Breaking up wealth concentration in Malaysia

The past year has seen the government and the opposition unveil their respective economic reform policies. Even if these reform policies and their attendant programmes are implemented, they will not be able to resolve the country’s economic problems. This is because the policies advocated by both sides of the political divide are merely palliative. They do not address the root or fundamental cause of the problem of structural deformation of the country’s economy.

How has this deformation come about? What are its characteristics? And what can be done to bring about a reversal or correction of the deformation so that we have a really transformed economic system that can live up to its full potential?

First we need to recognize that wealth in any country – and Malaysia is no exception – is created by economic activity engaged in by individuals or enterprises that bring profits or gains to the entrepreneur. Much of this wealth creation and subsequent accumulation is legitimate. It is based on material reward arising from work (or gift) and is socially and ethically acceptable. It comes from risk-taking and from the social utility and superiority of the products and services generated by the individual or enterprise.

Wealth generated and accumulated by individuals through legitimate means and conforming to the norms of justice and fairness is not only desirable but beneficial to society and the economy.

But what about wealth that is created or amassed by less than legitimate or by illegitimate or illegal means? Is it a minor or non-issue and do we just ignore it as is the case with the Barisan Nasional government?

Outflow of massive illegal wealth accumulation
One important clue to the massive wealth capture by illicit means in Malaysia was exposed recently by the Global Financial Integrity, a US-based watchdog.

In its study on ‘Illicit Financial Flows from Developing Countries’, it estimated that Malaysia was fifth in the world on cumulative total illicit financial flows (IFF) since 2000.

For 2009 alone, IFF (non-normalised) amounted to approximately U$47 billion (approximately RM145 billion at the exchange rate of RM3.1 = US$1) and over the cumulative nine years, total IFF amounted to US$350 (approximately RM1.09 trillion.)

Two methods of estimation were used in the study, one being the World Bank residual model (using the change in external debt or CED), and secondly, trade mispricing (using the Gross Excluding Reversals method or GER).

Through the balance of payments (a component of CED), it captures unrecorded capital leakages i.e. illicit transfers of the proceeds of bribery, theft, kickbacks, and tax evasion. Outflow of unrecorded transfers due to trade mispricing was captured under the GER method.

Based on the study, Malaysia’s nine-year average normalised i.e. conservative IFF, amounted to US$14.2 billion (42%; RM43.9 billion) due to CED while GER accounted for $19.6 billion (58%; RM60.8 billion). Meanwhile, average non-normalised IFF was US$15.4 billion (44%; RM47.5 billion) due to CED and US$19.6 billion (56%; RM60.8 billion) due to GER.

MNCs and Illicit Financial Flows
According to the study, “illicit flows involve capital that is illegally earned, transferred, or utilised and covers all unrecorded private financial outflows that drive the accumulation of foreign assets by residents in contravention of applicable capital controls and regulatory frameworks. Hence, illicit flows may involve capital earned through legitimate means such as the profits of a legitimate business”.

If taxes were levied on the illegal outflows, the country’s finances would have benefitted to the tune of close to US$100 billion. When the GFI’s findings were made public recently, the finger of blame for the massive outflows was placed by the MP for Kota Belud, Abdul Rahman Dahlan, on multinational corporations (MNCs). Indeed, MNCs have been a convenient scapegoat for transfer pricing woes in developing countries where they have major operations.

One local observer – a specialist in transfer pricing – has demolished this accusation in the context of Malaysia. According to his letter of 27 December 2011 to Free Malaysia Today, “transfer pricing has been the one of the most scrutinised subjects by the Malaysian Inland Revenue Board since the Transfer Pricing Guidelines was introduced [in 2003].”

He has argued that “more likely than not, where there are cases of transfer mispricing, MNCs would always step forward and rectify the situation. This is so because “getting caught by authorities in doing illegal activities will most likely cause serious damage to business integrity and reputation.”

He concluded that “compliance by MNCs is one of the most stringent as far as I understand from a corporate culture perspective, or at least for cases I have seen.”

So if MNCs are not the culprit for the illicit financial outflows, who are the real culprits?
The Global Financial Integrity study has noted that besides transfer pricing outflows – MNCs alone are not to blame for this; local conglomerates and GLCs also play the same game with greater insider knowledge – IFF was caused by illicit transfers arising from the proceeds of bribery, theft, kickbacks, and tax evasion.

Malaysia is in fact the only country where IFF is caused by a comparable proportion of transfer and non-transfer pricing transgressions.

Real culprits in illegal wealth accumulation and concentration
While the study has been helpful in providing some hard data on the quantum of the illicit financial outflows, it does not provide much assistance on other key details such as who are responsible for the outflow; the countries of fund relocation; etc.

At this stage, we can only hazard a guess as to the likely individuals or parties involved in the non-transfer pricing illicit outflow. The most likely culprits are those who have been able to accumulate enormous wealth and who for various reasons find it expedient or necessary to conceal their wealth accumulation as well as to diversity their wealth havens and assets away from Malaysia.

The GFI study does not cover the illicit wealth accumulated locally and not yet remitted to foreign shores. The size of this locally retained illicit wealth is likely to be several if not many times more than that sent abroad.

A crude estimate of the extent of legal wealth concentration in the country can be obtained from the 40 individuals identified by Forbes as the richest billionaires for Malaysia. Collectively this group was worth $62.5 billion in 2011. In addition there must be many other extremely wealthy individuals who have avoided making the list through their ability to conceal their wealth and others who though not making the top 40 list still possess enormous wealth.

The most widely rumoured name not making the Forbes list has to be Taib Mahmud, the chief minister of Sarawak, who together with his family is reputed to have shares in more than 330 companies in Malaysia alone and more than 400 companies around the globe worth several billion US dollars.

Various quarters have questioned the legitimacy of the wealth accumulation engaged in by the chief minister. A recent article in the blogsite Sarawak Headhunter provides in-depth details on what is alleged to be the income stream of the Chief Minister’s financial vacuum machine.

These include:

• Income from timber licences
• Surcharge on timber exports
• Kickbacks from timber shipping companies
• Agency and other fees levied on shipping companies
• Privatization of government companies
• Illegal logging receipts
• Federal government contracts
• Alienation of state land to plantations
• State contracts

The Sarawak chief minister has refuted these claims and has argued that that his daughter's considerable property empire was amassed through the daughter and son-in-law’s business acumen in investing wisely the gratuity which Taib earned from his earlier service in the federal government.

This may well be true but if so, it needs to be substantiated by an opening of the financial records and bank accounts of the family and the companies owned or controlled by the family in Malaysia and abroad. Only then can the authorities and public determine the truth of the allegations of financial and political impropriety.

That the chief minister and his family own an extraordinary amount of wealth – held locally and abroad – at least is not denied. Some idea of the enormous size of the Taib family wealth emerged when Taib’s daughter-in-law filed a RM400 million claim on her estranged husband Mahmud Abu Bekir Taib in court recently, including what she claims is her share of property worth RM300 million.

These tantalizing details of the extraordinary wealth accumulation by Taib and a small group of Malaysians show a common pattern. Firstly, they have all been beneficiaries of the Barisan Nasional government and its policy aimed at working with an elite few individuals in driving the economy forward.

Many if not all of the names that appear on the Forbes list are regarded as cronies of past prime ministers Dr Mahathir Mohamad, Abdullah Ahmad Badawi and the present prime minister Najib Razak, and are widely perceived as owing their considerable wealth to their political loyalty to the Barisan Nasional.

All the business empires of the former ‘Sugar King’ Robert Kuok, Genting Highlands’ late Lim Goh Tong, Public Bank’s Teh Hong Piau, YTL’s Yeoh Tiong Lay, Astro’s Ananda Krisnan, Air Asia’s Tony Fernandez and the rising Syed Mokhtar Al-Bukhary – deservedly or undeservedly – are seen as built on government preference and patronage. This connection is what has provided them with head starts and privileged monopolies without which their enterprises could never have come about, let alone flourish.

Getting to the bottom of how the business empires of our richest Malaysians have taken shape may be a useful way of dealing with the thorny question of how wealth concentration – whether legitimately derived or under a cloud of illegitimacy – has occurred.

We should have no illusions about the obstacles that lie ahead of such investigative efforts. We should also be mindful that in countries where illegal wealth accumulation by the leaders of impoverished countries has drawn national and international ire, attempts at recovery of the wealth, much of which has been spirited abroad and stashed in overseas banks and assets, has been a long-drawn and difficult process.

Admittedly the hope for any confiscation of illicit or illegitimate wealth is distant and dim. The time may not even be ripe to insist on a full-blown opening up of the records and having the truth come out on how the crème de la crème of our business and political leaders have accumulated their fortunes.

But there may be need for public scrutiny in a few special cases in Malaysia despite the concern that such efforts may be construed as an anti-capitalist or anti-Barisan witch hunt.

National discussion on wealth accumulation and concentration
The time is right at the least though for a national discussion on what are the pros and cons of the current economic system which encourages the concentration of wealth and its illegal outflows on such a systemic basis, and whether this is the right economic model for the country.

The time is also right to focus on sectors and processes which have been the main playgrounds of unfair or illicit wealth accumulation; and to implement actions aimed at decisively containing or neutralizing them.

Best practice examples are readily available for example, in the natural resource sector of countries with the same natural wealth as us. These countries, such as Norway for example, have been able to avoid the errors that we have made in the exploitation of our mineral and forest resources. Our mistakes have been in permitting opaque policies and procedures, and condoning corrupt or shady businesses that have reaped a windfall of illicit gains.

For the national discussion on wealth concentration and outflows to take place, we need to break the conspiracy of silence by our political elites that have befitted from the system and that have collaborated in the accumulation of illicit wealth and wealth generated from dubious means.

We need the professionals to play their role. We need more studies by academics and civil society to uncover where illicit and less than legitimate accumulations are taking place and what can be done to plug leakages and bring to justice the offenders and culprits. We need more whistleblowers to step forward.

Discussion needs to be followed by action, whether by the Barisan or a Pakatan government.

This action needs to be more than just the tweaking of economic policy as envisaged by the Pakatan parties. It needs to be a fundamentally new paradigm of development based on the de-concentration of wealth and its more equitable distribution.

New paradigm of development
The radically new paradigm of development that puts the spotlight on the wealth of the country (within and outside) as well as on the wealthy, and with a major focus on the eventual breaking down of wealth concentration illicit financial flows – beginning with illicit wealth – is needed for three reasons.

Firstly, it is a superior approach to the narrowly race-based New Economic Policy model that has dominated the country’s economic life and which is based on a simplistic caricature of affirmative action policy.

Secondly, our oil wealth is rapidly depleting and our treasury is depleted. Going after wealth that has been illegally accumulated or rightfully belongs to the state will provide the country some breathing space until we get our act together on the other pieces of the bigger economic transformation jigsaw.

The final reason is that the primary cause of poverty and stunted development in Malaysia is an economic system that promotes excessive concentration of wealth. So long as the excessive concentration of wealth exists, our poverty and deformed development problem will remain unresolved.

It has been said that economics is not only about production and wealth creation. It is also about morality, and the first moral principle is that the strong owe a duty towards the weak. It is the role of government to ensure that the strong and wealthy fulfil their duty and not to encourage them in wrongdoing in their obsessive wealth accumulation.






Written by Dr. Lim Teck Ghee

Racism and Corruption in Malaysia: The Ongoing Saga

Many of us may have asked: when and why did the racial divisions in Malaysia start and who is to blame? Obviously, the racial divide did not exist in old Malaya, where the different races could live together in harmony in the kampongs (villages) and small towns.

Now, it seems that we are forever at the brink of racial tension or even racial war. In fact, jihad (holy war) has been declared several times by the UMNO-linked PERKASA against the Christians as well as the Chinese.


The starting point
When UMNO was formed, Onn Jaafar who was one of the main founders and who was the then president, had to leave the party because a group of new faces disagreed and fought with him over the political direction to be taken. They insisted their ideas were better than his and this inevitably led to the changes in policies, rules and objectives.


Whereas Onn was more for uniting the Malays from all walks of life, with the Chinese, Indians and other migrants under one organsation, and then jointly struggle for independence, the group of UMNO leaders led by the late Tunku Abdul Rahman was more interested in meeting the qualifying terms set by the British for achieving independence – no matter how onerous.


The idea of a non-communal political party
Onn Jaafar (right) – the grandfather of the current Home Minister Hishammuddin Hussein – had indeed been farsighted and visionary; he felt the need for racial harmony and a non-communal political party was the best way to secure a prosperous future for Malaya. No doubt the British did create the Malayan Union comprising all races with equal rights, and even diluted the powers of the Malay rulers, but the British were not really sincere at all.

The British did not really want Malayans to be united as one, like in Onn’s vision. Neither did the British really want the Malayan Union to succeed. So the Malays were led into rejecting the Malayan Union, paving the way for its dissolution.

Had the British been sincere, they would have backed Onn’s idea. Instead the British supported Tunku when he was elected the new UMNO president after Onn resigned. Onn had to quit after failing to garner the majority support from the delegates on his multiracial vision after his speech in the UMNO General Assembly in Kuala Lumpur in August 1951 backfired. The Malays have never been united since then.

The idea of non-communal political party still lives on
But did Onn Jaafar really have so little support? The answer is no, he had the support of the Malays all over the country and at the grassroots level. In fact when Tunku tried to manage UMNO, he found out that most of the people were not aware that Onn had left the party. The staff manning the UMNO offices were also reluctant to work with Tunku as they still supported Onn. In the end, Tunku had to abandon the old UMNO office bearers and create a new set-up, appointing his own people to manage the party and its activities.

Further proof of the British ill-intent was when they told the Malayan entourage negotiating for independence consisting of UMNO, MCA and MIC that Malaya could not be given independence since the three major races were not united! Onn’s multiracial proposal was the best and it still is and the British also knew that. Yet, they managed to convince the Malayan delegates to agree on an Alliance with UMNO, MCA and MIC the pioneer members.

To their discredit, all three of them fell for it. Presumably this had been outlined by the British for Tunku to implement.

UMNO failed us from the start
Here UMNO has thus failed twice. Firstly, to unite the Malays and consolidate their political power and losing the opportunity to unite the various races under one non-communal party. Secondly, to really lead a more meaningful struggle. Unlike the other true independent struggles seen all over the world, UMNO just “negotiated” for a ‘walkover’ from the British.

UMNO may argue that it was the ingenuity of their leaders that helped Malayans gain independence without bloodshed. This is not true! There was indeed a lot of bloodshed but not amongst the UMNO people. What about the struggle led by other groups and individuals?

Let us also not forget that during this period there were many other groups and individuals struggling and fighting for independence and with the inevitable bloodshed. We were not informed about their struggle as if the Alliance was the only one who struggled. PAS Deputy President Mat Sabu had exposed this one-sided history for us. Besides the Communists, there were many others from all the races.

Nations that experienced, endured and managed to overcome all obstacles leading to the true sense of independence are usually of a different breed. The struggle instills real patriotism and their citizens really value what they have achieved unlike Malaysians too, who need to be lured to fly the Jalur Gemilang almost every time we try to celebrate the National Day.

In the end, the UMNO-BN celebration of the 31st August National Day has become something of a mediocre, wasteful, and meaningless effort, without zeal and substance, without the real feeling of patriotism at all. The annual procession is just for show as the number of people flying the Jalur Gemilang keeps dwindling year after year till the number of road vehicles flying the national flag can even be counted on our fingers. The national day celebrations are only being looked forward to by the Mat Rempits and the like.

UMNO and Malaysia under Tunku Abdul Rahman: Going Nowhere

Malaysia under Tunku was not really independent, it had to depend on the British and they were more than willing to maintain their support, mainly due to economic reasons. The British had invested so much in Malaya in plantations, mining, banking, media and education. Furthermore, Malaya was one of the growing markets for everything English.

After gaining independence, the Tunku was not able to really achieve anything more substantial. He was not even able to defeat the ragtag Communists, and Malaysia was still backward in every sense of the word. The young democracy and new nation was just at its infancy and without any coherent policy, objectives, vision and actions although there were some sort of localized economic activities in the towns, and racial harmony in the kampongs.

With the Communists still active not only in the jungles but also in the urban areas and their ideology spreading in the University of Malaya, real peace and unity as a nation were not attained during his administration. Even Singapore was separated from Malaysia. The economy was not doing well since Malaysia was more on a commodity-based economy, and at the mercy of the British who controlled prices and the trade itself.

At this stage of the nation building, Malaysians had nothing to celebrate or cheer about. There was nothing to hold on to, nor was there a sense of belonging. Not only were the business, finance and money still under the British, the Supreme Court was also in Britain. Nothing substantial belonged to Malaysia. The Malays in particular had nothing except for the small plots of land in the kampongs and the Malay rulers to be proud of. Tunku did not have any real plans for the Malays despite UMNO being so-called the United Malays National Organization.

Racism during Tunku’s period
The Tunku fell into the trap set by the British when the racial based coalition, Alliance was formed. He had not done enough to set any solid foundation for the country and he realized too late how fragile racial harmony was after the 1969 general election. The Gerakan and DAP had celebrated their wins with a victory parade in KL on May 12, 1969. Then UMNO led a counter march the next day, and this is when the racial riot known as the infamous May 13 racial riots erupted. May 13 also led to Abdul Razak Hussein taking over the nation’s leadership.

But was it really a racial riot? Were both the Gerakan and DAP really so insensitive to the political situation that they organized the march and failed to control their members? The Alliance managed to win 77 out of 140 seats in Parliament; UMNO still held power. Furthermore it was very interesting to note that Malay opposition parties saw a sharp increase in votes in the peninsula, rising drastically from about 15% in 1964 to 25% in 1969. UMNO did not have the full support of the Malays and apparently the Malays did not agree fully with UMNO even then!

UMNO under Razak: His inaction led to the next stage of failure

Razak, the father of current Prime Minister Najib Razak, was quite thoughtful and managed to bring about some changes. He started the process of nation building by introducing the word “pembangunan” which is development. For this, he was eventually bestowed the title of “Bapa Pembangunan”. After the infamous May 13 racial riot, he introduced the New Economic Policy (NEP) which had good and noble intentions although it was miserably abused to the core in later years.

The NEP was meant to restructure society, encompassing education, business opportunities, employment and preferences to eliminate identification of race with economic function anf eradicate poverty amongst Malaysians, irrespective of race.But UMNO leaders took advantage of this policy to fatten their coffers leaving both the Malays and other poor Malaysians behind. We can clearly see and understand the situation now.

Razak also empowered FELDA (which was formed by the British in 1956 for their own reasons) to aggressively embark on opening new land schemes and making Malays do something to upgrade and improve themselves. The FELDA story is still unfolding now.

As the Malays were earning some extra income, Tabung Haji ( the brainchild of Professor Ungku Aziz) was formed to inculcate the habit of savings for the rainy days and to help save enough money to perform the haj. Sad to say, as has been reported, Tabung Haji was not safe from the dirty hands either.

The siphoning of money that we see now, the unscrupulous civil servants and their abuse of power and unchecked corruption also started during Razak’s premiership. He was not able to closely monitor all the things that he had implemented.

One glaring example is the construction of the wooden houses for the FELDA settlers. But instead of houses, the settlers got what were basically just pieces of sawn wood nailed together with some sort of roofing to protect the inhabitants from the elements of nature. Yes, the ‘house’ was just a shed. These houses can still be seen in the FELDA settlements as a testimony to the plundering of the allocations by unscrupulous groups of people.

This was the beginning of the money-making schemes, and those in UMNO saw the doors opening to all the golden opportunities that had never existed for them before. The government officials too found the opportunity and took what they could and as much as they could.

When RISDA was formed to help the rubber smallholders, they were provided with free fertilizers, weed poison and other incentives like the money to keep the rubber plantation clear of all other plants, shrubs and small trees. This was to ensure improved rubber production, easy maintenance, safety and prevent the rubber plantation to be any form of hideouts for vermin, wild animals and the communists.

While they were supposed to be given the items free of charge, the officials still demanded money from the small holders and a substantial amount of the fertilizers and poisons went into the wrong hands and were eventually sold to the hardware shops to be re-sold to others. The money-making schemes were carried out openly to the extent the RISDA emblem on the sacks could be clearly seen. Yet, the authorities did nothing to stop the corruption.

Almost all the projects awarded to the UMNO-putras during this period was executed as Ali Baba schemes leaving the UMNOputras with just 5 percent of the profit which was too little. Since they were not real businessmen, they spent extravagantly within a few months finished all their gains. Thus more projects had to be given out to fulfill their lust. The Ali Baba business trend began here.

It was the same with other government projects and procurements. The instant noodles supplied as army ration were paid by the Ministry of Defense at RM0.65 per packet while the market price was just RM0.25 each.

The Police and the Army were also in a world of their own with free cigarettes, cheap alcohol, partying in their messes. They were oblivious to their surroundings. The police were so callous in their duties that the IGP was shot dead point blank by two assailants on a motorbike when his car halted at a congested road on his way to the office.

The inefficient civil servants were preoccupied with so many tasks in their offices. Hospitals and medical staff were few in numbers, and the school teachers were the most respectable group of people in society then. But unfortunately not anymore now.

The Biro Siasatan Negara (National Bureau of Investigation) was operational but they did nothing. At this stage, the UMNO government ignored all the warning signs of blatant corruption, misuse of funds and pilferage. As such, the next stage of failure was inevitable and more so under Hussein Onn.

First huge scandal under Tun Hussein Onn

Hussein Onn was like Abdullah Badawi and unlike Badawi, he was a reluctant politician. He was not able to fit into Razak’s shoes. Hussein Onn left the country on auto-pilot. Thus, more corruption and wrongdoing spread all over the country including to Sabah and Sarawak which had huge amounts of natural resources especially timber.

Sandakan in Sabah once held the world record of the highest numbers of millionaires (from the greedy rampage and corruption of the timber industry) per square mile. Sabah is now without a virgin forest except at the national reserve. This too will not be spared for long and Sabahans still remain poor today.

The first huge scandal for UMNO which was the RM2.5 billion losses by Bank Bumiputera Malaysia Bhd, which began in 1976 with its wholly owned Bumiputera Malaysia Finance (BMF) lending money to property developer Carrian Group in Hong Kong. The mess unfolded in 1983 kicked off the UMNO plundering tradition on a huge scale.

You see, no one was punished for the crime. UMNO leaders condoned such debacle creating a precedent that when one is a strong UMNO man and with proper connection, one can get away scot-free. The bailout tradition too began from this point on. Since Malaysia was on auto-pilot, the ordinary citizens had to survive on their own.

Mahathir: All forms of failure and a sad lack of vision

This was a very interesting period for UMNO. There were failures galore – all and every form of failure that could happen did happen. There was systematic failure at all levels of government to understand the magnitude of the situation, from stripping the Malay rulers of their powers, using the full force of the ISA on the opposition, breaking up UMNO, looting the nation’s funds, antagonizing the West, full-scale bailouts of cronies, destroying the integrity of the Police and Judiciary to being a dictator. Obviously, this resulted in resentment throughout the entire society leading to the formation of Pakatan Rakyat.

Mahathir was the one who broke the national piggy bank, blazing the trail to unmitigated government borrowings. He failed to provide enough funds for rainy days. Many of his supporters boasted that he was famous for his vision, but time has proven that Mahathir in fact lacked it. He lacked vision simply because he was not able to see beyond himself.

Mahathir failed to understand the inherent economic cycle and be prepared for eventual downturns. He knew Lee Kuan Yew had special funds to be used under the power of the President. But Mahathir siphoned out the only real funds we had in PETRONAS, thus even the once rich PETRONAS has to borrow money now.

The Police under Mahathir was for most of the time working for him and not much for the rakyat. The police was used to defeat the opposition, harass individuals, put people in jail using the ISA and determining the most suitable time for a general election. Crime was high since the PDRM was preoccupied with UMNO and Mahathir. Lawyers were know to be unscrupulous but it was during his time that the judiciary system was turned into shambles and judges could be openly bought, thus ending the integrity of the entire law and order of the country.

Mahathir also failed to defend the monarchy by stripping the Malay rulers of their powers. The Malays have lost their last bastion of pride and for the rest of the Malaysians the last bastion of justice, as can be seen in the awkward position of the Sultan of Perak being manipulated by UMNO in the Perak power grab of 2009. The Perak Sultan sanctioned UMNO’s coup d’etat, while the Agong only had enough guts to acknowledge BERSIH as legitimate, while the Sultan of Selangor had to play safe in the JAIS -DUMC case with UMNO breathing down his neck.

Mahathir in his endeavour to make Malaysia a developed nation by 2020 failed to safeguard the nation from being plundered by refusing to prevent and take action against corrupt people. This could be because he was himself a cohort in some, if not most of the fiascos. The Tajuddin Ramli-MAS scandal is an example and a living testimony to the failures of the Mahathir-era, while the RM12.5bil PKFZ scandal is still unfolding.

Mahathir also failed to see the inept capability of Badawi and the hopeless Najib who both have no real ability of their own. Nonetheless, one cannot turn back time or erase the systematic failures Mahathir caused. In any case, he was ready to pass the baton to Abdullah Badawi by 2003.

Badawi sleeping away

Badawi was not able to fit in the shoes of Dr. Mahathir. He tried to undo several of questionable projects started by Mahathir. But even this, he fumbled and bungled.

Badawi tried to create some economic corridors, have some fancy slogans like working together with him and Islam Hadhari, which he himself found difficult to explain. Till now, the questions ring: what are the corridors, the slogans and Islam Hadhari really all about?

The economy became stagnant and to spur development Malaysia had to borrow more money. He was able to create some sense of economic activities but just for the elections. Fortunately for him but unfortunately for the rakyat, he had the fourth floor goons headed by his beloved son-in-law, Khairy Jamaludin who made things worse.


Our nation was in jeopardy because it was being managed by a twenty-something de-facto prime minister. Although Khairy was an Oxford graduate, he was not savvy enough to run a country much to the disgust of Mahathir. Both the nation and UMNO are now in disarray. A classic example of a Khairy deal gone awry is the failure of the Shahrizat-linked Gemas NFC debacle.

Badawi did form the MACC but for what? They are just the same people from the Anti Corruption Agency (ACA) in different uniform.

Free for all, grab what you can now under Najib

Najib is long on ideas but short on action, thus has no results to show. Basically, this is due to his ideas being copycats of other systems, such as the Pakatan’s Buku Jingga or economic blueprint.

But first of all since he was not elected to his post and his image was tarnished by the useless and unsinkable Scorpene submarines that also led to the murder of Mongolian national Altantuya Shaaribuu.

Najib engaged APCO and FBC Media for a full scale image makeover, spending at least RM55 million of tax-payers’ money for expensive propaganda to glorify himself, his government and his policies and having it screened on international channels like CNN, CNBC and BBC.

To repair the damage to his image, Najib should have rectified the mistakes and not try to whitewash them and incurring more blunders in the process. There is really no point in putting on thick make up during the day when everyone can see the thick layer of ‘paint and powder’.

Transformation programs that go nowhere
Then Najib went on to try to transform several major things but he failed to see what the causes were that led to past failures. All the sounds and bombast of his Economic Transformation Program may have seem rather impressive to the layman, but what are the results so far? Unfortunately we have not been able to feel good about anything that Najib and his ETP people have announced.

His main showpieces are the six National Key Results Areas (NKRA), twelve National Key Economic areas(NKEA) – all part of his Economic Transformation Program. On November 23, Bernama reported that Najib underlined six high impact programs to boost the growth of the Small and Medium Enterprises (SMEs) to 8.7 by 2020 but, what about now or next year?

The economic policies that the UMNO-BN government under Najib have been undertaken but show no improvement in the economy. Thus, until now, it has been ‘nothing for nothing Najibnomics’.

As for Najib’s Political Transformation Program, it has proven to be a farce – heavy on proclamations and full of doublespeak as in the recent Peaceful Assembly Bill, which actually restricts our freedom and not grant greater democratic space as he had promised.

Old habits die hard
Even at this very critical juncture, in the last lap to the “Mother of all Elections”, UMNO still continues to award contracts without following the proper procedures. At present there are several projects under the various ministries that have been allocated to their cronies and when the time comes, by hook or by crook, these projects will come to light whether UMNO-BN wins the GE-13 or not. So too will all the money-making schemes planned with guarded secrecy, the PKFZ scandal, the Scorpene scandal and the Gemas NFC debacle.

The Najib government has also told the rakyat that it will not be involved in financing the mega-projects he has announced; they are mostly under the Private Financing Initiatives (PFI), he assures. But we were not told that the UMNO cronies will have to borrow from the banks and none of the clear minded private banks would ever lend them any money.

The private banks know that these projects are just money-making schemes without any guarantee of success and will eventually need bailouts. Thus all the burden of financing has been given to Bank Pembangunan, the government bank, with money from the government. Still the money will be taken from our already depleting EPF and Tabung Haji or borrowed somewhere and bringing Malaysia closer to becoming another Greece.

Chaos at the ministries
The Ministry of Defense has set the plan moving for the purchase of new fighter planes from Russia as reported in a defense magazine but Ahmad Zahid Hamidi denied this recently. The ministry will also continue with the building of the exorbitantly expensive naval ships and boats.

The Ministry of Education has embarked on building several campuses in Perlis and Pahang and even the HUKM pediatric hospital in KL and being awarded to their cronies.

The Ministry of Transport has already approved the KVMRT project, the Integrated Transport Terminal in Subang Jaya with another going to be in Gombak and in Melaka and as we all know Malaysia Airports Holding Bhd has a free hand to impose any charges on passengers and complete the KLIA2 tour at whatever cost.

The Ministry of Agriculture will eventually bail out the failed Gemas NFC project and the wasteful rice bowl “National Rice Bowl” project in Sarawak will get more money – some to be reinvested and the rest pocketed.

The Ministry of Finance will continue paying the PKFZ thieves and continue dumping more money into MAS despite the purported win-win share swap with AirAsia as MAS has already announced RM400 in losses recently. PETRONAS has been set to bail out TNB by absorbing the gas cost.

The Ministry of Tourism too have their money-making schemes through various advertisement projects, while the Ministry of Information uses FINAS through the loans and grants issued for movie productions and the misuse of FINAS assets for some influential individuals. The other ministries too have their problems and these could be revealed later.

Enough is enough

Najib has turned Malaysia backwards by not trying to reject the wrong doings of UMNO-BN. Where his father was too busy, Najib’s problem may be because he has his own scandals; thus a change of government is the only true means of saving this country. The recent UMNO AGM showed the country the party’s true colors; its racists/fascist bent and the fact that it had no real agenda for the country.

So after tracking through the 6 Prime Ministers, all of whom came from UMNO, it is clear the party is the cause, the main ingredient, the catalyst and the main element of all the failures that have befallen the nation.







by Nawawi Mohamad, Malaysia Chronicle

Malaysia after regime change - With or Without Barisan Nasional: Regime Change and Identity Politics in Post Authoritarian Malaysia

Why are you interested in Malaysia? If asked such a question, the majority of foreign observers, scholars and students of Malaysian politics would most likely mention ethnicity, religion (Islam) or what is broadly categorised as “identity politics.” Even if identity is not their primary interest, not one of them is likely to deny that collective identities are a crucial aspect of contemporary Malaysian politics dominated by the multi-ethnic ruling coalition, National Front (Barisan Nasional, BN).

What will Malaysian politics look like if BN ever lost power? Would identity, either ethnic or religious, recede from politics if the opposition, People’s Alliance (Pakatan Rakyat, PR), came to power? Or would it fuel politicisation of identity even further to threaten otherwise relatively oppressive but peaceful inter-communal relations?

Possible answers to these questions in part depend on the type of regime that the opposition coalition—comprised of the People’s Justice Party (PKR), Democratic Action Party (DAP), and the Islamic Party of Malaysia (PAS)—wishes to establish. The opposition pact was first and foremost formed and sustained to challenge and bring down the authoritarian rule of BN where the Malay-Muslim based United Malays National Organisation (UMNO) is dominant. The establishment of some form of democratic rule is their next goal. Indeed, their platform, “Ubah Sekarang, Selamatkan Malaysia! (Change Now, Save Malaysia!)”, published in the run-up to the 2008 elections emphasizes the following initiatives: expansion of democratic rights and institutions such as independent judiciary; creation of a just and fair society that provides all people with equal opportunities regardless of ethnicity, religion and culture; elimination of corruption and other unfair and discriminatory practices that hinder equal and fair distribution of public resources; growth with equity; and elimination of undemocratic apparatuses and practices, most notably the Internal Security Act (ISA). The absence of aforementioned initiatives under the current regime provided a common ground for opposition parties to come and fight together, leading to their impressive electoral ascendancy in 2008. The question remains however: Is the PR platform sufficient to convince their multi-ethnic constituencies to oust BN from power to build a new democratic Malaysia?

Complication about Malaysia’s regime change and democratic transition is derived from the very nature of the current regime. It is not only authoritarian in a conventional sense of the term, but also highly ethnocentric and illiberal, thereby denying equal rights and freedom to minority citizens based on their ethnic/religious identities. Under this regime, the majority Malay (and therefore Muslim) population have gained an unparalleled amount of power, wealth, status and opportunities as their birth rights since independence. UMNO and its major coalition partners in BN, the Malaysian Chinese Association (MCA) and the Malaysian Indian Congress (MIC), were formed and allowed to survive primarily to represent and protect political and material interests of Chinese and Indian minority communities. In the post-NEP period, the regime has become even more protective of the communal interests of the Muslim-Malays while gaining authoritarian characters.

Under this ethnocentric pro-Malay regime, state institutions and a bureaucratic infrastructure were constructed in a manner to buttress supremacy of the state, UMNO and the Muslim-Malay community, while undermining civil society, civil rights and the well being of minority communities. Furthermore, the same regime has granted an unprecedented amount of power, resources and authority to the Islamic state bureaucracies in order to cater to the religious interests and spiritual well being of a growingly pious Muslim-Malay community. The results of such maneuvering are now obvious in a wide range of policy areas including law, education, welfare and economy. Consequently, post-NEP generations of minority populations feel increasingly alienated and discriminated against despite the fact that some communal grievances were mitigated by the inclusive multi-ethnic national vision and continuous growth under Mahathir (together with currently opposition leader, Anwar Ibrahim) till the multiple crises following 1998.

Against this backdrop, it is of little surprise that the Hindu-Indian community has formed a powerful opposition against the regime. In 2007, the opposition was organised to form an ethno-nationalistic movement, Hindraf (Hindu Rights Action Force), to express the socio-economic grievances and political demands of the community. The state’s violent suppression of a street protest organised by the movement further deteriorated the already uneasy relations between the BN regime and minority communities, arousing anti-regime sentiments even further with particular damage done in urban areas.

Opposition parties, while certainly sharing such unusually strong anti-regime sentiments emanating from civil society, were not able to translate these divisive ethnocentric sentiments and demands directly into political action. Instead, they have chosen to stay mute on fundamental issues that they do not wish to discuss or negotiate, that is, issues related to communal identities and religion. Moreover, they strategically framed their anti-regime cause in universal democratic terms so as to forge a critical coalition with civil society forces across communal boundaries. They did so precisely because they need one another to maintain a multi-ethnic coalition front in order to beat BN. They and electorates are aware that the opposition parties and their interests, just like their opponents in the ruling coalition, are defined and restrained by competing identities: PKR is Malay-Muslim dominant and led by the most charismatic and powerful Malaysian Muslim leader to date, Anwar Ibrahim; DAP is non-Muslim based and dominated by ethnic Chinese; and PAS is a puritanical Islamist party. These constituencies have made significant efforts to compromise on issues regarding their core identities and interests in order to achieve their political goals and survival. Such compromise was handsomely rewarded with a significant 2008 increase in votes for the PR.

The tragedy of Malaysian authoritarianism is that authoritarian rule has grown stronger alongside the growing dominance of UMNO in BN and the Malaysian polity as well as its avidly pro-Malay and pro-Islam characters throughout 1980s and 1990s. The highly politicised identities—and state, political, economic and socio-cultural institutions created to serve the identity-based interests over several decades—will not easily go away even if regime change rids Malaysia of authoritarian rule and the BN falls from power. Popular interests and demands will continue to be defined and organised through collective identities based on ethnicity, religion, culture, or some combination of these characteristics.

This situation will lead to another tragedy: a tragedy of Malaysian democracy and regime change. As a result of the institutionalisation of politicised identities, demands for democracy, freedom and equal rights for all Malaysians are readily interpreted in zero-sum terms to connote a reduction of the special rights and privileges preserved for the Malay-Muslim majority. Regardless of whoever takes over the BN, the new regime will have to negotiate and balance contending communal demands and interests.

The key question here is whether Malaysians, especially the Malay-Muslim community, are ready to accept a new set of deals, terms and conditions set by the new democratic regime along the line suggested by PR. All possible signs thus far seem to suggest that they are not. According to public surveys conducted by the Merdeka Center between 2008 and 2010, a large majority of Malays, especially those in the lower income categories, strongly favour the reservation of special rights and privileges. They are also extremely anxious about policies and concessions that appear favourable to non-Malay communities. It is important to remember that Malay votes for UMNO/BN were constant between 2004 and 2008 and many still think that UMNO supremacy is necessary to protect their special rights.

More alarmingly, such anxiety among a community perceived to be under threat or siege at a time when the regime is undergoing unpredictable transition is a ready recipe for communal tension and potential violence. Indeed, it was when the BN adopted policies and allocated resources in ways seen disproportionately favorable to the non-Malay communities, especially Chinese, that ultra-nationalistic Malay movements such as Perkasa gained popular approval and appeal. Some UMNO elites were willing to allow these movements to exploit racist rhetoric and symbols in an effort to provoke anti-minority sentiment and violence.

Regime transition means that UMNO will be in the opposition. It is not unlikely that UMNO elites will use such racist rhetoric and movements more freely and aggressively to regain power they have lost, deteriorating already uneasy ethnic relations even further. We are also unsure if PAS will remain moderate once it gains power in order to have access to the conservative religious bureaucracies and patronage that have expanded dramatically under UMNO. According to Ashutosh Varshney, a renowned scholar of ethnic violence, ethnic peace is more likely when rivaling communities have developed associational interactions and ties—and social capital—across ethnic boundaries so as to withstand attempts to instigate racial hatred or antagonism. If this proposition and legacies of institutionalized political identities mentioned above offer some guide to predict Malaysia’s democratic future, we are left uncertain whether the much-waited transition to democracy will in fact bring a peaceful and happy future for all Malaysians as many had wished.

Kikue Hamayotsu is Assistant Professor at the Department of Political Science, Northern Illinois University, DeKalb, IL, USA. Her research focuses on comparative politics, identity politics, religion and politics and regime transition and quality of democracy in the Muslim world with special reference to Indonesia and Malaysia. Her current interest include: religious parties and electoral politics, religious intolerance and violence, and finding a way to move Australia closer to North America.

Malaysia's Latest Proton Saga

Questions of insider trading in national car shares remain unanswered a month after sale to a Mahathir crony

For nearly three decades, Malaysia’s national car project, Proton, has suffered through endless troubles, nearing its demise several times only to be propped up again and again by the government.

The government has regularly sought foreign buyers to come in and save the project, Perusahaan Otomobil Nasional Bhd. The carmaker has cost the country’s consumers billions in lost opportunity costs from the steep tariffs levied against other carmakers in addition to the losses the company made on its own, estimated at US$2-3 billion, plus the cost of building its factories. The preferential tariffs haven’t stopped consumers from turning to other makes anyway.

In January, DRB-Hicom Bhd, controlled by billionaire Syed Mokhtar al-Bukhary, a longtime Mahathir friend and United Malays National Organization crony, agreed to take the ailing carmaker off the hands of Khazanah Nasional Bhd., the state-owned investment fund which owned 42.7 percent of the shares after taking the company over during an earlier period of distress. The subsequent events have raised many questions of insider trading, none of which have ever been addressed either by Proton, Hicom or Bursa Malaysia, the country’s stock exchange.
 

 In the two months prior to the announcement of the sale, Proton’s shares went on a wild ride, beginning on Nov. 14, when the shares traded thinly, at only about 300,000 per day at a price of around RM2.70 (US88 cents)
 

 According to official announcements by Bursa Malaysia, the Kuala Lumpur main board, the shares took off on Nov. 15, rising to RM3.21 on volume of 4.3 million traded. Over the next 12 days, daily volumes averaged 4.4 million shares. By Dec. 5, volumes increased to 20 million shares per day – 60 times the November average - with the price rocketing up by nearly 25 percent over the period to RM4.50 per share.

Proton’s Wild Ride
It wasn’t until Dec. 5, three weeks after the shares began to gyrate that Bursa Malaysia issued an Unusual Market Activity enquiry. On the next day, Proton announced: “"The Board of Directors of Proton wish to clarify that after making due enquiry with the Board of Directors and major shareholders, the company is not aware of any reason for the unusual market activity in the shares of the company recently, and further, that there is no material corporate development not previously disclosed."

Certainly not! On Jan. 17, DRB-Hicom announced it would buy Khazanah’s stake in the carmaker for RM1.291 billion, the equivalent of RM5.50 per share. That meant that those smart enough – or informed enough -- to buy the Proton shares in November at RM2.70 had effectively doubled their money in two months.

Insider trading?
“The above chain of events makes a bad overall impression. It looks very much that certain parties were privy to inside information,” wrote M A Wind, who blogs for Asia Sentinel. “Why was Bursa Malaysia so late with its Unusual Market Activity query? The share price of Proton had increased already over three consecutive weeks by a whopping 70 percent while daily turnover had risen 20-fold when it finally took action.”

The announcement on December 6, 2011 by Proton that neither it nor Khazanah Nasional were aware of any unusual activity looks puzzling to say the least. The market was rife with rumor, but neither Proton nor Khazanah Nasional said they were aware of any activity.

More suspiciously, the share price more or less stratified at RM 5.50 several days before the final announcement on January 16, 2011 – the DRB-Hicom offer price, which seems to suggest that unknown parties might have known what it would be.

Also, both Proton and DRB-Hicom appeared remarkably passive in issuing announcements, both only responding to queries from Bursa Malaysia (most notably on Dec. 6, 8 and 13, 2011 and Jan. 9, 2012), not initiating the announcements themselves although the stock exchange’s website says: "We place significant emphasis on timeliness, adequacy and accuracy of disclosure to enable investors to make informed investment decisions."

”Let’s be clear,” said a Kuala Lumpur-based investment banker. “All of Malaysia is one big insider-trading casino. There aren’t any other kind of trades.”

The banker declined to speculate on who made the killing. However, he said the clues point to top political figures. The car company was government-owned, the new ownership is close to top United Malays National Organization figures.

One of the victims of the exercise appears to be Malaysian workers -- the Employee Provident Fund, which provides retirement benefits for 13 million private and public sector employees at about 485,000 institutions and companies in the country. The EPF acquired an additional 830,000 shares in 2007 in one of many bids to rescue the company, making Malaysia’s taxpayers owners of the company whether they wanted to be or not.

The EPF, presumably unassuming, sold off some 15 million shares for a price well below the mandatory general office price, which is estimated to have cost the fund roughly RM20 million to RM30 million on the trades.

The next question is why Mokhtar wanted to take over the car project, initiated in the early1980s by former Prime Minister Mahathir Mohamad against the advice of his advisors, all of his critics and common sense. It has been unable to achieve economies of scale that would allow it to survive and flourish. Although local media reported that the financier was considering a possible tie-up with Volkswagen AG of Germany, as long ago as 2004 – eight years ago – it had been vainly seeking buyers that included Volkswagen, the American giant General Motors and PSA Peugeot-Citroen of France -- none of the bids has ever worked out.

However, Proton Holdings Bhd registered a first-half 2010-2011 pre-tax profit of RM186 million in the first half of its 2010/11 financial year, built on improved market sentiment and a 13 percent increase in vehicle sales. From an earnings point of view, the company is described by analysts nonetheless as “quite hopeless." But the company holds some valuable assets, including the land on which its old factory is sited in Shah Alam, and the UK-based Lotus manufacturer or sports and racing cars. The Net Asset Value is RM9.81 per share, well above the purchase price paid by Syed Mochtar. The company has RM1.3 billion in the bank and almost no debt.

“If in three months time Lotus is sold for a huge price, then we know why,” said an analyst. “ Maybe Syed Mokhtar knows already how to unlock the value."

Selling off the assets, however, would probably infuriate Mahathir, something the tycoon probably would not want to do for fear of retaliation by the still-powerful former premier. The 86-year-old Mahathir is said to be readying a return as a special advisor. On Feb. 6, he wrote an enthusiastic entry in his blog, Che Det, saying he had test driven a new model and found it to be an excellent car.

Proton was the focal point of Mahathir’s dream to turn Malaysia into an industrial powerhouse built on the country’s considerable natural wealth of rubber, palm oil and crude. The car was one of a flock of mega-projects that Mahathir forced onto Malaysia in the 1980s and 1990s, creating steel mills, the US$475 million Petronas Twin Towers in Kuala Lumpur, a US$5.5 billion Putrajaya administrative capital, the US$2.4 billion Kuala Lumpur International Airport, the US$15 billion Multi-Media Super Corridor which was supposed to eclipse Silicon Valley. The Bakun Dam in Sarawak was to generate enormous amounts of electrical power to be piped through 1,500 kilometers of underwater cables to West Malaysia. A vast network of highways was flung across the country.

Japan’s Mitsubishi Corp persuaded Mahathir to retool an even-then ageing Lancer in 1985 and put an Islamic star and shield on the hood to create the first Proton Saga. Mitsubishi, however, quit in 2004 and sold its 16 percent stake back to Proton Holdings Bhd, the parent holding company.

After Mitsubishi pulled out, the absence of newer models and the inability to find a reliable and technically sound foreign partner meant that sales began to decline. Although Proton had more than 60 percent of the market in 2002, that fell to 30 percent by 2006. It has hovered around 30 percent ever since, despite the preferential government treatment. A 2007 Wall Street Journal-Asia report suggests that Proton burned up RM300-500 million annually.

Asia Sentinel.com

Malaysia’s RM456 billion of federal government debt does not take into consideration additional RM96.9 billion of “contingent liabilities”.

Based on the Government’s Economic Report 2011/2 published last year, our Federal Government debt will hit RM455.7 billion as at the end of 2011. This was a 11.9% increase from RM407.1 billion incurred in 2010. Our debt levels have been increasing rapidly in recent years compared to RM242 billion in 2006 and RM146 billion in 2002.

As it stands, our Federal Government debt has hit 53.8% of our Gross Domestic Product (GDP) compared to 53.1% in 2010 and 44.6% in 2006.

However, what is of greater concern is the Government “off-balance sheet” financing which isn’t reported as Federal Government Debt. In recent years, the Government has increasingly issued debt papers via its statutory bodies and corporatised entities. These loans are obtain with guarantees provided by the Government, but are not reflected as Federal Government borrowings.

In 2010, the “off-balance sheet” financing activities has hit a record high of RM96.9 billion in 2010, a 14.9% increase from RM84.3 billion in 2009. These are loans which have been taken with a Government guarantee i.e., the Government is obligated to pay should the borrowers fail to settle the debts. As an example, if the Federal Territories Foundation is unable to repay the proposed RM300 million loan from EPF to provide financing for the low-cost housing purchasers, then the Government will have to step in to make the RM300 million payment to EPF.

Hence for all intents and purposes, even though these loans are not taken by the Government, they are essentially government debt or otherwise known as contingent liabilities. Adding RM96.9 billion to the current debt of RM455.7 billion, the effective debt which Malaysian tax-payers are liable for is RM552.6 billion. This expanded figure would then constitute 65.2% of our GDP, well above the 55% federal government loan limit as defined in the Loan (Local) Act 1959 and Government Funding Act 1983.

The list of statutory bodies and corporate entities which have been given Government guarantees are as per Table 1 at the bottom. Based on the list, there are some serious concerns over the performance or non-performance of these loans which will require bail outs by the Federal Government.

For example, the PTPTN and Syarikat Prasarana Negara Bhd owes RM17.0 billion (17.5%) and RM9.1 billion (9.4%) respectively and they have both been heavily criticized by the Auditor-General for their weak financial management and their inability to repay their loans.

The list also includes Syarikat Penerbangan Malaysia Bhd (RM7.0 billion) which was set up to bail out Malaysian Airlines System (MAS); 1MDB (RM5.0 billion) which in turn lent nearly all its money to a questionable foreign company, PetroSaudi International Limited and Silterra Bhd (RM1.0 billion) which has made more than RM2 billion in losses to date.

What is interesting is also the fact that loans of Tan Sri Syed Mokhtar Al-Bukhary-owned Port of Tanjong Pelepas (PTP) also received financial guarantees from the Government. PTP’s “guaranteed” loans have in fact increased from RM715 million in 2009 to RM1.275 billion in 2010.

Expert testimonies in 2009 in the United Kingdom Parliament has heavily criticized Government guarantees to statutory bodies, government-linked companies or “private-finance initiatives” as an attempt to hide real debt levels in order to achieve better credit ratings. Professor Dieter Helm of Oxford University said that such initiatives had succeeded as "an exercise to get investment off the public balance sheet so that the debt numbers look better than they otherwise would have done." The Greek financial crisis has similarly unraveled as a result of hidden contingent liabilities not reflected as official government debt or reported in its balance sheet.

For a start the BN government must reflect all its guarantees and contingent liabilities in the annual Economic Report and Budget to be debated in Parliament and it must impose measures to slow down the rate of growth of Malaysia’s debt levels. Malaysia should not wait for a major financial crisis of Greek proportions before attempting to reform our public sector finance. At the pace which our debts are increasing, we are accelerating and plunging headlong into a financial disaster.

Tony Pua is the DAP MP for PJ Utara

Bankrupt in no time: Desperate BN set to raise borrowing limit again?

The Barisan Nasional has modified the Statutory Borrowing Ceiling at its whims and fancies over the past decade rendering meaningless the legal debt ceiling for Federal Government.

The Loan (Local) Act 1959 and Government Funding Act 1983 puts in place a 55% federal government debt limit relative to Malaysia’s Gross Domestic Product (GDP) as determined by the Ministry of Finance (MoF). Based on the Government’s Economic Report 2011/2, our federal government debt will hit RM455.7 billion as at the end of 2011 which works out to 53.8% of our GDP, or a whisker away from the statutory borrowing ceiling.

However, what is worrying is the fact that the “statutory borrowing ceiling” has actually been raised multiple times by the Barisan Nasional (BN) Government over the past decade to “legalise” the federal government debt level which has been increasing at a much faster pace than our GDP.

The 55% statutory borrowing ceiling only came into effect in July 2009 by order of current Second Finance Minister Dato’ Seri Ahmad Husni Hanadzlah. Prior to the revised limit, the limit was set at 45% in June 2008, barely 13 months before by the then Second Finance Minister Tan Sri Nor Md Yakcop.

It was 5 years before that when the limit was raised to 40% in April 2003 by the then Second Finance Minister Dato’ Sri Jamaluddin Jarjis.

15% of GDP jump in just 6 years

Hence our statutory borrowing ceiling has been raised by 15% of our GDP in just 6 years. The question is if the ceiling is repeatedly raised with such nonchalance, why did the Government bother setting a limit at all? Given that our debt level is expected to increase beyond 55% over the next 2 years, are we expecting the Federal Government to once again raise the ceiling in Parliament to circumvent the breach?

In fact, we are extremely concerned that the Federal Government, which is mindful of their debt level relative to the GDP, is using all sorts of creative measures to by-pass the limit set by law.

It should be noted that the MoF will be raising approximately RM20 billion to fund the first phase of the Klang Valley MRT mega-project this year. However, based on the fact that the MRT was never debated in the 2012 Budget tabled in Parliament for approval last year, it is clear that the funding will be raised by a wholly-owned “special purpose vehicle” (SPV) known as Dana Infra, and guaranteed by the Government.

This way, the BN Federal Government kills two birds with one stone. Firstly, the debt raised will not be part of the Federal Government debt (because Dana Infra is “not” Federal Government) and hence will not be perceived to jeopardise our credit standings. This is despite the fact that all parties are expecting MRT to be a financially loss-making project and that the Federal Government will have to fund Dana Infra’s debt repayments at some point in the future.

Secondly, by placing the debt and expenditure of the MRT project in a SPV, such expenditure then escapes the purview of direct parliamentary oversight because it is never debated in Parliament as an official Budget item. As mentioned earlier, there is not a single line item in the 2012 Budget approved at the last parliamentary sitting for the purposes of constructing an MRT despite the fact that this will be Malaysia’s largest ever infrastructure project by far.

Creatiive manipulation will bankrupt Malaysia

Such creative manipulation of our federal government debt and expenditure is not limited to just the MRT project but many other multi-billion ringgit projects such as the construction of 74 police headquarters with government-guaranteed RM10 billion debt by MoF-owned Pembinaan BLT Sdn Bhd, or the proposed RM20 billion sukuk plan by Pengurusan Aset Air Bhd (PAAB) to restructure the country’s water assets.

Governments all over the world, especially in developed countries like the United Kingdom and Germany, are now changing their laws to require such debts and contingent liabilities to be incorporated into the Government’s financial statement to ensure greater transparency and financial accountability. This is to avert a financial crisis which has already enveloped the Euro-zone over the past 2 years.

However, it appears that the Malaysian government is still sitting back and resting easy, while making full use of the “loop-hole” in our government financial reporting standards to continue to recklessly in-debt future Malaysians with none of the checks put in place.

Tony Pua is the DAP MP for PJ Utara