1MDB: A Case of Bad Governance, Muzzled Mainstream Media and Over-Concentration of Power

March 15, 2015

1MDB: A Case of Bad Governance, Muzzled Mainstream Media and Over-Concentration of Power

By Anisah Shukry@www.themalaysiainsider.com

Brown of Sarawak Report

Over-concentration of power in Malaysia, weak public institutions, the muzzled mainstream media and lack of transparency had allowed businessman Low Taek Jho to allegedly siphon billions of ringgit from 1Malaysia Development Berhad (1MDB), Clare Rewcastle Brown said today.

The editor of whistleblower site, Sarawak Report, told a forum today that all these factors had prevented anyone from revealing more info on Jho Low, as he is better known, and his 1MDB dealings earlier on, despite the fact that he was just a “30-something businessman”.

“In a more open, strong, check-and-balance set up, he would have been flushed out, sorted and put in his place a long time previously,” said Rewcastle Brown, as she addressed the 1,000-plus audience at the Crystal Crown Hotel, in Petaling Jaya today, via an online video conference on Skype.

But in Malaysia, power was too concentrated, she said, pointing to the fact that Najib controlled two of the most important portfolios in the government.

“The checks and balances are eroded to the extent that the prime minister is the finance minister.I mean, why do you think there are two positions? Why is it a good idea that the same person should occupy both?” said Rewcastle Brown at the forum titled “1MDB: The Ultimate LOW Down”.

She added that there was also a lack of robustness in Malaysia’s institutions, despite the huge pool of talent and manpower the country has.

Brown and MahathirTun Dr. Mahathir and Ms. Brown

“The other thing that struck me is the lack of transparency. Politicians like Tony Pua, Rafizi Ramli and UMNO’s Tun Dr Mahathir Mohamad have asked valid questions and those answers should be available in public paperwork.”

Instead, she said, the questions remained unanswered and anyone who digs deeper were treated as traitors.

Referring to the mainstream media in Malaysia, she said that the “muzzled media” was overly obedient and Malaysians could only rely on blogs and online news portals to objectively discuss politicians’ actions, added Rewcastle Brown.

“There seems to be an attitude that a strong government is a good thing, and that’s why you have over-concentration of power and weak institutions. But I think it’s a recipe for disaster. And that’s what 1MDB is, a very big disaster for Malaysia,” said Rewcastle Brown.

She said it would take just a “half-decent investigation” by authorities to discover 1MDB’s financial irregularities and Low’s role in it, adding that she had her eye on the company since 2010.

“I picked up the story by asking a lot of questions and I obtained a lot of sources that allowed me to shed more light on what had happened,” she said.

Rewcastle Brown’s Sarawak Report released a series of hard-hitting exposés in recent weeks on 1MDB, including its 2009 joint venture with PetroSaudi International and its alleged links to Low.

Petro Saudi and 1MDB

Sarawak Report claimed that Low had used PetroSaudi as a front to siphon off US$700 million from 1MDB.It also alleged that Low had engineered the joint-venture between both companies, which resulted in 1MDB repaying a loan to PetroSaudi. But the funds allegedly went to a company controlled by Low, called Good Star Limited.

Low, PetroSaudi and 1MDB have since publically denied they had committed any wrongdoing, while the Cabinet on March 4 cleared 1MDB, saying the allegations only concerned external parties and not the government’s strategic investment vehicle.

However, after much pressure, Prime Minister Datuk Seri Najib Razak said that the Auditor-General will be directed to conduct an independent audit of 1MDB’s accounts. The report will then be passed to the parliamentary Public Accounts Committee, the police and the Malaysian Anti-Corruption Commission for any further action.

Najib has vowed action against any wrongdoing if found.



Indonesia–The Emerging Tiger of ASEAN

March 10, 2015

Indonesia–The Emerging Tiger of ASEAN with some challenges ahead

by Ajeya Bandyopadhyay, Kolkata, India | Opinion–http://www.thejakartapost.com

Indonesia's Open Government Partnership

Indonesia has experienced impressive growth in recent years. On the basis of purchasing-power parity (PPP), the gross national income per head doubled to US$4,730 during the decade to 2012.

The proportion of the population living in poverty fell by almost half, from 24 percent in 1999 to 12 percent in 2012 (World Bank). The booming young population joining the workforce created huge demand for real estate and brought foreign investment in construction and consumer goods.

Yet Indonesia’s growth has been quite uneven and perhaps unsustainable in the long run. Real consumption grew by about 4 percent a year on an average in 2003-2010. More alarmingly, for the poorest 40 percent of households it grew by only 1.3 percent.

In contrast the consumption by the richest 20 percent grew by around 5.9 percent. In other words the income disparity between rich and the poor is rising rapidly. Indonesia’s Gini Coefficient, a measure of income inequality, jumped from 0.29 in 2000 to 0.38 in 2011. High income inequality in the long run, hurts higher growth potential and disrupts social cohesion.

Growth momentum in the Indonesian economy has moderated somewhat over the past several months due to a weaker performance by the export sector, together with the impact of tighter monetary policy as the central bank has hiked interest rates to control inflationary pressures. This has resulted in GDP growth rate lowering from a 6 percent a year ago to around 5 percent year-on-year (year on year) till the end of 2014.

Although Indonesia made considerable progress in macroeconomic stabilization under former president Susilo Bambang Yudhoyono, a key challenge for the present administration will be to implement crucial microeconomic reforms.  In other words, the crucial symptoms of a country falling into the so-called ‘middle income trap’ are quite apparent in all corners of the economy.

Over 3 million migrants from the countryside arrive each year in Jakarta and other cities. Many of them take recourse of jobs in low-end services, hawking food by the roadside or selling things from handcarts. They are part of Indonesia’s vibrant informal economy, which accounts for nearly 70 percent of the country’s GDP.

The “local content” restriction is acting as a deterrent for many manufacturers to open factories in Indonesia.

A large workforce engaged in the informal sectors rarely earns the minimum wage or gets access to government benefits.

The World Bank estimates that labor productivity in Indonesia’s low-end services is about double that of agriculture but it is still one-fifth of that in manufacturing. In nutshell, it means that poverty will fall much faster if agricultural laborers shift to manufacturing instead of low-end services. However, the manufacturing sector in Indonesia still remains highly uncompetitive due to decrepit infrastructure, rigid labor laws and the government’s protectionist policies.

Even though the share of Indonesia’s labor force in agriculture has been in decline for decades, manufacturing share has not changed really much at all from the 13 percent in 2012. Local manufacturing remains mostly confined to palm oil and a few other primary commodities.

To a large extent, the “local content” restriction is acting as a deterrent for many manufacturers, especially in the consumer goods category, to open factories in Indonesia. In contrast services now employ about 44 percent of the labor force, up from 37 percent a decade ago.

Jokowi WidodoAlthough it is too early to predict, it can be stated with a reasonable degree of certitude that Indonesia is likely to miss the bus in manufacturing if infrastructure and human skills continue to remain the biggest challenges. A very high level of energy subsidies (on fossil fuel and electricity), around Rp 300 trillion in 2013 equivalent to 3 percent of GDP, also pose a significant burden on the taxpayers.

Already under implementation, a phased and sequenced approach to energy subsidy reform, while protecting the most vulnerable consumers, will encourage energy efficiency, shift consumer behavior and free up resources for critical social investment.

Widening access to affordable housing, clean water, sanitation, education and healthcare might slowly start to trickle down the benefits of rapid economic growth to the less fortunate and create adequate purchasing power to sustain the next generation of industrialization.

But the defining question remains if the current level of investment (as a percentage of GDP) is adequate to support the next level of strong growth. Historical precedents reveal that sustained higher levels of investment are crucial, along with the improved efficiency of investment. China is a golden case in point with investment to GDP ratio being 46 percent in 2012.

Fortunately, Indonesia, among other middle income countries of East Asia (excluding China) is maintaining a nearly 33 percent investment rate which is above the 25 percent threshold prescribed by the Growth Commission as the necessary condition for robust and high growth.


Apart from creating world-class infrastructure — roads, airports, power plant, telecom and information super-highways, a significant proportion of investment and budgetary support should also be channelized into R&D, innovation and enrichment of human capital through high quality technical education and modern skill building.

Reforming the investment climate is essential; so are the conditions for innovation, to attract leading companies and a world-class talent pool. The present government should play a decisive role in determining Indonesia’s future economic policies: whether to pursue a strategy of globalization by encouraging greater international integration or adopt a more nationalist, protectionist approach. Each approach has its own pros and cons.

But what is apparent is that, the government needs to undertake a bunch of crucial policy and institutional reforms bundled with critical investment in hard and soft infrastructure.

All these should be accomplished with a sense of utmost urgency before it gets too late for the country to get out of the middle-income trap and graduates into a high income, industrialized nation providing a better quality of life to its citizens.
The writer is presently a senior executive of Ernst & Young (India), advising government, multilateral and bilateral clients in the area of public policy, economic growth, energy policy and governance. He worked quite extensively in the South and Southeast Asian region, including Indonesia. This is a personal view.

1MDB–Need for an Independent Forensic Audit

March 9, 2015

COMMENT: The 1MDB plot thickens and the Malaysian public is being given both fact and fiction. I  am for one  confused. At the end of the day, as it has been in the past, we are exhausted and become frustrated with promises from the Prime Minister that he would leave no stones unturned. He has since ordered the Auditor-General to take action.

auditor-general-malaysia.682997529It may be recalled that the Auditor-General, who claims the late Tan Sri Ahmad Nordin as his role model, had has previously said that there was no need for his department to audit 1MDB since the financial statements and activities have been audited by an  international firm of accountants.

Read this by AH Manaf: 


With this frame of mind, will the Auditor-General be able to do so without political interference?

I would like to quote here what Frankly Speaking in Edge Malaysia wrote in the March 9–March 15 issue:

Last week, Prime Minister Datuk Seri Najib Razak issues at a statement saying has instructed the Auditor-General (AG) to “independently verify (1Malaysia Development Berhad (1MDB)’s accounts.” When completed, the AG’s report will be passed to the Public Accounts Committee for transparent inspection…

To do this once and for all, the AG should conduct a forensic audit on 1MDB accounts. Also, the outcome of the audit should be released for public viewing.

The forensic audit should go back to 1MDB’s first business venture in 2009- a joint venture (JV) with PetroSaudi Holdings (Cayman) Ltd. 1MDB pumped US1 billion into the JV, of which US700 million was immediately used to settle a debt owed by the newly formed JV.

…The forensic audit must address the following: What happened to the JV with PetroSaudi? Why couldn’t 1MDB repay the RM2 billion loan on time? Has it overpaid for its power assets? How else to explain the mismatch between its cash flow and debts?. Is 1MDB fit to remain fit to remain an ongoing entity?

I endorse the views expressed above. 1MDB has become a national problem and requires urgent action. All available financial expertise should be utilized to get to the bottom of it. More importantly, we should learn from 1MDB about how not to do business and ensure that investment and financing decisions are made with due diligence.

Money invested must produce returns with commensurate risk. It must be clear to all managers that they cannot mix politics with business and must always protect direct and indirect stakeholders in their dealings. There is a message to bankers too. They should know that they are lending depositors’ money, not their own. It is, therefore, important that they exercise prudence and be guided  by established guidelines from Bank Negara when they on lend the money to finance “development”. 

Najib as 1MDB advisorAs the Prime Minister has eloquently said with regard to 1MDB audit, “if any wrongdoing is proved, the law will be enforced without exception”. So can we expect some heads will roll on grounds of accountability? – Din Merican

Jho Low Claimed The “PM/ FM” Gave Approval To Keep Bank Negara In The Dark On 1MDB Loan


The lawyers for Jho Low, the London firm Schillings have now finally issued a statement on behalf of the tycoon, in response to questions from the news agency AFP.

The widely reported response acknowledges that Low was “consulted” on the PetroSaudi joint venture deal with Malaysia’s 1MDB development fund, “but has never been involved in criminal acts with respect to this transaction”.

This latest statement contrasts with earlier claims by Jho Low’s spokespeople Edlemen in New York, who announced last year on his behalf:

“Mr. Low has never held any position in 1MDB or in the Malaysian government. Mr. Low was appointed as one of the many advisors invited by the stakeholders of Terengganu Investment Authority (TIA) to provide advice from Jan 2009 to mid-May 2009 given his market-based knowledge. Mr. Low has not been involved in TIA since mid-May 2009.[Statement by Low’s PR company Edleman in May]

The PetroSaudi joint venture deal took place between September 8th and September 29th of 2009.

Patrick Mahony - sought "letters of comfort"

Crucially, Low repeatedly informed PetroSaudi Director Patrick Mahony, who was anxious for confirmation that the Central Bank had indeed authorised the loan, that this was not needed because only:

” Mof approval is required for the loan which we have signed by pm who is also FM”

No need to tell the bank we have Ministry of Finance Approval and FM (also PM) has signed...

It also appears to confirm that Jho Low was acting as the interface between the Prime Minister/ Finance Minister on such matters with PetroSaudi.

Of even more concern is an apparent decision by Jho Low together with the “FM who is also PM” to leave the Bank Negara in the dark about the loan.  This was despite the anxious and repeated requests by PetroSaudi’s own lawyers for a “letter of comfort” to confirm that the bank had given its approval, which they insisted was legally required.

As PetroSaudi boss Patrick Mahony put it to Low in the course of the correspondence:

“I know you know my guys are freaking out”

Yet, Low continued to insist that because the loan was “off-shore to off-shore” there was no need to declare the transaction to the bank and the legal advisors could be ignored.  As he put it “Bank Negara consent not required”:

JL: Bank Negara consent not required.
JL: As its foreign borrowings.
JL: So we arw sending offshore to offshore.
JL: Or else we’ll have unnecessary delays.
Patrick: According to your lawyers it is.
JL: Take it out pls.
Patrick: We had it last time.
Patrick: We need comfort we are getting this money in an approved manner.
JL: Last time local borrowings.
JL: This is foreign.
JL: Just don’t want bnm [Bank Negara Malaysia] to delay it.

Experts linked to Bank Negara have confirmed to Sarawak Report that this is not the case and that because a loan was involved, which 1MDB a public body was ultimately responsible for, the bank should have been informed.

Jho Low was wrong.

How half a billion dollar loan was fixed via BBM 

These revealing exchanges between Mahony and Jho Low took place through Blackberry messenger between Wednesday 21st July and Tuesday 27th July 2010, according to Mahony.

Kept in the loop, PetroSaudi's Tarek Obaid - but how about 1MDB's own chiefs?

He then sent the entire transcript by email to his fellow Director Tarek Obaid to put him in the picture about the situation.It places the conversations in the days running up to a planned loan deal to PetroSaudi of USD$500 million dated 26th July 2010.

Mahony refers to “Monday” as the date decided, which was indeed the 26th and corresponds to papers acquired by Sarawak Report, which relate to a USD$500 million Murabaha loan agreement between 1MDB and PetroSaudi, dated on that day.

From: Patrick Mahony
To: Tarek Obaid
Date: Tue, 27 Jul 2010 14:11:33 +0200
Subject: Bbm transcript

This is my conversation with jho – it is between last wednesday and today…


Patrick, JL



Show email

Another key aspect of this significant exchange is the casual acknowledgement by Jho Low that responsibility and liability for the loan would lie with 1MDB:

JL: Just insert “any required regulatory approvals” so its
mdb’s [1MDB’s] liability n responsibility
JL: That covers all rather than specific bnm [Bank Negara Malaysia]

But, yet again 1MDB appears barely to be engaged in this negotiation.

Nik Faisal Ariff Kamil, UBG's man in 1MDB As with the previous joint venture loan agreement the preceding year, the executives of 1MDB seem to be virtual by-standers in the affair, with the UBG bank place-man, Nik Faisal receiving documents from PetroSaudi as agreed with Jho Low.

In the event, it appears that because of Mahony’s protests the original loan plan may have indeed eventually have been reported to the Bank Negara, an outcome which was described by Jho Low as “worst case”.

Low confirms that he had already got Ministry of Finance and 1MDB Board approval for the loan, but because Mahony had flagged up the issue over getting Bank Negara approval as well he might have to fly to KL to sit down with the lawyers and work things out, a worst case scenario.

It begs the question as to why the Minister of Finance and Board had signed without checking the matter with the Central Bank, since this was required?

The entire exchange once again destroys any suggestions that Jho Low was merely engaged in a distant consultative role when it came to the negotiations between PetroSaudi and 1MDB.

USD$160 million went to Jho Low’s company

Jho Low’s interest in the loan deal was plain to see from the documents that eventually covered the distribution of the money.

As Sarawak Report has previously demonstrated $160 million out of the $500 million loan was sent to the RBS Coutts Zurich account of the company Good Star, which was controlled by the tycoon.

The remaining $340 million went to the PetroSaudi operating account held by JP Morgan in Geneva.

Whether there were two identical loans that went through on July 23rd and then September 8th, or whether the Central Bank was indeed informed, resulting in the “worst case scenario” envisaged by Low – a delay till September – is something that merits further research by the official Audit Office investigators, who are now being tasked with examining what happened at 1MDB.

Given the close links to the UBG bank buy out by many of the players in these 1MDB loan negotiations, it is worth noting that PetroSaudi’s offer for UBG was announced in January 2010, but that the buy out was not completed until September 29th.

Meanwhile, a USD$500 million transfer was made to PetroSaudi from 1MDB on September 8th. Then, on September 16th, Tarek Obaid, as Director of PetroSaudi International (Seychelles), paid USD$260 million into its subsidiary Jarvace Sdn Bhd, which bought UBG.

Capital transfer to Jarvace Sdn Bhd just days before

Yachts in the South of France

The revelations about Jho Low’s role in these dealings, while actively a Director on the UBG board, throws inevitable scrutiny onto his personal relationship with the Prime Minister/Finance Minister/ Chairman of the Board of Advisors of 1MDB.

Jho Low, far from acting as a mere advisor, was clearly heavily involved in the deal and in directing it with the avowed support of the Malaysian Prime Minister.

Altogether, Rosmah, Taib, Raziah & Robert Geneid at Monaco, after enjoying a stint on the PetroSaudi hired Tatoosh Summer 2010

His close relations with the PM and his family can not be in doubt over this entire period and this socialising also connected closely with the Taib family, the majority owners of UBG.

Two weeks beforehand Jho Low was living it up in St Tropez with Paris Hilton. Newspapers in New York had registered Jho Low when he first started splashing money in October 2009 straight after the PSI joint venture was signed.

In the August of 2010, in the middle of these transactions, the Prime Minister and his wife were the honoured guests in Monaco of Prince Albert.Here Rosmah played sponsor to the first of a series of Islamic Fashion Shows, designed to raise money for the Prince’s Environment Foundation.

The Taibs, the Geneids, the Hii family and Rosmah and Najib joined Prince Albert’s entourage at the extravagant fashion event after having reportedly spent time on Jho Low’s hired yacht off the South of France.

The Tatoosh was rented just before the event by PetroSaudi to entertain Malaysian friend in the South of France

Rosmah then presented a $100,000 cheque to Prince Albert’s Foundation, which Sarawak Report has already reported was in fact funded by the Sarawak timber tycoons, the Hii family, who are cronies of the one of the world’s worst destroyers of the environment, Taib Mahmud.

Low is believed to have told his guests that the yacht (which rents out at around half a million dollars a week) belonged to the owner of PetroSauid, Prince Turki bin Abdullah, the son of the King of Saudi Arabia.

Earlier, in late 2009, there had clearly been another such gathering in the South of France. According to the correspondence,  Jho Low contacted the PM’s office for photographs:

From: Low Jho
To: wanshihab@gmail.com, Tarek Al-Obaid
Date: Sun, 27 Dec 2009 03:29:32 +0000
Subject: Re: Pictures from South of France (PM Najib & HRH Prince Turki)

Thanks so much Wan!

——Original Message——

From: wanshihab@gmail.com
To: jho.low@gmail.com
To: Tarek Al-Obaid
ReplyTo: wanshihab@gmail.com
Subject: Re: Pictures from South of France (PM Najib & HRH Prince Turki)
Sent: Dec 26, 2009 11:25 PM

Dear Jho and Mr. Tarek Al Obeid,

It would be a pleasure to email you  the photos of HRH. Unfortunately I am away with the Prime Minister at the moment whereas the photos are back in Malaysia and is not immediately accessible. I will send it through as soon as I return. Hope that’s alright.

May I take this opportunity to extend to you the season’s greetings and wish you a Happy New Year.

Warmest regards,


——Original Message——

From: Low, Jho
To: wanshihab@gmail.com
Cc: Tarek Al-Obaid
ReplyTo: jho.low@gmail.com
Subject: Pictures from South of France (PM Najib & HRH Prince Turki)
Sent: Dec 27, 2009 9:08 AM

Dear Mr. Wan Shihab,

Would you pls kindly email the pictures you have of The Hon PM Mohd Najib Razak with HRH Prince Turki Al-Saud and Sheikh Tarek Obaid asap? They wld like it strictly for their private records. I have cced Tarek on this email so you can email him and cc me asap.


This may have been a private meeting, but it appears to have related to matters of public interest.

The IMF on the Malaysian Economy

March 8, 2015

The IMF on the Malaysian Economy


This message contains the Press Release issued after the conclusion of IMF’s recent Article IV Consultations, with a link to the full Staff Report and a background paper entitled: “SELECTED ISSUES PAPER ON MALAYSIA”. These highly nuanced documents represent a kind of independent treasury report card on the Malaysian economy.





[Executive] Directors praised Malaysia’s impressive strides in economic development, which is the outcome of comprehensive initiatives to boost investment, improve infrastructure, and upgrade human capital. They agreed that Malaysia’s commitment to regional integration should also help support the country’s transition to high-income status by further enhancing competition and productivity.

IMF Executive Board Concludes Article IV Consultation with Malaysia

Press Release No. 15/88
March 3, 2015

On February 13, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Malaysia.

Malaysia’s well diversified economy continued to perform well in 2014. Growth accelerated to 5.9 percent, aided by robust domestic private demand and a recovery in exports. Lower energy costs helped contain inflation to 3.1 percent despite the removal of fuel subsidies and increase in electricity tariffs. Investment sustained its rising trend, reaching 26.8 percent of GDP in 2014, fueled by accommodative financial conditions and continued public spending on infrastructure.

Growth is expected to moderate to 4.8 percent in 2015. Strong investment momentum should help offset headwinds from continued fiscal consolidation. Lower energy prices will be a drag on oil and gas production but should provide a boost to the large non-oil sector. Consumption growth will moderate following the introduction of goods and services tax (GST), although a strong labor market and supportive—albeit gradually tightening—domestic financial conditions and lower energy costs should help consumers.

Fiscal consolidation is well timed, appropriately paced, and remains on track. The authorities recently revised the federal budget resulting in a slight change of the budget deficit ceiling, to 3.2 percent from 3.0 percent of GDP, in a timely and pragmatic response to the sharp recent decline in international crude oil prices. They took bold fiscal action in 2014, continuing a multi-year drive to reduce costly and untargeted subsidies. After raising electricity tariffs in early 2014, they took advantage of lower energy prices in the second half of 2014 to reduce and ultimately remove remaining gasoline and diesel subsidies. Subsidy reform together with the GST, which is on track to be introduced in April, should help offset the reduction in energy revenues. They should also help broaden the base of federal revenue system and diversify it away from volatile oil and gas revenues. A strengthening of Malaysia’s social safety net is an integral part of the authorities’ fiscal strategy.

The removal of subsidies freed up resources that can be redirected to better support poorer households through better targeted cash transfers. Malaysia is making progress in reforming its fiscal institutions. Top-down fiscal management and control are also being strengthened and the size of supplementary budgets has been substantially reduced. These reforms will help reinforce the sustainability of Malaysia’s public finances and make the fiscal system more effective in promoting efficiency, equity and growth.

Bank Negara Malaysia (BNM) took a step at normalizing monetary conditions in July but has since paused as downside risks to growth increased and inflation remained low, while risks to financial stability abated. Headline inflation will increase slightly, to 3.2 percent in 2015 from 3.1 percent in 2014, reflecting the net impact of subsidy rationalization, GST implementation, and exchange rate depreciation. BNM has adopted a wait-and-see attitude, and this cautious stance is appropriate for now taking into consideration lower expected inflation, the slowdown in domestic economic growth, and increased uncertainty surrounding the domestic and global outlook.

It would be prudent to move to a neutral monetary policy stance as soon as the uncertainty in the external environment dissipates. Malaysia’s financial system is sound and well-placed to withstand stresses, including from a potentially bumpy and asynchronous normalization of monetary policies in the advanced economies. The high level of household debt together with large participation of foreign investors in Malaysia’s financial markets warrant continued vigilance. The flexible exchange rate system and substantial financial buffers, as well as offsetting action by domestic institutional investors, provide multiple lines of defense against capital flow volatility.

Favorable domestic economic conditions offer a window of opportunity to continue structural reforms to raise productivity growth by increasing innovation, raising the quality of education, addressing youth unemployment, and increasing female labor force participation. Malaysia also stands to benefit from its outward economic orientation and the strengthening of regional economic and financial integration underway, including the creation of the ASEAN Economic Community in 2015 and other trade initiatives. Accelerating the pace of regional integration should help unleash Malaysia’s and ASEAN’s economic potential.

Executive Board Assessment2

Executive Directors agreed with the thrust of the staff appraisal. They considered that Malaysia’s economic prospects remain favorable, notwithstanding risks from softening external demand, volatile capital flows, and lower commodity prices. Directors shared the view that Malaysia is well-placed to address these risks, given a track record of skilful macroeconomic management, strong policy frameworks, and a sound financial system.

Directors commended the authorities’ continued commitment to fiscal prudence. They welcomed their response to weaker oil-related revenues, especially the removal of poorly-targeted fuel subsidies which creates budgetary space for needed social and capital investment. Directors cautioned, however, that a prolonged period of depressed commodity prices may require further fiscal adjustment. Accordingly, they encouraged the authorities to consider broadening the revenue base, phase out remaining untargeted subsidies, and further improve public financial management and social transfers.

Directors agreed that the current accommodative monetary policy stance is appropriate, given subdued inflation and the likelihood that prospective price increases related to the introduction of a value-added tax will be offset by lower energy prices. More broadly, they commended Bank Negara Malaysia’s cautious policy making to ensure that monetary policy continues to support non-inflationary growth and financial stability.

Directors noted that Malaysia’s financial system is sound and benefits from a strong regulatory and supervisory framework. They considered that policies have been successful so far in containing financial vulnerabilities, although high household debt warrants continued vigilance. In this regard, Directors cautioned that additional macro prudential measures could be needed if the low interest rate environment leads to excessive leverage.

Directors welcomed the ongoing reduction of Malaysia’s current account surplus, which reflects in part the economy’s rebalancing toward domestic demand. They took note of the staff’s assessment that the external position remains somewhat stronger than warranted by medium-term fundamentals, but stressed the uncertainty surrounding such an assessment.

Directors praised Malaysia’s impressive strides in economic development, which is the outcome of comprehensive initiatives to boost investment, improve infrastructure, and upgrade human capital. They agreed that Malaysia’s commitment to regional integration should also help support the country’s transition to high-income status by further enhancing competition and productivity.

Note: Due to space constraints, Table 1 Selected Macro Economic Indicators cannot be posted. I recommend that you read the full report. That is a good idea since the IMF Consultation report needs careful reading for what is not said, rather what is written in the Press Release. The IMF report does not deal with the implications of the 1MDB scandal. The IMF does not audit Malaysia’s financial affairs. That is why there must be an independent forensic audit on 1MDB and its report must be released for public knowledge.  For this, I suggest you read The Edge (March 9–March 15 issue) article pages 62 and 63 and  pages 64 and 65.–Din Merican

1MDB: Gathering steam

March 6, 2015

The Economist Logo

Politics in Malaysia

Gathering steam

Problems at a state investment fund are bad news for Malaysia’s Prime Minister

Malaysia’s Controversial State Fund to be Dissolved?

March 6, 2015

Malaysia’s Controversial State Fund to be Dissolved?

by  John Berthelsen @www.asiasentinel.com


Rosmah with NajibPM Najib termed a “dead man walking” over investment debacle

A Reuters news service report that 1Malaysia Development Bhd., the ill-starred and debt-ridden state investment fund, may be restructured and possibly dissolved, has to be considered a devastating political blow for Prime Minister Najib Tun Razak, who has been under intense criticism for months over the fund’s debts and its opaque accounts.

Reuters quoted sources with direct knowledge of the matter as saying the investment fund,  conceived in 2009 by Najib with the help of a family friend, Taek Jho Low, is to be left as a skeletal structure in a debt repayment plan in which most of its assets will be sold off.

Legions of critics including former Prime Minister Mahathir Mohammad, oppositionPak Kadiaq Democratic Action Party shadow minister Tony Pua and others have been demanding answers about the fund’s finances over a near-default on a loan payment.  Concerns over the fund’s finances led to fears it could lead to a default that would cripple the country’s entire financial system.  The near-default drove down the value of the ringgit and affected the quality of government bonds.

“I think the Prime Minister has never been under this much pressure,” said a source with close ties to the government. “Cracks are showing and deep cracks at that.  It all depends on whether he can marshal his forces to determine how long he can stay. He is a dead man walking,  but he can still walk a long time.”

Najib has come under deepening criticism, including indirectly from his own brothers, for a Prime Minister’s office spokesman’s statement to the New York Times, that what appears to be a huge fortune stemmed from “legacy assets” from his family.  The brothers issued a formal statement that there were no legacy assets and that their father, Malaysia’s second Prime Minister, died in relatively modest circumstances. 

Riza and Jho LowAccording to extensive reporting by the blog Sarawak Report, the fund appeared to be run as much by Jho Low, as he is known, as by Malaysian government officials, who often took a back seat to Low’s investment plans.  In some cases, according to the report, which is run by Clare Rewcastle Brown, officials weren’t informed of plans until hours before billion-dollar deals were made. Jho Low, according to the article, diverted US$700 million of 1MDB money into his own accounts to buy a Sarawak bank.

Mahathir has called for Najib to resign, writing in his blog, Che Det, that “something isdaim-mahathir rotten in Malaysia.” His allies, including former Finance Minister Daim Zainuddin and A. Kadir Jasin, former editor of the New Straits Times, have served up daily criticism of 1MDB and Najib for months.  Rumors – apparently unfounded – have begun to spread that Najib would resign and go into exile with his wife, Rosmah Mansor, who has been widely criticized for her heavy spending.

That appears unlikely, however. A political risk analyst in Kuala Lumpur said that while the matter is damaging, it won’t bring the prime minister down on its own.

The state fund’s RM42 billion debt includes a US$3 billion (RM10.96 billion) bond sale in 2013 that was one of Southeast Asia’s largest issues and made a huge profit for the Goldman Sachs investment bank.  Reuters reported that in order to partially meet the debt, the fund’s new CEO, Arul Kanda, has ordered the sale of its power unit Edra Energy via a stock market listing.

According to the Reuters report, 1MDB will also sell off the bulk of its land assets and stakes in two high-profile property projects – Tun Razak Exchange (TRX) and Bandar Malaysia – after splitting them into separate entities, as already partially indicated in a strategic review unveiled last month.

1MDB told Reuters in an email that Edra Energy would be “monetized” in 2015 and the TRX and Bandar Malaysia projects would be ultimately owned by the Finance Ministry.

“This process would turn 1MDB into a skeletal structure that could eventually be dissolved completely,” one person, who spoke on condition of anonymity because of the sensitivity of the issue told Reuters. “It’s become a hot potato for the Malaysian government. It was just too much to handle,” another source told Reuters.

Ananda KrishnanMalaysian tycoon T. Ananda Krishnan, who originally sold power assets to 1MDB at what critics said were substantially inflated prices, was called in last month to deliver a US$2 billion loan to the fund in order to keep it afloat.  However, concerns continued that the Finance Ministry would have to come up with another US$1 billion before the carnage was over.

In an effort to forestall criticism, Najib told reporters yesterday that he had agreed to demands that the country’s Auditor-General verify 1MDB’s accounts independently.



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