Governance woes behind US trade war


 

Illustration: Peter C. Espina/GT

For now, there is still no end in sight to the brewing trade war between the world’s two economic heavy hitters. Ignoring voices of objection at home, the Donald Trump administration announced that the second tranche of tariffs on $16 billion in Chinese goods will take effect later this month. Though Trump has yet to fulfill his campaign promise to levy a 45-percent tax on Chinese goods, his logic on trade policy refuses to change.

The reason why the US has provoked and intensified the trade war lies in the incapacity of the global system. Specifically, division of labor in the globalized era has led to the exodus of the US manufacturing industry out of the country. Meanwhile, the US claims that China’s “predatory” economy has developed itself into the biggest beneficiary in the system.

That’s why the Trump administration insists on attacking China’s “stealing” practice in the name of “safeguarding US national interests,” regardless of the cost of torpedoing the existing international order.

The robust stock market and economic growth of the US as well as the decline in unemployment have further boosted Trump’s confidence in escalating the trade war. His trade policy has gained more acceptance among Americans. However, the logic behind his trade war can hardly hold water.

The era of globalization has been an inevitable development of human society. As people in the global village are more interconnected, trans-regional flow of finance, technology, information, service and talent has re-optimized global production resources, inspiring the development of countries and regions.

The unprecedented development of productivity and international division of labor has prompted developed countries which boast capital and technology advantages to transfer their low-end industries to other countries where labor and land costs are relatively low. Then a great many multinationals have mushroomed, which has objectively precipitated the growth of developing countries.

Economic liberalism has become a paragon of democracy with which developed nations dwell upon with relish. It’s also an important pillar for the postwar international order. When developed countries sat on the top of the industrial chain to reap benefits, they never complained about the unfairness of the system but instead became its most powerful defender.

Ironically, the US – the founder of the global system – has now become its most proactive opponent. The Trump administration attacks the “unfair” global system and views China as being complicit in bringing about the fall of the US manufacturing industry and loss of jobs. Such rhetoric has led people to believe that the stature of the US has fallen to a third world country’s.

Globalization is not without problem. Apple is a paradigm of a globalized industrial chain, but it’s not a nice story. Developing countries at the low end of the industrial chain can only get disproportionally meager profits while lucrative gains flow to developed nations. In this way, the US deficit is far less than the book figures.

More severely, low-end manufacturing has worsened the environment, putting the health of the public in jeopardy. But the US-led developed world just passed the buck.

Emerging economies like China are resigned to be just a factory of developed countries, so they work hard to develop hi-tech and produce high-value-added products to create a level-playing field with developed countries. This is the law of market economy, which, however, has become a threat to its national security and an enemy of its economy in the view of the US.

The strange logic can hardly justify itself.

Denying others a share of the spoils is not the essence of the era of globalization. If developed countries think there’s something wrong with the global system, they can appeal to international organizations to carry out reform, instead of resorting to short-sighted practices like threatening with tariffs.

Trump’s trade war actually stems from domestic conundrums notably industrial hollowing-out and loss of everyday jobs. The problems are not a result of globalization but of domestic mismanagement. It seems that forcing jobs back home will create jobs, but it can’t last long because it will fail to stimulate the fundamental driving force of industrial development. If Trump can make more efforts at boosting the real economy instead of waging a trade war, he may get closer to “Make America Great Again.”

Credit: By Zhang Tengjun Source:Global Times Published: 2018/8/15
The author is an assistant research fellow at the China Institute of International Studies. opinion@globaltimes.com.cn

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Implications of the ‘RM19bil GST collected, RM18bil taken’ and RM19.4bil shortfall !


The immediate concern is the budget deficit for 2018 spiking to 4% if the GST refunds are made this year

ON May 31, when Finance Minister Lim Guan Eng announced that the new government would be able to meet the budget deficit of 2.8% for this year, the sum of RM19.4bil that is to be refunded to companies since the goods and services tax (GST) was discontinued, never came into the equation.

Now, since that money is not in a trust account that was specifically set up to meet the refund obligations, does the government need to borrow more to ensure it meets the refunds? In doing so, would it incur a bigger budget deficit than had been envisaged?

There are wider implications on the shortfall of the RM19.4bil, assuming the refunds are to be done this year.

The biggest challenge for Lim is to cover the shortfall to maintain the budget deficit for 2018 at 2.8%.

The hallmark of the Pakatan Harapan government’s first 100 days of rule is to bring down the cost of living and cost of doing business. Towards this end, it has subsidised the price of petrol and diesel and removed the GST.

The cost of keeping up with the Bantuan Sara Hidup and subsidy for petrol and diesel is estimated to be about RM6.2bil between June and December.

Revenue loss due to discontinuing the GST from June 1 onwards is estimated at RM21bil.

The shortfall is made up of cutting down government expenditure by RM10bil, increasing dividends from government agencies such as Khazanah Nasional Bhd and Petroliam Nasional Bhd, a higher petroleum income tax of RM5.4bil and proceeds from the implementation of the sales and service tax from September onwards.

Nowhere was the RM19.4bil figure that is to be paid back to companies under the GST that was discontinued mentioned.

Lim has said that the money was supposed to be in the trust account, but is not there and has gone “missing”.

Former Finance Ministry secretary-general Tan Sri Mohd Irwan Siregar Abdullah has said that all proceeds from the GST went into the consolidated fund of the federal government. The amount to be refunded is allocated to the trust account monthly based on the requirements of the Customs Department and the financial position of the government.

Customs director-general Datuk Seri Subromaniam Tholasy has revealed that since the GST was implemented on April 1, 2015, the total refunds amounted to RM82.9bil and the amount allocated to the trust account from the federal government consolidated fund was only RM63.5bil – representing a shortfall of RM19.4bil.

Generally, refunds for the GST are to be done within 14 days. But the amount allocated is less because not all refunds are paid within the two-week period.

At times, refunds are held back up to one year, pending investigations. Hence, the cash allocated to the trust account maintained by the Customs and the Inland Revenue Board (IRB) is less than the total amount due for refunds.

For instance, in 2017, the amount allocated to the IRB trust account for refunds was RM7bil when the total amount to be refunded was more than that.

In the case of the Customs, the outstanding refunds for 2017 was RM15bil, but the amount allocated was less.

Under the previous government, the GST provided a steady flow of cash every month. The thinking was that the money for refunds should be allocated when it comes due to best manage the cash-flow position of the government.

However, the view of Lim is that money meant for refunds should have been put into the trust account, irrespective of whether there is a need to pay immediately or otherwise.

Hence, the issue is not really the question of the RM19.4bil meant for refunds going “missing”.

It is whether the money is still in the consolidated accounts or whether it has been utilised. If it was utilised, did the government have the right to use it for other purposes in the name of cash-flow management?

The bigger implication for the Pakatan government is how it is going to cover this RM19.4bil shortfall.

One of the ways the government can cover the RM19.4bil hole without increasing the deficit is to cut more of the excesses.

On this score, the Pakatan government has so far handled public funds in a more judicious manner compared to the previous government. It has cut down the budget for inflated infrastructure projects and stopped unnecessary spending.

The light rail transit 3 and East Coast Rail Link projects are only some examples. It has stopped prestigious projects such as the KL-Singapore high-speed rail and the less glamorous mass rapid transit line 3 project. The government of today has earned full marks for being transparent and diligent in handling public finances.

Despite declaring that the federal government debt is at RM1.07 trillion, business sentiment is at a seven-year high, while consumer sentiment is at a 21-year high.

The stock market is looking good so far, much better than the likes of China and Hong Kong, although the improved sentiments are likely to be temporary.

As for the ringgit against the US dollar, its performance is better against many of the Asian and emerging-market currencies. The tumbling of the Turksih lira and Russian rouble is testimony that the ringgit is not that bad after all.

The government can probe, produce a White Paper or do anything else to look into the RM19.4bil shortfall, but the bottom line is that Lim and Prime Minister Tun Dr Mahathir Mohamad will have to face the reality of making up for a RM19.4bil shortfall in government finances for this year.

Economists are predicting that the federal government budget deficit would be higher than the 2.8% estimated on May 31 this year on the assumptions are made this year. Some are looking at the budget deficit to be as high as 4%

Would there be an impact on Malaysia’s credit rating and the ringgit?

Yes, a spike in the budget deficit would have an impact for the short term.

However, the government of the day will score brownie points in its drive to bring about reforms and governance in the management of public funds. Rating agencies would appreciate any government that promotes transparency and improves on its finances purely by spending within its means.

So far, the government has done away with the GST and taken measures to put more cash into the hands of the people and business to improve domestic spending. The stabilisation of petrol prices and threemonth (June to September) tax-free period between the implementation of the GST and SST has put RM20bil into the hands of the people and businesses. This should help improve the domestic economy for a few months.

However, for the longer term, investors and rating agencies will be looking at how the RM19.4bil hole in the federal government finances will be covered. What are the government assets that will be sold?

Certainly, we are not looking at an expansionary budget come November this year.

Source:  The Alternative view by M.Sshanmugam The Star

RM19bil GST collected, RM18bil taken’

//players.brightcove.net/4405352761001/default_default/index.html?videoId=5819661623001

KUALA LUMPUR: The previous government has not been able to refund companies their tax credit that came about following the implementation of the Goods and Services Tax (GST) because 93% of the money was not placed in the correct account, Finance Minister Lim Guan Eng revealed.

He said some RM18bil of the RM19.4bil input tax credit under the GST system since 2015 was “robbed” by the previous administration.

“I was very shocked when informed that this happened because the previous government had failed to enter the GST collection in the trust account specifically meant for the repaying of GST claims.

“Instead, the Barisan Nasional government pilfered the trust account and entered cash GST collection directly into the consolidated fund as revenue to be spent freely,” he said when tabling the GST (Repeal) Bill 2018 during its second reading in Parliament yesterday.

He said that as of May 31, the outstanding GST refund stood at RM19.397bil whereas there was only a balance of RM1.486bil in the repayment fund.

Lim said from the total input tax credit, RM9.2bil or 47% was recorded between Jan 1 and May 31 this year, RM6.8bil or 35% in 2017, RM2.8bil (15%) in 2016, and RM600mil (3%) in 2015 (from April 1 to Dec 31, 2015).

Under GST, the input tax credit allowed businesses to reclaim credit for taxes paid on purchases, subject to filing of input tax documents.

In his winding-up reply, Lim said a comprehensive investigation would be carried out to determine the cause of the missing funds.

When debating the Bill, Lim also said he had asked for documents to show how the input tax had ended up in the consolidated fund.

“I asked the Chief Secretary to the Government for the Cabinet papers on the matter.

“However, he told me he could not remember anything of such,” he added.

Lim said former Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz, when told of the missing funds, said it was imperative that the money was returned to the claimants as it was fiscally moral to do so.

Later, at the Parliament lobby, Lim said a former Treasury secretary-general may have been aware of the missing RM18bil.

The previous government, he said, had committed wrongdoing over the missing funds.

“I would assume the previous KSP (ketua setiausaha perbendaharaan/Treasury secretary-general) would have known about this.

“We want something definite because we want to look at the circle of decision-makers,” he said.

By martin carvalho, hemananthani sivanandam, rahimy rahim, and loshana k shagar The Star

Khairy urges gov’t to bring ‘GST robbers’ to book

BN MPs want Najib, RM18b GST ‘robbery’ claim investigated


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New Malaysia’s civil servants must keep it civil of multi-racialism !


Brave new world: The civil service needs to get used to the New Malaysia approach while our ministers need to snap out of the Opposition mode and get down to work.

Wake Up Malaysian Civil Servants: Duty Beckons

by dinobeano

August 16, 2018 Wake Up Malaysian Civil Servants: Duty Beckons by Dr Amar-Singh HSS http://www.freemalaysiatoday.com These Civil Servants pledge to feather their own nest We need to get rid of the culture of censuring those in the civil service who speak up when they see wrong being done. I found the courage to write this […]

Read more of this post

Keeping it civil: The civil service makes up the backbone of any nation, yet the concept of its implementation continues to elude some of the powers that be.

IT’S often said that ministers come and go, but civil servants stay forever. And the good old government machinery runs as before, a fact some of our new ministers will probably be clued into by now.

Ministers who have no experience at state government level may have pre-conceived notions of the privileges they enjoy, like unlimited authority and knowing what they decree would suffice to overrule the bureaucrats.

And that is the biggest mistake they could make as newcomers to Putrajaya, because nothing exemplifies shooting oneself in the foot more than putting down civil servants – they run the ministries, after all.

Making its rounds on the grapevine these days is how some ministers put down their secretaries-general at meetings, believing they know better, or quite possibly, that they can do a better job at improving the performance of their charges.

Some of our ministers were probably not born when British sitcom Yes, Minister (which later became Yes, Prime Minister) aired on BBC Two, and on RTM, from 1980 to 1984.

Set principally in the private office of a British Cabinet Minister in the fictional Department of Administrative Affairs in Whitehall, it follows the ministerial career of the Right Honourable Jim Hacker.

In it, he attempts, or rather, struggles to formulate and enact laws or effect departmental changes and meets with resistance from the civil service, in particularly his Permanent Secretary Sir Humphrey Appleby.

The obstructions (sabotages, some would say) were often carried out so deftly that the minister would often rarely know what hit him or possess a trail of evidence to prove insubordination.

In fact, the delays (such as total rejection of policy) were cited to impress upon the minster that the shenanigans were for the benefit of his political mileage.

But of course, the sitcom was totally fictional and in real life, not all civil servants could get away like that.

Respected banker and commentator Tan Sri Dr Munir Majid wrote that Prime Minister Tun Dr Mahathir Mohamad had put together a Cabinet with a mix of races and genders, and a range of ages, which is unprecedented in the political governance of our country. However, except for a handful of ministers, the Cabinet falls short on experience.

Dr Munir urged Pakatan ministers to get out of “Opposition mode” so they can function and deliver with all the advice and support available.

“They would need to get the government machinery – the civil service – to implement their decisions effectively.

“Here, there is another problem. The largely Malay civil service is not used to having political masters committed to a multi-racial Malaysia and a no-nonsense regime,” he wrote.

That simply means our ministers, who have been used to merely delivering fiery speeches, now need to roll up their sleeves and get down to work and show the fruits of their labour. They can only blame the ills and corruption of the previous government to an extent.

A few ministers, and even the Attorney-General Tommy Thomas, must now grapple with all the documents being in Bahasa Malaysia, unlike in the private sector where the medium of communication is English.

Their staff would most likely be entirely Malay, except for their aides, who are political appointees. Directives would be issued in an entirely different way, obviously reflected by the work culture and style of communication.

That is just how the civil service works, so, they simply need get used to it. Of course, stories of all this being a culture shock for some have surfaced recently.

Dr Munir reminded that “there is still some way to go to arrive at a New Malaysia in terms of multi-racialism. After two generations of ‘Malay First’ and subsequently ‘Malay and Muslim First’ political ethic, there is a mountain to climb to make it New Malaysia.”

The reality is that about 75% of the Malay electorate in GE14 voted for Umno or PAS, in comparison to 95% of the Chinese voters who voted for Pakatan Harapan (an increase from the 85% who supported the now-defunct Pakatan Rakyat coalition in 2013). About 70% – 75% of Indians voted for PH, the figures show.

It has been reported that only 25% – 30% of Malays voted for PH, according to figures from Merdeka Centre. Apparently, 35% – 40% of Malays voted for Barisan Nasional while 30% – 33% supported PAS.

The findings displayed that although a higher percentage of Malays voted for Pakatan Harapan in Johor and in west coast states such as Melaka and Negri Sembilan, the coalition’s overall Malay support was diminished by its weak performance in Kelantan and Terengganu.

It’s no secret that as the new government reaches its 100-day mark, some ministers are still struggling to assemble their offices.

It’s just as well that some have yet to meet the press or make statements, because they are still learning to juggle the workload as others continue their scramble to find the ideal personnel.

The job has been so overwhelming that they have been unable to meet their key officers to solidify plans and directions.

With no appointments in sight, some staff are wondering if they are being snubbed, or simply that the ministers are too busy with other engagements. It doesn’t help that they don’t even reply messages.

But the civil service needs to accept that this is New Malaysia. There is no turning back. The culture of openness, accountability, engagement and success must take centre stage, with any form of prejudice left by the wayside.

The strategy of using race and religion to stir emotions seems hollow now.

Millions of ringgit were stolen from the people by those in power, and as the facts have revealed, they weren’t Chinese, Indians or Christians, contrary to what these politicians still want the Malays to believe.

And certainly, the civil servants who sniffed out the moral decay under their very noses knew exactly what was happening.

Clean, trustworthy and competent ministers, and a loyal, non-corrupt and efficient civil service will make Malaysia great.

After all, as the saying goes, it doesn’t matter what colour the cat is, as long it catches the mice.

In this context, what’s important is surely them being good Malaysians.

Wong Chun Wai

Wong Chun Wai

Wong Chun Wai began his career as a journalist in Penang, and
has served The Star for over 27 years in various capacities and roles. He is now the group’s managing director/chief executive officer and formerly the group chief editor.

On The Beat made its debut on Feb 23 1997 and Chun Wai has penned the column weekly without a break, except for the occasional press holiday when the paper was not published. In May 2011, a compilation of selected articles of On The Beat was published as a book and launched in conjunction with his 50th birthday. Chun Wai also comments on current issues in The Star

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Has Penang Island’s growth & development become a hazard to life?


  • Malaysia’s Penang Island has undergone massive development since the 1960s, a process that continues today with plans for transit and land-reclamation megaprojects.
  • The island is increasingly facing floods and landslides, problems environmentalists link to paving land and building on steep slopes.
  • This is the second in a six-part series of articles on infrastructure projects in Peninsular Malaysia.

GEORGE TOWN, Malaysia — Muddy carpets and soaked furniture lay in moldering piles on the streets of this state capital. It was Sunday morning, Oct. 29, 2017. Eight days earlier, torrents of water had poured off the steep slopes of the island’s central mountain range. Flash floods ripped through neighborhoods. A landslide killed 11 workers at a construction site for a high-rise apartment tower, burying them in mud. It was Penang Island’s second catastrophic deluge in five weeks.

Kam Suan Pheng, an island resident and one of Malaysia’s most prominent soil scientists, stepped to the microphone in front of 200 people hastily gathered for an urgent forum on public safety. Calmly, as she’s done several times before, Kam explained that the contest between Mother Earth’s increasingly fierce meteorological outbursts and the islanders’ affection for building on steep slopes and replacing water-absorbing forest and farmland with roads and buildings would inevitably lead to more tragedies.

“When places get urbanized, the sponge gets smaller. So when there is development, the excess rainwater gets less absorbed into the ground and comes off as flash floods,” she said. “The flood situation is bound to worsen if climate change brings more rain and more intense rainfall.”

Five days later it got worse. Much worse. On Nov. 4, and for the next two days, Penang was inundated by the heaviest rainfall ever recorded on the island. Water flooded streets 3.6 meters (12 feet) deep. Seven people died. The long-running civic discussion that weighed new construction against the risks of increasingly fierce ecological impediments grew more urgent. George Town last year joined an increasing number of the world’s great coastal cities — Houston, New Orleans, New York, Cape Town, Chennai, Jakarta, Melbourne, São Paulo — where the consequences are especially vivid.

The empty apartment construction  site where 11 men died in an October 2017 landslide. Image by Keith Schneider for Mongabay.

Penang’s state government and Chow Kon Yeow, its new chief minister, recognize the dilemma. Three weeks after being named in May to lead the island, Chow told two reporters from The Star newspaper that “[e]conomic growth with environmental sustainability would be an ideal situation rather than sacrificing the environment for the sake of development.”

But Chow also favors more growth. He is the lead proponent for building one of the largest and most expensive transportation projects ever undertaken by a Malaysian city: a $11.4 billion scheme that includes an underwater tunnel linking to peninsular Malaysia, three highways, a light rail line, a monorail, and a 4.8-kilometer (3-mile) gondola from the island to the rest of Penang state on the Malay peninsula.

The state plans to finance construction with proceeds from the sale of 1,800 hectares (4,500 acres) of new land reclaimed from the sea along the island’s southern shore. The Southern Reclamation Project calls for building three artificial islands for manufacturing, retail, offices, and housing for 300,000 residents.

Awarded rights to build the reclamation project in 2015, the SRS Consortium, the primary contractors, are a group of national and local construction companies awaiting the federal government’s decision to proceed. Island fishermen and their allies in Penang’s community of environmental organizations and residential associations oppose the project, and they proposed a competing transport plan that calls for constructing a streetcar and bus rapid transit network at one-third the cost. (See Mongabay –https://news.mongabay.com/2017/04/is-a-property-boom-in-malaysia-causing-a-fisheries-bust-in-penang/)

For a time the national government stood with the fishermen. Wan Junaidi Tuanku Jaafar, the former minister of natural resources and environment and a member of Barisan Nasional (BN), the ruling coalition, refused to allow the project. “The 1,800-hectare project is too massive and can change the shoreline in the area,” he told reporters. “It will not only affect the environment but also the forest such as mangroves. Wildlife and marine life, their breeding habitats will be destroyed.”

The state, and Penang Island, however, have been governed since 2008 by leaders of the Pakatan Harapan coalition, which supported the transport and reclamation mega projects. In May 2018, Pakatan Harapan routed the BN in parliamentary elections. Former prime minister Mahathir Mohamed, the leader of Pakatan Harapan, assumed power once again. Island leaders anticipate that their mega transport and reclamation projects will be approved.

It is plain, though, that last year’s floods opened a new era of civic reflection and reckoning with growth. Proof is everywhere, like the proliferation of huge blue tarps draped across flood-scarred hillsides outside of George Town’s central business district. Intended to block heavy rain from pushing more mud into apartment districts close by, the blue tarps are a distinct signal of ecological distress.

Or the flood-damaged construction sites in Tanjung Bungah, a fast-growing George Town suburb. A lone guard keeps visitors from peering through the gates of the empty apartment construction site where 11 men died in the October 2017 landslide. About a mile away, a row of empty, cracked, expensive and never-occupied hillside townhouses are pitched beside a road buckled like an accordion. The retaining wall supporting the road and development collapsed in the November 2017 flood, causing expensive property damage.

  • A row of empty, cracked, expensive and never-occupied hillside  townhouses are pitched beside a road buckled like an accordion. The retaining wall supporting the road and development collapsed in a November 2017 flood, causing extensive property damage. Image by Keith Schneider for Mongabay.

    Gurmit Singh, founder and chairman of the Centre for Environment, Technology and Development, Malaysia (CETDEM), and dean of the nation’s conservation activists, called Penang state government’s campaign for more growth and mega infrastructure development “a folly.”

    “It exceeds the carrying capacity of the island. It should never be approved,” he said in an interview in his Kuala Lumpur office.

    Singh, who is in his 70s and still active, was raised on Penang Island. He is an eyewitness to the construction that made much of his boyhood geography unrecognizable. “Everything built there now is unsustainable,” he said.

    It’s taken decades to reach that point. Before 1969, when state authorities turned to Robert Nathan and Associates, a U.S. consultancy, to draw up a master plan for economic development, Penang Island was a 293-square-kilometer (113-square-mile) haven of steep mountain forests, ample rice paddies, and fishing villages reachable only by boat.

    For most residents, though, Penang Island was no tropical paradise. Nearly one out of five working adults was jobless, and poverty was endemic in George Town, its colonial capital, according to national records.

    Nathan proposed a path to prosperity: recruiting electronics manufacturers to settle on the island and export their products globally. His plan emphasized the island’s location on the Strait of Malacca, a trading route popular since the 16th century that tied George Town to Singapore and put other big Asian ports in close proximity.

  • Sea and harbor traffic on the Strait of Malacca. Image by Keith Schneider for Mongabay.

    As a 20th century strategy focused on stimulating the economy, Nathan’s plan yielded real dividends. The island’s population nearly doubled to 755,000, according to national estimates. Joblessness hovers in the 2 percent range.

    Foreign investors poured billions of dollars into manufacturing, retail and residential development, and all the supporting port, energy, road, and water supply and wastewater treatment infrastructure. In 1960, the island’s urbanized area totaled 29.5 square kilometers (11.4 square miles), almost all of it in and immediately surrounding George Town. In 2015, the urban area had spread across 112 square kilometers (43 square miles) and replaced the mangroves, rubber plantations, rice paddies and fishing villages along the island’s northern and eastern coasts.

    There are now 220,000 homes on the island, with more than 10,000 new units added annually, according to National Property Information Center. George Town’s colonial center, which dates to its founding in 1786, was designated a UNESCO World Heritage site in 2008, like Venice and Angkor Wat. The distinction helped George Town evolve into a seaside tourist mecca. The state of Penang, which includes 751 square kilometers (290 square miles) on the Malay peninsula, attracts over 6 million visitors annually, roughly half from outside Malaysia. Most of the visitors head to the island, according to Tourism Malaysia.

    Nathan’s plan, though, did not anticipate the powerful ecological and social responses that runaway shoreline and hillside development would wreak in the 21st century. Traffic congestion in George Town is the worst of any Malaysian city. Air pollution is increasing. Flooding is endemic.

  • Blue tarps drape the steep and muddy hillsides in George Town to slow erosion during heavy rain storms. Image by Keith Schneider for Mongabay.

    Nor in the years since have Penang’s civic authorities adequately heeded mounting evidence of impending catastrophes, despite a series of government-sponsored reports calling for economic and environmental sustainability.

    Things came to a head late last year. Flooding caused thousands of people to be evacuated from their homes. Water tore at hillsides, opening the forest to big muddy wounds the color of dried blood. Never had Penang Island sustained such damage from storms that have become more frequent, according to meteorological records. Rain in November that measured over 400 millimeters (13 inches) in a day. The damage and deaths added fresh urgency and new recruits to Penang Island’s longest-running civic argument: Had the island’s growth become a hazard to life?

    George Town is far from alone in considering the answer. The 20th century-inspired patterns of rambunctious residential, industrial and infrastructure development have run headlong into the ferocious meteorological conditions of the 21st century. Coastal cities, where 60 percent of the world’s people live, are being challenged like never before by battering storms and deadly droughts. For instance, during a two-year period that ended in 2016, Chennai, India, along the Bay of Bengal, was brutalized by a typhoon and floods that killed over 400 people, and by a drought that prompted deadly protests over water scarcity. Houston drowned in a storm. Cape Town is in the midst of a two-year drought emergency.

    George Town last year joined the expanding list of cities forced by Nature to a profound reckoning. Between 2013 and mid-October 2017, according to state records, Penang recorded 119 flash floods. The annual incidence is increasing: 22 in 2013; 30 in 2016. Residents talk about a change in weather patterns for an island that once was distinguished by a mild and gentle climate but is now experiencing much more powerful storms with cyclone-force winds and deadly rain.

    Billions of dollars in new investment are at stake. Apartment towers in the path of mudslides and flash flooding rise on the north shore near George Town. Fresh timber clearing continues apace on the steep slopes of the island’s central mountain range, despite regulations that prohibit such activity. Demographers project that the island’s population could reach nearly 1 million by mid-century. That is, if the monstrous storms don’t drive people and businesses away — a trend that has put Chennai’s new high-tech corridor at risk.

    The urgency of the debate has pushed new advocates to join Kam Suan Pheng at the forefront of Penang Island’s environmental activism. One of them is Andrew Ng Yew Han, a 34-year-old teacher and documentary filmmaker whose “The Hills and the Sea” describes how big seabed reclamation projects on the island’s north end have significantly diminished fish stocks and hurt fishing villages. High-rise towers are swiftly pushing a centuries-old way of life out of existence. The same could happen to the more than 2,000 licensed fishermen and women contending with the much bigger reclamation proposals on the south coast.

    “How are they going to survive?” Han said in an interview. “This generation of fisherman will be wiped out. None of their kids want to be fisherman. Penang is holding a world fisherman conference in 2019. The city had the gall to use a picture of local fisherman as the poster. No one who’s coming here knows, ‘Hey you are reclaiming land and destroying livelihood of an entire fishing village.’”

    “We all want Penang to be progressive. To grow. To become a great city,” he adds on one of his videos. “But at whose expense? That’s the question. That’s the story I’m covering.”

  • Andrew Ng Yew Han, a 34-year-old teacher and documentary film maker whose “The Hills and the Sea” describes how big seabed reclamation projects on the island’s north end have significantly diminished fish  stocks and hurt fishing villages. Image by Keith Schneider for Mongabay.

    Another young advocate for sustainable growth is Rexy Prakash Chacko, a 26-year-old engineer documenting illegal forest clearing. Chacko is an active participant in the Penang Forum, the citizens’ group that held the big meeting on flooding last October. Nearly two years ago, he helped launch Penang Hills Watch, an online site that uses satellite imagery and photographs from residents to identify and map big cuts in the Penang hills — cuts that are illegal according to seldom-enforced state and federal laws.

    Kam Suan Pheng and other scientists link the hill clearing to the proliferation of flash flooding and extensive landslides that occur on the island now, even with moderate rainfall.

    In 1960, Malaysia anticipated a future problem with erosion when it passed the Land Conservation Act that designated much of Penang Island’s mountain forests off-limits to development. In 2007, Penang state prohibited development on slopes above an elevation of 76 meters (250 feet), and any slope with an incline greater than 25 degrees, or 47 percent.

    Images on Penang Hills Watch make it plainly apparent that both measures are routinely ignored. In 2015, the state confirmed as much when it made public a list of 55 blocks of high-rise housing, what the state called “special projects,” that had been built on hillsides above 76 meters or on slopes steeper than 25 degrees. The “special projects” encompassed 10,000 residences and buildings as tall as 45 stories.

 

Rexy Prakash Chacko, a 26-year-old engineer who helped launch Penang Hills Watch, an online site that uses satellite imagery and photographs from residents to identify and map big cuts in the Penang hills. Image by Keith Schneider for Mongabay.

“There is a lot of water coming down the hills now,” Chacko said in an interview. “It’s a lack of foresight. Planning has to take into account what happens when climate change is a factor. Clearing is happening. And in the last two years the rain is getting worse.

“You can imagine. People are concerned about this. There was so much lost from the water and the mud last year.”

Ignoring rules restricting development has consequences, as Kam Suan Pheng has pointed out since getting involved in the civic discussion about growth in 2015. After the October 2017 landslide, she noted that local officials insisted the apartment building where the 11 deaths occurred was under construction on flat ground. But, she told Mongabay, an investigation by the State Commission of Inquiry (SCI) found that the apartment construction site abutted a 60-degree slope made of granite, which is notoriously unstable when it becomes rain-saturated.

“State authorities continued to insist that development above protected hill land is prohibited,” Kam said in an email. “There is little to show that more stringent enforcement on hill slope development has been undertaken. Hopefully the findings of the SCI will serve as lessons for more stringent monitoring and enforcement of similar development projects so that the 11 lives have not been sacrificed in vain.”

 

Govt Linked Companies (GLCs) – Monsters in the house?


Politicians should not be appointed to run government-linkedv companies (GLCs) to keep graft in check, said Malaysian Anti-Corruption Commission Advisory Board Chairman Tunku Abdul Aziz Tunku Ibrahim.He  said politicians holding GLC positions might face conflicts of interest, ading to abuse of power and responsibility.

ABOUT a month before Malaysia’s  parliamentary election in May,
then-opposition leader Tun Dr Mahathir Mohamad raised concerns over the
role that government-linked companies (GLCs) were playing in the
economy, being “huge and rich” enough to be considered “monsters”.

Data support his description – GLCs account for about half of the  Benchmark Kuala Lumpur Composite Index, and they  constitute seven out of the top-10 listed firms in 2018. They are present in almost every sector, sometimes in a towering way. Globally, Malaysia ranks fifth-highest in terms of GLC influence on the economy.

Calls to do something about GLCs have   increased since the election following the  release of more damning information, although most of it relates to the GLCs’ investment arm: government-linked investment companies (GLICs).

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

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

In Malaysia, GLCs were uniquely tasked to assist in the government’s affirmative action program to improve the absolute and relative position of bumiputras. The intention was to help create a new class of bumiputra entrepreneurs – first through the GLCs themselves, and then through a process of divestment.

Given the amounts of money involved and the cost of the distortions introduced, the benefits to bumiputra were unjustifiably small and unequally distributed. The approach of using GLCs as instruments of affirmative action failed because it led to a rise in state dependence, widespread complacency and even corruption, as Tun Mahathir himself recognised in his memoirs, A Doctor in the House, and again more
recently. There is also empirical evidence that GLCs have been crowding out private investment, a concern raised in the New Economic Model as early as 2011.

Additionally, the new government has correctly highlighted the need to include certain off-balance-sheet items and contingent liabilities, such as government guarantees and public-private partnership lease payments, in any complete assessment of debt outstanding. The use of offshoot companies and special purpose vehicles (SPVs) in the deliberate reconfiguration of certain obligations mean that traditional debt calculations underestimate Malaysia’s actual debt.

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

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

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

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

The new government has committed itself to addressing corruption and improving the management of public resources. As part of this process, one must re-examine just how much government is involved in business. This is one of the many tasks that the Council of Eminent Persons is undertaking in the first 100 days of the new government.

To be done correctly, would require a careful study of GLCs and their impacts. This could then rejuvenate the private sector while enabling  good GLCs to thrive, and fortify Malaysia’s fiscal position in the process. This is what Malaysians should expect – and indeed demand – of the “New Malaysia”.

Jayant Menon is Lead Economist in the Economic Research and Regional Cooperation Department at the Asian Development Bank. This is an abridged version of an item that first appeared on the East Asia Forum.

Jayant Menon The Sundaily

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Malaysia’s Mess is more than 1MDB:Umno’s Misrule vua GLCs

 GLCs crowding out private investment, says ADB economist

One billion and counting – Nation | The Star Online

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On the rise: A man walks past the Employees Provident Fund headquarters in Kuala Lumpur. Remuneration of GLC chiefs, senior managemen

Govt-linked companies (GLCs) shake-up as they sing a different tune


EPF Building in Kuala Lumpur.- Art Chen / The Star..
On the rise: A man walks past the Employees
Provident Fund headquarters in Kuala Lumpur. Remuneration of GLC chiefs,
senior management and directors have been on the uptrend following a
transformation initiative to make them more competitive commercially. 

 

Overpaid CEOs and social duties of GLCs set for review

The new government has clearly said that there is a need to review the role of GLCs and the remuneration paid out to their top executives

A GLANCE at one of the annual reports of the country’s government-linked companies (GLCs) reveals that its chief human resource officer earned close to a million ringgit or about RM80,000 per month, last year.

Other senior personnel were also compensated with generous remuneration, with its chief executive taking home over one and the half million ringgit in financial year 2017.

More importantly, this was at a company that had courted much controversy in recent times over allegations of mismanagement and under-performance.

Such a scenario, however, is not uncommon at GLCs, where remuneration of key executives tend to run in the millions but performances sometimes leave much to be desired.

By definition, GLCs are companies where the government has a direct majority stake via their entities such as Khazanah Nasional, Employees Provident Fund, Permodalan Nasional Bhd (PNB), the Armed Forces Fund (Lembaga Tabung Angkatan Tentera) and the Pilgrims Fund (Lembaga Tabung Haji).

In recent years, remuneration of GLC chiefs, senior management and its directors have been on the uptrend following a transformation initiative to make them more competitive commercially.

The thinking behind this is that in order to attract talent – subjective as the definition of that may be – top dollar should be paid.

Some, however, argue that GLCs should in fact prioritise national service a little more.

Universiti Malaya’s Faculty of Economics and Administration professor of political economy Edmund Terence Gomez says GLCs have social obligations.

“What this essentially means is that GLCs cannot operate in a purely commercial manner as they also have to look at the social dimension,” he says. “The GLC professionals have many times articulated that they are doing national service. Going on that alone, one can argue that they shouldn’t be paid private sector salaries,” Terence adds.

And so it is now, there is a disquiet building up among GLCs following the change in government.

The new government has clearly said that there is a need to review the role of GLCs and the remuneration paid out to their top executives and senior management.

In this regard, the Pakatan Harapan government is understood to be mulling over making drastic changes in the appointment and remuneration of key directors at GLCs which include government agencies.

It was reported recently that the Council of Eminent Persons, headed by Tun Daim Zainuddin, who was Finance Minister in the 1980s, has requested details of the salaries of some of the top executives at GLCs as part of the review.

Already, there have been a couple of GLC chief executives who have left and more of this is expected to materialise over the coming weeks.

“It appears to be a purge of Tan Sri Nor Mohamed Yakcop’s boys,” quips an industry observer, referring to the veteran politician who was instrumental in the revamp and transformation of Khazanah which started in 2005 and subsequently, driving the GLC transformation initiative.

UM’s Terence says if the new government is to appoint new individuals, it must ensure that the process is transparent.

“If you are removing these people, who are you replacing them with? More importantly how are you selecting these people?

He adds there needs to be a transparent mechanism in the appointment of this new breed of professionals that will be brought in and what must also be looked into is the kind of check and balances being put in place to ensure governance.

“There should be a debate on these things,” he says.

Economist Yeah Kim Leng believes that a review is timely and appropriate as part of a deeper institutional and structural reform.

“The broad aims are firstly, to reduce excessive payoffs which don’t commensurate with performance and secondly, to address the widening wage and benefits gap between the top and bottom rungs of the organisation,” he says.

Such rationalisation will result in a more equitable salary structure as well as raise the generally depressed wages of middle management and support staff which form the largest number of most organisations, Yeah adds.

Unfair advantage

The role of a head honcho, be it at a GLC or non-GLC, is seldom a walk in the park.

CEOs make critical operational decisions that affect everything from future business directions to the health of a company’s balance sheet and employee morale.

The job generally entails long hours and tremendous pressure to meet expectations of shareholders and stakeholders.

But again, while local GLCs have been key drivers of the economy, one key feature is that they are ultimately owned by the government.

This, some argue, give GLCs unfair advantages such as access to cheap funding and political patronage over their private counterparts.

So, is running a GLC more of a stewardship role as opposed to an entrepreneurship role?

Therein lies the issue that in turn will have a bearing on the remuneration levels of GLC heads.

Minority Shareholders Watch Group (MSWG) chief executive office Devanesan Evanson puts it this way.

“Entrepreneurs have their skin in the game in that there are often the major or substantial shareholder in a company.

“It is in their direct interest to perform as this will be translated into share price appreciation which will impact the value of their shareholdings – this is motivation to grow the entrepreneurial spirit,” he says.

On the other hand, GLC heads do not have their skin in the game save for their limited shareholding through ESOS or share grant schemes.

“If a GLC loses money, the impact on them is limited. They may be prepared to take perverse risks as the eventual loser is the government-linked investment companies or GLICs (and the minority shareholders of the GLC), which eventually are the people who are the members or subscribers of the GLICs.

“In that way, we are not comparing apple to apple and yet, we need talent to run GLCs.

“So we can conclude that, we need to pay for talent at GLCs but it should not be as much compared to what one would pay the CEO of a firm which he started,” Devanesan says, noting that remuneration of some of the GLC heads have risen too fast in recent years.

Rising remuneration is a given, others say, as the government had recruited top talent from the private sector to helm these companies.

A case in point is  Axiata Group Bhd , which has done relatively well with the infusion of the “entrepreneurial spirit” under the helm of president and group CEO Tan Sri Jamaludin Ibrahim, who has helmed the Khazanah-owned telco since 2008, they point out.

Prior to that, Jamaludin was with rival Maxis Communications Bhd, a private company controlled by tycoon Ananda Krishnan.

Other GLCs which have performed consistently over recent years include banks like Malayan Banking Bhd
and CIMB Group Holdings Bhd which have expanded their operations out of Malaysia, carving a brand name for themselves regionally.

Under a 10-year transformation programme for GLCs initiated in 2005, companies were given quantitative and qualitative targets to meet as measured by key performance indicators.

Now, the 20 biggest GLCs currently make up about 40% of the local stock market’s market capitalisation.

One of the principles under the programme was also the national development agenda, which emphasised the principle of equal growth and development of the bumiputra community with the non-bumiputras.

Asian Strategy and Leadership Institute (ASLI) Centre of Public Policy Studies chairperson Tan Sri Ramon Navaratnam says the purpose of establishing GLCs to encourage bumiputras to participate in business has largely been fulfilled.

“Now that the bumiputras are on a strong footing in the corporate sector with able leaders who have wide experience, it (GLCs) could be seen as an erosion to the welfare and progress of the smaller and medium-sized industries, particularly those where other bumiputras are involved,” Ramon says.

Having said that, he says although many GLCs are doing well, they have performed well “mainly because of protective policies and monopolistic practices”.

“The time has come in this new Malaysian era for more competition and less protection.”

Benchmarking

Still, if simplistic comparisons are to be made, the CEOs of the country’s two largest GLC banks, Maybank and CIMB for instance, took home less than the CEO of the country’s third largest bank, the non-GLC Public Bank Bhd
last year.

In 2017, Public Bank’s managing director Tan Sri Tay Ah Lek took home some RM27.8mil in total remuneration while Maybank’s Datuk Abdul Farid Alias earned RM10.11mil and CIMB’s Tengku Zafrul Abdul Aziz made RM9.86mil.

Across the causeway, a survey of CEO remuneration of Singapore-listed companies by one financial portal shows that Singaporean GLC CEOs earned 31% more than their non-GLC counterparts in 2017.

Singapore’s Temasek Holdings-owned DBS Bank, which is Singapore’s largest bank, paid out S$10.3mil (RM30.36mil) to its head honcho, while in the telecommunication sector, SingTel’s remuneration to its top executive was some S$6.56mil (RM19.34mil) for the most recently concluded financial year.

By definition, Singapore GLCs are those which are 15% or more owned by the city-state’s investment arm Temasek Holdings.

UM’s Terence does not think Singapore should be a benchmark for Malaysian companies.

“Singapore is a much smaller country and the manner in which they operate in is also different … their GLCs are deeply conditioned by their holding company, which is the Minister of Finance Incorporated,” he says.

MSWG’s Devanesan notes that determining remuneration is “not exactly science” as there are many parameters to be considered.

Some of the factors to note include whether the companies are in a monopolistic or near monopolistic position and the performance of the GLC heads over the years.

“Based on these parameters, we can instinctively know if a GLC head is over-remunerated,” he says. Over in China, state-owned Industrial and Commercial Bank of China (ICBC), the country’s largest lender by assets, paid out about 63.43 yuan or about RM39mil in total remuneration before tax for the year 2017 to its top executive.

Notably, the Beijing-based ICBC’s net profit’s was at a whopping US$45.6bil (RM182bil) in 2017.

Sources: Gurmeet Kaur and Yvonne Tan The Star

GLC singers sing a different tune

Some officials singing ‘Hebat Negaraku’.

 Swan song for some after ‘Hebat Negaraku’ post-GE14 – CEO think video to showcase musical talents

 

 Several heads of government-linked companies (GLCs) have come together bin a heartwarming music video titled “Hebat Negaraku” (my country is great).

 GLC chiefs show off musical talent in ‘Hebat Negaraku’ music video …

The heads of government linked companies (GLC) who sang a song that later became the theme song for the Barisan Nasional’s election campaign have distanced themselves from the controversial music video.

Those who sang and played musical instruments in the music video titled “Hebat Negaraku” (my country is great) said they did not know the video or the song was going to be a political theme song.

There have been repercussions on the CEOs who appeared in the music video. They have come under scrutiny for making a song that was used as propaganda by Barisan in the last general election.

Three of the GLC bosses in the video have either retired or resigned since the new government took over.

Several more have been speculated to leave in the coming weeks or months but nothing is cast in stone. Sources said this is because most of the CEOs are not known to have campaigned openly for either Barisan or Pakatan Harapan.

“None of the CEOs had a clue it would become a political song. Do you really think the CEOs would have done it if they knew it would become political?” asked one of the CEOs who appeared in the video but declined to be named.

“We have said no to so many things, and we could have easily have said no to this if it was political.’’

Another CEO said he was approached and felt it was “more of a patriotic song and nothing more.”

“At that point in time, we did not think much (of the repercussions). Hebat Negaraku was announced as Barisan’s campaign theme long after the recording was made. We did not know that.’’

Another CEO added: “We thought it was a casual thing when we were approached as some of the CEOs have their own band.’’

It all started when several CEOs were called to be part of a music video and they thought it was to showcase the musical talents of 14 GLCs heads, plus staff members of the 20 key GLCs.

The song is about the greatness, advancement and inspiration of Malaysia. It was released on YouTube on March 22 but has since been taken down.

But fingers have been pointed at the GLCs bosses who made the music video because it became a political video.

Datuk Seri Shazalli Ramly has been said to be the main orchestrator for the group in terms of making the music video. He was also said to be the branding chief for Barisan’s elections campaign.

Barisan lost the elections held on May 9 to Pakatan, which has since formed a new government and is scrutinising all the performance, processes, remuneration and procurement of the government and GLCs.

Shazalli quit his job as group CEO of  Telekom Malaysia Bhd (TM) on June 6. Malaysian Resources Corp
Bhd (MRCB) group managing director Tan Sri Mohamad Salim Fateh Din has retired as group MD last week and it was something he had planned to do.  Malaysia Airports Holdings Bhd
Datuk Badlisham Ghazali did not get his contract renewed. All three were in the music video.

There is a GLC secretariat that now comes under the purview of TM, which was earlier parked under Khazanah Nasional Bhd. The secretariat organised the making of the music video, according to sources. The CEOs were called to attend a session and within a few hours it was all done with no prior rehearsals.

“When you are called, it could be difficult not to comply since it is the secretariat that called you. We have to oblige but we really did not know it was going to be a campaign slogan. This is really unfortunate that it has turned out like this.

“We were surprised when we found out it was a party slogan but it had already been done and what can we do, we are in the picture,’’ said another CEO.

Not all CEOs who were invited took part in the video. Prior engagements were the reason used for declining to appear. – By b.k. Sidhu The Star

Related:

Malaysia’s RM1.09 trillion debt, 80.3% of GDP demystified


Analysts say new government needs to quickly introduce measures to reduce the country’s liabilities

ASSUMING the government repays its debt by RM1mil a day, it would take Malaysia 2,979 years to pay off its debts.

Malaysia’s new Prime Minister Tun Dr Mahathir Mohamad revealed on May 21 that the country’s debt level has breached the RM1 trillion mark during his first address to civil servants.

The statement, which was nothing less than alarming, has since raised concerns among Malaysians on the country’s fiscal sustainability. Bursa Malaysia was hammered for four consecutive days, as investors frantically sold off their stakes.

The benchmark FBM KLCI saw the biggest year-to-date decline on May 23, tumbling by 40.78 points or 2.21% to 1,804.25 points.

Total gains made by the index this year were all wiped out in just four days following Dr Mahathir’s announcement.

The ringgit, which has weakened since early April, continues to decline as concerns on public debt loom.

Big impact: The benchmark FBM KLCI saw the biggest year-to-date decline on May 23, tumbling by 40.78 points or 2.21 to 1,804.25 points.
An economist tells StarBizWeek that Dr Mahathir’s public announcement on the high debt figure is “not helping”, as anxiety intensifies among Malaysians and in the market.

For context, Malaysia’s real gross domestic product (GDP), an indicator of the size of economy, was RM1.35 trillion as at end-2017 – close to the said RM1 trillion debt amount.

Meanwhile, the federal government’s revenue this year is projected at RM239.9bil as per Budget 2018.

Several critics, including Umno Youth deputy chief Khairul Azwan Harun, claim that Dr Mahathir’s statement on the federal government debt was exaggerated and far-fetched.

AmBank Group chief economist Anthony Dass says that although the current scenario shows some signs of similarities to the 1997/98 Asian Financial Crisis, he would not conclude that the current fiscal condition is somewhat similar to the downturn 20 years ago.

At a glance, the “RM1 trillion debt” remark stands in sharp contrast to Bank Negara’s debt tally of RM686.8bil as at end-2017, putting the federal government’s debt-to-GDP ratio at 50.8% – lower than the 55% self-imposed debt limit.

Dr Mahathir refutes this, saying that the national debt-to-GDP ratio has shot up to 65.4%. A day after his announcement, Finance Minister Lim Guan Eng put the ratio at 80.3% of GDP, or about RM1.09 trillion in debt as at end-2017.

Why is there such an obvious difference in the debt amount now that a new government is in place?

Here is where “creative accounting” comes into play.

The lower official debt figures released under the previous Barisan Nasional government had excluded the contingent liabilities and several other major “hidden” debts from the direct liabilities, which amounted to RM686.8bil as at end-2017.

Contingent liabilities, which were released separately prior to this, basically refer to government-guaranteed debt and do not appear on the country’s balance sheet. Examples of contingent liabilities are the loans under the National Higher Education Fund Corp (PTPTN) and certain debt of the controversial 1Malaysia Development Bhd (1MDB).

As at end-2017, Malaysia’s contingent liabilities stood at RM238bil.

Funding for several government mega-projects such as the mass rapid transit (MRT) projects was also categorised as contingent liabilities. The MRT lines were funded by DanaInfra Nasional Bhd, the government’s special funding vehicle for infrastructure projects.

DanaInfra raises money from the market through sukuk, which are, in turn, guaranteed by the government. The guaranteed amount is classified as a contingent liability.

In the event of less-than-expected revenue collection from the MRT lines moving forward, the government will have to intervene to repay the sukuk holders.

The current ruling government believes that RM199.1bil out of the RM238bil contingent liabilities deserves attention to ensure proper debt repayment.

The 1MDB alone comes with an estimated contingent liability of RM38bil.

High figure: The 1MDB alone comes with an estimated contingent liability of RM38bil. — Reuters
High figure: The 1MDB alone comes with an estimated contingent liability of RM38bil. — Reuters 

On the remaining government guarantees, the Finance Ministry says they have been provided by “entities which are able to service their debts such as Khazanah Nasional Bhd, Tenaga Nasional Bhd and MIDF”.

Apart from contingent liabilities, there are several major “hidden” debts, which do not fall under both direct liabilities and contingent liabilities.

An economist with a leading investment bank in Malaysia calls the debts “off-off-balance sheet” government debt.

These are the future commitments of the federal government to make lease payments for public-private partnership projects such as schools, roads and hospitals.

Examples of such debt would include the debt of Pembinaan PFI Sdn Bhd, a company owned by the Finance Ministry. Pembinaan PFI was established in 2006 under the previous Tun Abdullah Ahmad Badawi administration to source financing to undertake government construction projects.

According to its latest available financial statement for 2014, Pembinaan PFI held a total debt of RM28.75bil.

Interestingly, at end-2012, the company’s debt was the third highest among all government-owned entities, just behind Petronas (RM152bil) and Khazanah Nasional (RM69bil).

With no independently generated revenue, the interest payments on Pembinaan PFI’s debts would eventually come from the federal government’s coffers.

The Finance Ministry puts the debt under this third category at RM201.4bil.

All together, Malaysia’s debt and liabilities are said to amount to a total of RM1.09 trillion.

Actually, for those in the loop, the different debt categories and total liabilities are not something new.

Lawmakers from Pakatan Harapan, particularly current Bangi MP Ong Kian Ming, have alerted the authorities about the debt figures over that past few years.

Ong is also currently the special officer to the Finance Minister. The layman might ask, what was the former government’s relevance of classifying these debts into separate off-balance sheet items?

The motive is to make sure the national balance sheet looks healthy and lean.

Economists’ take

Many have questioned the new government’s move to lump contingent liabilities and debt obligations with the direct liabilities. It should be noted that as per the standard procedure of credit rating agencies, only the direct liabilities are taken into the calculation of the debt-to-GDP ratio.

In a StarBiz report this year, Moody’s Investors Service sovereign risk group assistant vice-president Anushka Shah said that by carving out certain expenditures off its budget, the government would be able to optimise its expenditure profile and minimise the associated impacts from its spending.

However, she pointed out that Malaysia’s federal government debt burden remains elevated at 51%, relatively higher than the median of other A-rated sovereign states at 41%.

On the country’s contingent liabilities, Anushka described them as “low-risk” at the current level, and added that the government has been prudent and careful in managing the guaranteed debts.

“We find that the government has adopted rigorous selection criteria when it grants the guarantees to the respective entities.

“The companies which have received guarantees from the government are relatively healthy and have strong balance sheet positions,” she said.

Ever since Dr Mahathir shocked the market with the “RM1 trillion debt” remark, the focus among Malaysians has largely centred on the nominal value of the debt.

A greater emphasis should instead be given on “debt sustainability”, which basically refers to the growth of debt against the growth of the economy.

Economists who spoke to StarBizWeek have mixed opinions on the level of seriousness of Malaysia’s public debt problem.

Suhaimi: Malaysia’s debt has risen faster than economic growth.
Suhaimi: Malaysia’s debt has risen faster

than economic growth.

According to Maybank group chief economist Suhaimi Ilias, Malaysia’s debt has risen faster than economic growth over the last 10 years.
“In the past decade, officially published government debt and government-guaranteed debt have risen by 10% and 14.5% per annum, respectively, faster than the nominal GDP growth of 7% per annum, which raises valid sustainability risk.“On the government’s debt service costs relative to the operating expenditure, the ratio was 12.7% as at end-2017 and based on Budget 2018 is projected to rise to 13.2%. It has been rising steadily from 9.5% in 2012.

“There is a 15% cap on this under the administrative fiscal rule, while the 11th Malaysia Plan target is to lower the ratio to 9.8% in 2020. The government is looking at the debt issue from this sustainability perspective in our opinion,” he says.

 

Lee: Malaysia’s rising public debt level warrants close monitoring.
Lee: Malaysia’s rising public debt level

warrants close monitoring.

Meanwhile, Socio-Economic Research Centre (SERC) executive director Lee Heng Guie says that various indicators of debt burden suggest that Malaysia’s rising public debt level warrants close monitoring to contain the long-term risks of fiscal and debt sustainability.

“High levels of government debt over a sustained period will have economic and financial ramifications over the longer term. Rising public debt could crowd out private capital formation and, therefore, productivity growth.

“This occurs through the competition for domestic liquidity, higher interest rates, a shifting of resources away from the private sector or investment in low-impact projects. This situation is made worse if the government wastes borrowed money on unnecessary projects,” he tells StarBizWeek.

In contrast to Suhaimi and Lee, Alliance Bank Malaysia Bhd chief economist Manokaran Mottain points out that Malaysia’s debt sustainability scenario is yet to be a cause for concern.

 

Manokaran: Debt sustainability scenario is yet to be a cause for concern.
Manokaran: Debt sustainability scenario is

yet to be a cause for concern.

This is because debt repayments are made on an annual basis as opposed to a colossal one-off payment of RM1 trillion.

“Malaysia’s economic growth of above 5% is sufficient to cover government debt. As long as the economy is growing while the government is able to service the debt charges, it is not really that alarming.

“Even in the United States, the government debt-to-GDP level exceeds 100% at US$21 trillion against the real GDP of US$18.57 trillion,” he says.

Manokaran adds that while total government debt has risen over the years, Malaysia’s annual debt growth rate has been growing slower in recent years.

Deleveraging Malaysia

The government must now move fast to introduce measures to reduce and manage the country’s debt levels. This is highly crucial in assuring creditors and investors that the country’s fiscal health remains uncompromised.

Given the fact that the world is currently at the tail-end of the 10-year economic cycle, it is timely for the government to focus on its ability to fulfil its debt obligations.

In the event of an economic turmoil, a heavily-indebted country would be adversely affected.

Lim has emphasised the federal government’s commitment to honour all of the country’s debts.

“This new government puts the interest of the people first, and hence, it is necessary to bite the bullet now, work hard to solve our problems, rather than let it explode in our faces at a later date,” he said in a statement earlier.

Economists believe that the government must strictly embark on reforming the national expenditure in carrying out debt consolidation.

This includes cutting down on unnecessary expenditure, plugging leakages in the federal government’s finances and containing public-sector wage bills.

Lee has recommended an overhaul the current pension system, considering the unsustainable current trend.

“On revenue reform, the design of tax policy should be fair and equitable in order to be sustainable.

“The push for a wide and investment-friendly reform to boost potential growth should be expedited, as strong investment and economic growth has a huge effect on enhancing revenue growth and reducing public debt.

“On budget planning and development, an oversight body needs to be set up to ensure better fiscal rules, budgetary processes and closer fiscal monitoring to ensure fiscal discipline,” says Lee.

Manokaran says the new government should consider expenditure cuts through the privatisation and reformation of the numerous government-linked corporations, as well as the reduction in size and budget allocation of the Prime Minister’s Office.

On the national mega-infrastructure projects, Manokaran and Suhaimi say that the renegotiation and review of such projects will be vital in managing future debt growth.

Time will tell whether the government can live up to its promise of reducing the public debt dilemma. Pakatan must now balance its “populist” electoral promises and stellar fiscal management policies.

As for now, the government deserves to be complimented for calling a spade a spade, acknowledging the problem at hand.

By ganeshwaran kana The Star

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