

Martin Khor is adviser of the Third World Network. The views expressed here are entirely his own.

 

New York Times : Malaysia pushes back against China’s Vision

August 24, 2018

New York Times :Malaysia pushes back against China’s Vision on account of Najib Razak’s stupidity

Dr. Ramesh Chander Praises Malaysian Finance Minister for early statement on National Debt

July 2, 2018

R. Chander, first Malaysian Chief Statistician (1963-1977) praises Guan Eng for early statement on national debt and stresses urgency of coherent plan to manage Malaysia’s public sector debt

R. Chander, Malaysian Chief Statistician (1963-1977) praises Finance Minister Lim Guan Eng for early statement on national debt and stresses urgency of coherent plan to manage Malaysia’s public sector debt.

I  received an expert opinion on Malaysia’s public sector debt by Dr. R. Chander, the first  Chief Statistician of (1963-1977), who went on to serve as the Senior Adviser to the World Bank’s Chief Economist-Vice President from 1977 to 1996. Upon retirement from the Bank, he served as international adviser to multiple international agencies and governments.

Dr. Chander said he was encouraged by the speed with which the Pakatan Harapan (PH) government had come to grips with the most pressing issues and praised the Finance Minister, Lim Guan Eng for making an early statement on Malaysia’s debt situation.

Najib Razak caught right handed by the FBI for stealing Malaysian people’s money. But he says it is a donation from the Saudi Royal Family

He said: “This was most timely indeed and most astute: it sent a strong signal to markets and had a calming effect; it told the electorate the mess that PH had inherited.

“At the same time it sent a strong message that the debt situation would impede the implementation of several of the electoral promises.

“Concurrently it provided a rationale for the cancellation/suspension of several mega projects that were to be financed by loans – terms of which were rather unfavorable to Malaysia.

“A good side effect was the call to patriotism that was brought out by the launch of the Harapan Fund!” The question now is: Where do we go from here?

In his opinion piece, which I attached below, he stressed the urgency of coming up with a coherent and sound plan to manage Malaysia’s public sector debt.

[Media Statement by DAP MP for Iskandar Puteri Lim Kit Siang in Kuala Lumpur on Monday, 2nd July 2018]

The Confessions of Liar

June 26, 2018

by Thor Kah Hoong

http://www.malaysiakini.com

 

COMMENT | Not so long ago, Najib Abdul Razak was insisting that everything was fine with 1MDB.

Now the narrative is, as my Malay security guard friend put it this morning, “Sekarang buat tak tau” (Now he plays ignorant). His assertion of innocence has aroused a chorus of “liar.”

Leaving aside Dr Mahathir Mohamad’s riposte that his signature on multiple documents give the lie to his claim that he was kept in the dark about the movement of 1MDB money, the best thing I can say for his interview with Reuters is that he confessed to being a dumbass.

The management and board of 1MDB didn’t tell him.When asked if he was accusing them, throwing them under the bus, he trotted out the meaningless phrase – “as a general principle” – they should have told him.

What general principle? Did they or didn’t they tell you? What did the chairman of the financial advisory board of 1MDB do? Wait to be advised instead of advising?

To extend the analogy of the bus, I hope those shoved under it will be spilling their guts.That prospect has prompted Najib to trot out quickly an “I-said-no-such-thing” disclaimer.

So what did he say? A fuller explanation will be forthcoming… I suppose after his media team has figured out how to salvage the situation with another verbal pretzel.

 

Compounding his confession of ignorance, Najib revealed an equally cavalier, blithe unconcern about the source of the millions, billions flowing into his account.

The power of attorney was in somebody’s hands. How gullibleI would advise him not to ride to the rescue of widows of ex-presidents of Nigeria who have died of cancer, or young women promising to disrobe for the camera after he did so.

Adding to his bad luck, Nik Faizal Ariff Kamil, the man in question, is on the run. Poor Najib. No witness to testify to his ignorance.

He assumed the RM2.6 billion came from the Saudi king. Didn’t think it would be from 1MDB.

What, no thank you phone call to the king? “Yo bro, thanks for the donation. Didn’t expect such a generous donation to influence the course of elections in this country. When can you come for a round of golf?”

Great, the country’s former Finance Minister confesses that he had no head for figures, that he was a clueless, gullible dumbass.And he wants absolution?

Obviously, he still has a hearing problem and can’t hear the people.The jury, much of the people, has decided on his guilt. He is lucky. It is unlikely the government will allow kangaroo courts. A bit of a shame. Would speed things up.

Now the people will just have to be patient while the wheels of justice slowly grind to a verdict, with the inevitable consequent appeals.

‘Pump and dump’

In the interview, Najib expressed pride in the film producing career of his stepson Riza Aziz.

The Wolf of Wall Street is one Scorsese movie I didn’t take to. The arc of its narrative was predictable – conmen believing they were immune as money kept pouring in; a piling on of excess; the house of cards collapsing when the authorities come calling.

I got nothing from the predictable story, but Najib could have taken it as a warning.

The film was based on the memoir of Jordan Belfort. Losing his job as stockbroker in a Wall Street crash, he winds up in an outfit flogging cheap junk shares.

There, Belfort developed his successful scam – “pump-and-dump” – convince the gullible that the rock-bottom shares are about to take off. This pumps up the price of the share. Dump it when suckers rush in.

Instead of drawing public opprobrium, a media expose of his methods, attracted a flood of applications for jobs.

It’s party-time, in the office, on a luxury yacht – drugs, prostitutes, buy, spend, be lavish, no need to worry about money, more coming in.

Predictably, excess attracted attention, and the delusion that the law could not touch them led to insider trading which led to the SEC and FBI opening files on the company.

Belfort smuggled cash into Switzerland using his wife and the in-laws of a friend. He lost access to the money. His friends turned on him to get reduced charges and sentences for themselves, and Belfort spent three years in prison.

Fiction mirroring life.

The Joke is on you, Mr. Najib Razak–Sungei  Buloh or Kajang is waiting for you

A divergence would be at the end of the film shows Belfort having a successful career conducting courses on selling. Najib should ask his media team to see if Belfort’s course material is available online. Might help.

There was a scene in the movie (actually two of them if my memory is correct) where Leonardo DiCaprio (Belfort) upends a prostitute, lays a line of coke, and snorts both lines.(I hope you know what I mean. I struggled to find words suitable for this family portal, and I was not sure ‘camel’s toe’ would spare me from being savaged by irate feminists, even if I made reference to National Geographic and Animal Planet.)

Wow, 1MDB money, the PM’s stepson made this movie.

If my friends in Pakatan Harapan weren’t such moral folks and would have been aghast at the idea of gutter politics, I would have suggested they contact a pirate DVD organisation (cheaper and the legal one will have the juicy scenes bit/byte out), and distribute it.

Sex, drugs and rock-and-roll – would have won Harapan a few more Malay votes.

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THOR KAH HOONG is a veteran journalist.

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

Taming Malaysia’s GLC ‘monsters’

June 24, 2018

by Jayant Menon, ADB and ANU

http://www.eastasiaforum.org

1MDB Top Honcho–Arul Kanda Kandasamy

“…recent revelations show Malaysia’s debt position may be more precarious than first thought. The new government has correctly highlighted the need to include certain off-balance-sheet items and contingent liabilities such as government guarantees and public–private partnership lease payments in any complete assessment of debt outstanding, as the use of offshoot companies and special purpose vehicles in the deliberate reconfiguration of certain obligations mean that traditional debt calculations underestimate Malaysia’s actual debt.”–Jayant Menon

About a month before Malaysia’s parliamentary election in May, then-opposition leader Mahathir Mohamad raised concerns over the role that government-linked companies (GLCs) were playing in the economy, being ‘huge and rich’ enough to be considered ‘monsters’.Data support his description — GLCs account for about half of the benchmark Kuala Lumpur Composite Index, and they constitute seven out of the top-10 listed firms in 2018. They are present in almost every sector, sometimes in a towering way. Globally, Malaysia ranks fifth-highest in terms of GLC influence on the economy.

Calls to do something about GLCs have increased since the election following the release of more damning information, although most of it relates to the GLCs’ investment arm: government-linked investment companies (GLICs). Recent reports confirm that the former government had been using Malaysia’s central bank and Khazanah (a sovereign wealth fund) to service the debt obligations of the scandal-laden 1 Malaysia Development Berhad government fund. The central bank governor has since resigned.

The GLCs have not been immune from scandals either. The most recent relates to a massive land scandal involving Felda Global Ventures, which is the world’s largest plantation operator. There have also been a series of massive bailouts of GLCs over the years, the cumulative value of which is disputed but could be as high as RM85 billion (US$21 billion). All of this led one prominent critic to proclaim that ‘GLCs are a nest for plunderers’ and that the government should ‘sell them all’. Although this may be extreme, it does raise a critical question — what, if anything, should the government do?

Some experts have proposed the formation of an independent body with operational oversight for GLICs after institutional autonomy is established and internal managerial reforms are introduced. Unlike most GLCs, GLICs are not publicly listed and face little scrutiny. The same applies to the various funds at the constituent state level.

 

For GLCs, the answer is less straightforward. Mahathir claims that GLCs have lost track of their original function. Before the Malaysian government decides on what to do, it needs to examine the role GLCs should play — as opposed to the role they currently play — and to examine their impact on the economy.

In Malaysia, GLCs were uniquely tasked to assist in the government’s affirmative action program to improve the absolute and relative position of ethnic Malays and other indigenous people (Bumiputera). The intention was to help create a new class of Bumiputera entrepreneurs — first through the GLCs themselves and then through a process of divestment.

Given the amounts of money involved and the cost of the distortions introduced, the benefits to Bumiputera were unjustifiably small and unequally distributed. The approach of using GLCs as instruments of affirmative action failed because it led to a rise in crony capitalism, state dependence, regulatory capture and grand corruption. There is also empirical evidence that GLCs have been crowding out private investment, a concern raised in the New Economic Model as early as 2011.

Malaysia’s National Debt is said to be around 65 percent of current GDP

Additionally, recent revelations show Malaysia’s debt position may be more precarious than first thought. The new government has correctly highlighted the need to include certain off-balance-sheet items and contingent liabilities such as government guarantees and public–private partnership lease payments in any complete assessment of debt outstanding, as the use of offshoot companies and special purpose vehicles in the deliberate reconfiguration of certain obligations mean that traditional debt calculations underestimate Malaysia’s actual debt.

All these factors combine to place new impetus on reconsidering the extent of government involvement in business. Divestment will not solve Malaysia’s debt problem, but it can help if there are good reasons to pursue it. So how should the government proceed?

It is important to recognise at the outset that there is a legitimate role for government in business — providing public goods, addressing market failures or promoting social advancement. And like in most other countries, there are good and bad GLCs in Malaysia. If a GLC is not crowding out private enterprise, operates efficiently and performs a social function effectively, then there is no reason to consider divestment. But a GLC that crowds out private enterprise in a sector with no public or social function or one that is inefficiently run should be a candidate for divestment.

In assessing performance, one needs to separate results that arise from true efficiency versus preferential treatment that generates artificial rents for the GLC. The latter is a drain on public resources and a tax on consumers. Divestment in this case will likely provide more than a one-off financial injection to government coffers — it will provide ongoing benefits through fiscal savings or better allocation of public resources.

The divestment process should be carefully managed to ensure that public assets are disposed at fair market value and that the divestment process does not concentrate market power or wealth in the hands of a few. This has apparently happened before.

The new government has committed itself to addressing corruption and improving the management of public resources. As part of this process, one must re-examine just how much government is involved in business. This is one of the many tasks that the Council of Eminent Persons is undertaking in the first 100 days of the new government. If done correctly, this should rejuvenate the private sector while enabling good GLCs to thrive, and it should fortify Malaysia’s fiscal position in the process. This is what Malaysians should expect — and indeed demand — of the ‘new Malaysia’.

Jayant Menon is Lead Economist in the Economic Research and Regional Cooperation Department at the Asian Development Bank and Adjunct Fellow of the Arndt–Corden Department of Economics, The Australian National University.

The Hunter and the Hunted

June 23, 2018

by R.Nadeswaran@www.malaysiakini.com

R.Nadeswaran–The Malaysian Investigative Journalist

COMMENT | The terms – felon, conman, outlaw and crook – are only applicable upon conviction in a court of law. Until then, if he had attempted to cover his misdemeanours and delinquencies, he remains a dissembler or fibber. If through a series of explanations which cross the thick line between offering an excuse and telling an untruth, he remains a prevaricator, fabricator or in much simpler language – a liar.

But those in the relentless hunt for the truth are not likely to give up until they reach their goal. The hunted will also not ease his unyielding attempts to avoid the goal. (To the uninitiated, “goal” is a form of an enclosure which was also an archaic  term for “jail”.)

While the hunted tries to wriggle out of his self-inflicted woes, those who had previously sought and received a share of the spoils – from chunks to crumbs – seem to have jumped the sinking ship. Others have decided to fight it out like lions and tigers for control of their remaining territory.

The man who brought in the druids, shamans and oracles to offer “protection” has abandoned the hunted too. The prayers and chanting for all the wrongs and sins of the hunted, his wife and the family, have ceased.

This man himself is of soiled character. He was the chauffeur until he “stole” the boss’ wife and moved up to hob-nob with the Joneses. He brought the soothsayers from all parts of the world in looking forward to monetary rewards.

He was not disappointed. Several government contracts came his way. Unfortunately, through bad business practices and in some cases arrogance because of his links with the hunted, his empire collapsed. Now, the man is on the run with six bodyguards in tow leaving a trail of creditors – from small-time contractors to financial institutions. In the past, when creditors tuned up at his door, his riposte was threatening: “I will let loose my bulldogs on you.”

If until May 9 he was untouchable, the banks have now moved in demanding repayment of millions in loans. How he is going to get out of the mess is anyone’s guess. But then, would you be disappointed or surprised if he joins the hunter and share the dark secrets of the hunted in return for freedom?

Then there’s another man who could walk in and out of the any of the several mansions belonging to the hunted. Having been short-changed in some deals, he decided to squeal – identifying the many shady characters that participated, partook or offered advice on the injudiciousness and indiscretion.

The shady lawyers who were instrumental in the midnight meeting where the decimation of senior government officials was discussed are considering various options. When the future of the then MACC Chief and the then Attorney-General was debated, the passive one suggested that they be asked to resign honourably. But the more aggressive one banged the table and insisted on an immediate purge.

“Show them no mercy. Send them to the slaughter house,” the hunted and his siblings, who co-acted as advisors, were told. In a reversal of roles, they just followed thy servant’s command. The days of these men of the law making headlines are over. They have retreated into their cocoons and even the slightest grunt or groan, if heard by the hunter or by the hunted, will mean trouble.

Writing on the wall

Many read the writing on the wall and have exited via the back door while others are waiting to be shown the door. In both instances, they have been and will walk down a creaky and inflexible staircase.

Others who handled finances and were part of the thievery have conveniently “migrated” to neighbouring countries. But their freedom is not likely to last long. The long arm of the law will get them.

The supply of ‘dedak’ or animal feed to many has been cut. With the hunted’s coffers drying up and with the cash in the condominium taken away for safekeeping, there’s no more automated teller machine (ATM) dishing out money like Smarties or M&Ms from a vending machine.

Already, some have begun to sing like canaries awaiting some form of amnesty, reprieve or forgiveness. But no one is in the mood to forgive and forget and move on. This has become an overused cliché – most recently repeated by the hunted but rejected by the hunter.

The time has come for the hunted to pay his dues. His guilt will be proven and he will join a long line of hunters who became the hunted. No one is going to show mercy or have any sympathy because the level of imprudence and thievery are inexcusable.

When citizen’s funds have been misused and their personal freedom and rights have been impeded or trampled upon, there’s no room for any option or discretion. Once indicted, the iron gates are going to be clanged shut, padlocked and the keys kept in the hunter’s custody for a long, long time. It will be a deterrent for those who cannot control his greed and or his wife.

She may live happily ever after knowing that some of the ill-gotten gains will remain untouched by the hunter – for her to enjoy. After all, finding another soul mate (she’s experienced in this) will never be a problem with all the dosh that she is flushed with.

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R NADESWARAN is a veteran journalist but has decided to turn storyteller for a change. It may not have been a parable but this story of the hunter and the hunted will certainly put the fear into the few who have been putting their hands in the till. Comments: citizen.nades22@gmail.com.

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