PM dispels fears of possible bankruptcy

Malaysian Insider

By Clara Chooi

June 08, 2010

KUALA LUMPUR, June 8 — Prime Minister Datuk Seri Najib Razak today moved to quell fears raised by a minister that Malaysia would one day go the way of Greece and Iceland and become a bankrupt nation.

In a written response to a question by Lim Kit Siang (DAP-Ipoh Timor) in Parliament, the premier gave an assurance that the government was taking steps to ensure that Malaysia’s debts would be reduced and maintained at a manageable level.

“Malaysia will not face problems like what is happening at present in Greece and Iceland.

“The financial position of the federal government will continue to be monitored and controlled responsibly.

“Our deficit is expected to be reduced and our debt level will continue to be controlled in the medium, long and short terms.

“These efforts will help to ensure that the level of deficit and debt of the government will not rise to a point that it affects the ability of the country to repay them,” he said in his reply.

In his query, Lim had voiced concerns that Malaysia would go the way of Greece and Iceland and had asked the prime minister to explain the government’s efforts in ensuring that the country would not have to seek the aid from regional and international communities.

Najib explained that the country’s debt level had reduced in 2009 to RM233.92 billion from RM236.18 billion in 2008.

“The country’s debt ratio to GDP between 2004 and 2009 remained manageable with an average of 34.6 per cent.

“In 2009, the country’s debt level was reduced although the ratio rose a little. The reduction was caused by the full repayment of medium- and short-term loans by the federal government and the private sector, which better balanced out the net takings by non-financial public enterprises,” he said.

He added that the strengthening of the ringgit to the US dollar had also contributed to the reduction of the country’s foreign debt levels.

“The ratio of foreign debt as at Dec 31, 2009 was estimated at 7 per cent and this mirrors the strengthening of export revenue to repay our debt obligations.

“The ratio of international reserves to foreign short-term debts is more than enough to accommodate 4.2 times of our short-term debts,” he said.

Najib said the government would continue to be prudent and pragmatic in managing Malaysia’s foreign debts in order to facilitate the diversification of external borrowings by the public sector and to minimise risk in large external obligations and the capacity to service debts.

“For the private sector, external borrowings will only be done if it is needed to finance productive economic activities capable of generating foreign currency receivables to repay loans,” he said.

To reduce foreign debts, Najib said the government was embarking on several proactive measures including the prioritisation of domestic borrowings that do not contribute to inflation.

“Also, to encourage financial and monetary stability while at the same time preserve balance of payment positions, foreign debt management is supported by a comprehensive monitoring and debt surveillance system. This is to enable early detection of any risk and weaknesses that could be caused by national debt exposure,” he said.

Najib also said the government was currently studying the restructuring of fuel subsidies, which is in line with its objective of consolidating the country’s staggered fiscal position.

“The 2010 Budget will stress steps taken to increase effectiveness, income efficiencies and the government’s expenditures,” he said.

The government, added Najib, would also continue to intensify public-private partnership programmes for several high-impact projects including high-speed broadband, federal development corridors and public transportation infrastructure.

“To strengthen our stream of income, the government is also taking efforts to introduce the Goods and Services Tax. Through this, the government’s earnings base will be broadened and it will further shelter us from fluctuating oil prices,” he said.

                This entry was posted on Tuesday, 8 June 2010, 9:33 pm and is filed under
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New Parliament in Putrajaya

Soalan: Sim Tong Him (Kota Melaka)
 meminta Perdana Menteri menyatakan adakah kedudukan project membaik pulih, menaik taraf, mengubahsuai dan bina baru bangunan Parlimen Malaysia dengan butir-butir kerja-kerja yang akan dilaksanakan, jumlah kos terlibat, tarikh kerja dimulakan dan bilakah projek ini akan dapat siap dibina keseluruhannya.

Jawapan: Dato’ Seri Mohamed Nazri (Menteri di Jabatan Perdana Menteri)

Tuan Yang Di Pertua,

Terdapat cadangan untuk membina sebuah Kompleks Parlimen yang baru di dalam kawasan yang sedia ada. Pembinaan Kompleks Parlimen yang baru adalah bertujuan memenuhi keperluan Parlimen Malaysia di masa akan datang dengan mengambil kira aspek keselesaan, keperluan, kemuduhan dan pertambahan bilangan ahli Parlimen.

Kerja-kerja membaik pulih, menaik taraf dan mengubahsuai bangunan Parlimen sedia ada pula adalah bagi membaik pulih struktur bangunan dan mengganti sistem mekanikal dan elektrik yang telah uzur. Cadangan ini telah di bawa ke Mesyuarat Jemaah Menteri untuk pertimbangan. Baru-baru ini,
Jemaah Menteri telah memutuskan agar bangunan Parlimen yang baru dibina di Putrajaya
 manakala bangunan Parlimen yang lama akan dibaik pulih dan dikekalkan sebagai bangunan warisan. Walaubagaimanapun, butiran lanjut mengenainya masih dalam peringkat kajian oleh JKR.

Sekian, terima kasih.

————————

Parliament may move to Putrajaya

By
Asrul Hadi Abdullah Sani
 | The Malaysian Insider

KUALA LUMPUR, June 9 — The government is considering moving the Parliament to the Putrajaya administrative capital, a move which could cost up to RM800 million.

However, Minister in the Prime Minister’s Department Datuk Seri Nazri Aziz told reporters that the Cabinet had yet to discuss the relocation.

“It’s not decided yet. We will bring it to the Cabinet to be discussed,” he said.

He  added that the Cabinet would also look into possibly demolishing the current Parliament building.

“We will look into every aspect. The Parliament is actually a heritage building so we would have to see if we could demolish it.

The minister said another option would be to refurbish the existing building, which would cost substantially less than a new construction.

“We would need the RM150 million for upgrading [works], like fixing the roof and the electricity supply.

“While for the construction of a new Parliament [building], we might need RM800 million. So we will consider on the best proposal,” Nazri said.

                This entry was posted on Wednesday, 9 June 2010, 3:29 pm and is filed under
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RM12.5 billion PKFZ scandal – More stonewalling

Tweets
@limkitsiang
:

My Q in Parl – progress in MACC campaign agnst ‘grand corruption’ n Y no big fish in PKFZ scandal nabbed?

Wednesday, June 09, 2010 10:02 AM

But as expected Stonewalling answer saying MACC investigating although I reminded House of AG saying last Dec that more arrests 2come RT @beyondrock  Now that is a good Question

Wednesday, June 09, 201010:29 AM

Asked why no action on PAC proposal agnst exTransp Minister ChanKongChoy 4CBT 4issue illegal LettersOfSupport DepMin LiewVuiKeong was silent

Wednesday, June 09, 2010 10:40 AM

AGGani said Dec re PKFZ:”This is just tip of d iceberg..just 1st phase of investigations..certainly not end of matter but just beginning..Other individuals will b charged in stages” Now nothing after >6mths

Wednesday, June 09, 2010 10:50 AM

                This entry was posted on Wednesday, 9 June 2010, 11:05 am and is filed under
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‘When will PKFZ probe be done – Resurrection Day?’

By
S Pathmawathy
 | Malaysiakini

Though the newly-appointed Transport Minister Kong Cho Ha has said there is no need to look further into the Port Klang Free Zone (PKFZ) fiasco, opposition veteran Lim Kit Siang (DAP-Ipoh Timur) has refused to let the matter go.

The DAP veteran politician during the question-and-answer session in the Dewan Rakyat, demanded to know why then-Transport Minister Chan Kong Choy has not been probed despite being implicated by the Public Accounts Committee (PAC) in the controversy.

The PAC had recommended in its report on the PKFZ controversy last year that Chan be probed for criminal breach of trust (CBT) over his allegedly wrongful issuance of three letters of support.

Chan was said to have issued the letters of support for a turnkey contractor without the approval of the Finance Ministry to raise funds for the PKFZ project, costs of which may balloon to a whopping RM12.5 billion.

Following the issuance of the letter, a ratings agency had issued an `AAA’ rating to the Kuala Dimensi Sdn Bhd bonds, which raised them to the level of bonds guaranteed by the government.

Bonds with government guarantees are usually only issued by the Finance Ministry.

The Port Klang Authority (PKA), however, subsequently announced that it cannot take legal action against Chan (left) over the PKFZ scandal since he – unlike former PKA general manager OC Phang and three others who were charged with criminal breach of trust and making false claims – was not a member of the PKA staff.

Responding to Lim, Minister in the Prime Minister’s Department Liew Vui Keong (BN-Sandakan) assured the House that the Malaysian Anti-Corruption Commission (MACC) is empowered only to investigate claims of bribery.

Nonetheless, said Liew, MACC will leave “no stone unturned, no matter who they (those suspected) are and what their positions are”.

An unconvinced Lim, however, accused the government of engaging only in “sweet talk,” and demanded to know where the probe was headed.

“When will the investigation be completed, Hari Kiamat (Resurrection Day)?”

“Isn’t it true that when the AG (Attorney-General Abdul Gani Patail) with the IGP (Inspector General of Police) announced the charge on three persons, the AG said that this (charge) was just the tip of the iceberg (and that) there are still several stages of investigation?

“The charges against these individuals (were initiated first) as the investigation into the whole team will take a long time. The AG also said that the individuals will be charged in stages.

“It’s been six months! But what is the answer? Zero!” Lim thundered.

Despite the PAC’s recommendation to charge Chan with CBT, why was Chan not taken to court, Lim asked further. “Is the scandal dead and buried?”

Liew, however, replied that for Chan to be taken to court, the authorities must ensure that the evidence against him is “beyond reasonable doubt”.

“Statements are not enough and not strong. (If it is) only hearsay evidence, the court can throw out the case… so give the MACC an opportunity to investigate,” Liew pleaded.

                This entry was posted on Wednesday, 9 June 2010, 2:10 pm and is filed under
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Malaysia: A ‘bankrupt’ nation?

by
Dr Lim Teck Ghee

What financial crisis?’

Readers following the great national debate initiated by Minister Idris Jala in the Prime Minister’s Department on the possibility of the country going bankrupt must be thoroughly confused with the mixed messages from government.

On the one hand, we are told that the country is more prosperous than ever before and that absolute poverty in the country, for example, is almost completely eradicated. We are also told that the country’s economy is in good hands and that the finances of the country are well-managed.

Every few days or so, we are reminded of how fortunate we are to be living in Malaysia and how much foreign investors love us. Just a short while ago, it was trumpeted that our competitiveness had shot up this past year so that we are now ranked number ten in the world – ahead of many advanced economies.

We regularly receive a barrage of statistics and data on not only how well the economy is performing but also how, thanks to the outstanding economic management of the government, we will soon reach dizzier heights of prosperity and affluence.

The New Economic Model, it is claimed, will transform the Malaysian economy to become one with a high income and high quality growth. Presently, per capita annual income in Malaysia stands at RM23,100; under the NEM plan, that figure would more than double to RM49,500 by the year 2020.

Lucky Malaysians – according to the government’s plan – to be able to live in a land of milk and honey with fistfuls of ringgit to throw around and to be standing side by side with the developed countries in the foreseeable future.

We have been fed with this optimistic and glowing picture of the country’s economic prospects for so long that many of us can be forgiven for believing that we stand on the threshold of unprecedented economic prosperity if not greatness. Never mind that doubt –in the way of the impoverished in our slums, squatter and ulu areas – is often just around the corner, many Malaysians prefer to close their eyes to this reality.

Idris Jala’s wake-up call

Fortunately or unfortunately, thanks to Minister Idris, we have now received a dose of reality that our economic situation is more complicated and a lot worse than what earlier leaders and the government-controlled media would like us to believe.

Although a few recalcitrant leaders are still living in denial and claiming that the minister has misled Malaysians on the true state of the country’s financial health, a closer look at Idris’s speech during the open house on ‘subsidy reduction’ shows that his concern and warning on the country becoming bankrupt (in the same way as Greece is) was absolutely correct and spot on.

Idris’s warning is based on a number of economic projections including:

the country’s GDP would grow at 3% annually

government debt continues to grow at 12% annually

Both assumptions are not unreasonable.

Average GDP growth has been slowing down in the past two decades. Prior to the Asian financial crisis of 1997-98, the country’s growth rate averaged 9% from 1990-1997. Between 2000 and 2008, growth rates fell to an average of 5.5%. If the trend of slowing growth continues, then the assumption of 3% GDP annual growth for 2011-2020 may well prove correct.

If there is no quick recovery in the global economy and we have a prolonged double-dip recession which seems more likely now following the ongoing financial crisis in the Euro zone, then even 3% annual growth in the GDP may seem optimistic.

As for the country’s debt, government debt in 1997 was RM90 billion. This has grown at a rate of 12% per annum to RM362 billion today. Based on a similar annual increase of 12% over the next nine years, the country’s debt will balloon to RM1.16 trillion by 2019.

The government’s own Performance Management and Delivery Unit’s calculations show that by the year 2019, the following economic scenario will be faced by the Malaysian government:

The country’s projected debt will be 103% of GDP

The fiscal deficit will reach RM449 billion or 38% of GDP

At that point, what will happen is that government revenue will not be enough to service its debt and to operate the hospitals, schools and other government services. In other words, the country will go into sovereign debt crisis, which is a polite way of saying that the country will become bankrupt.

The bigger subsidies are …

Where Idris went wrong is not in his assumptions and projections but in his focus on subsidies as the main culprit in the country’s perilous financial state. Addressing a public audience and as a member of the Barisan Nasional government, however, he was not in a position to finger the colossal wastage, inefficiency and corruption that has characterized Barisan rule and economic management of the country.

Yes, subsidies are part of the cause of our potential financial downfall but it is not subsidies to the poor that are to be blamed – in fact, the entire food subsidy bill in 2009 was only RM3.4 billion or less than the cost of the two recently purchased low-quality diesel submarines that cannot even dive properly! What is being spent on tolls, sugar, flour, cooking oil, school books, etc. is only a tiny fraction of what goes into the country’s black hole of defence expenditure (see attached box).

Instead of being fixated on subsidies to the poor, let us open the books on the subsidies that have gone to the ruling political elite and its business allies – the cronies, middlemen, consultants, and agents that are key to the massive binge of irresponsible government procurement in all sectors, especially defence.

Finally, it is also the subsidy of a huge, bloated and unsustainable civil service that is swallowing much of public revenue and helping to pile up our debt. Subsidies that have kept the cost of living down for the average Malaysian are only a small part of the larger subsidy equation.

The Black Hole of the Country’s Defence Expenditure

 (Source:
http://www.janes.com/articles/Janes-Sentinel-Security-Assessment-Southeast-Asia/Defence-budget-Malaysia.html
)

Although Malaysia publishes an annual defence budget figure as part of the government’s state budget, it is split into just two sections – operating and development expenditure – and it is widely thought that real defence spending is significantly higher than the official budget suggests. The official budget, for example, does not include defence industry funding, nor does it cover certain procurement items which are sometimes settled by other arrangements including barter agreements. What is certain is that actual spending has exceeded the official budget regularly in recent years. According to the Malay Ministry of Defence, expenditure in 2006 (the most recent year for which expenditure details are available) was 8.5 per cent higher than the budget allocation, with the majority of the overspend coming in the operations budget. This was not unusual as the degree to which military spending exceeded budget allocations has been steadily increasing since 2003, going from 3 percent in that year to 3.8 per cent in 2004 and to 5.5 per cent in 2005.2007 and 2008 saw further budget increases, fuelled in part by sustained economic growth of around 6 per cent in real terms, while the government has also seen increase in its revenues and expenditure. However, during 2007 and 2008 overspending was also recorded in the operations budget by 1.7 percent and 6.5 percent respectively with 2008 entailing an operations expenditure of MYR10.597 billion, whereas the actual allocation was MYR 9.939 billion. The 2009 allocation appears to have reflected this with MYR10.65 billion

Consequences of mismanagement

So what happens when the country becomes bankrupt?

When ordinary citizens or businesses become bankrupt, they can hide behind a court order and return to some kind of normal life thereafter. Those who have borrowed from Ah Longs, of course, cannot throw themselves at the mercy of the courts. They are more likely to be forced to rely on family members or friends to help them reach some kind of settlement or have to flee their aggressive creditors by changing their residence or even identity.

Countries that are in default do not have the luxury of changing their identity or getting a court to provide some measure of protection. In Argentina which defaulted on sovereign borrowings and debt repayment in 2001, the consequences were horrendous. The country experienced a brutal spiral of inflation followed by hyperinflation, soaring unemployment soared and a collapse in the currency.

The economy imploded, shrinking by 13 per cent in a year and the government was forced to cut public sector wages, slash the state pension and other social benefits. Unable to pay for goods with cash and with banks rationing withdrawals, citizens had to resort to bartering. Imported goods became unattainable.

Economic shock was followed by social trauma and political crisis. The quality of life of the average Argentinian was lowered drastically and many businesses closed or went bankrupt. Argentinian society has still to recover fully from the mismanagement of the country’s economy during the late 90s.

Let us pray – but prayer is not enough – let us make sure that the government never mismanages the Malaysian economy to the stage when we have to go through what the people of Argentina have had to suffer.

                This entry was posted on Thursday, 10 June 2010, 6:56 pm and is filed under
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Karpal acquitted of sedition charge – defence not called

Tweets

 Prosecutor failed to establish prima facie sedition case against Karpal. He’s free! http://tweetphoto.com/26623554

Friday, June 11, 2010 3:25 PM

Great news recd in KB! Sedition charge agnst DAP National Chairman Karpal Singh dismissed by KL High Court –  no defence called.

Friday, June 11, 2010 3:25 PM

Karpal acquitted – AG Gani Patail shd b censured in Parliament n Ct of public opinion 4bowing 2political pressures 2charge K 4sedition #fb

Friday, June 11, 2010 4:03 PM

Karpal acquitted on sedition charge

Malaysiakini

Christine Chan

Jun 11, 10

3:35pm Veteran opposition lawmaker Karpal Singh was today acquitted by the Kuala Lumpur High Court on a charge of sedition against the Perak sultan, after the prosecution failed to prove a prima facie case against him.

He was freed without his defence being called.

Karpal (right) was charged with sedition on the contents of his Feb 6, 2009, press conference, during which he said legal action could be instituted against the Perak sultan over his role in the state constitutional crisis earlier that year.

He was charged under section 4(1) (b) of the Sedition Act 1948, which carries a maximum fine of RM5,000 or a jail term of three years, or both, if found guilty.

Karpal on March 17 last year claimed trial to a charge of uttering seditious words at his office, Tetuan Karpal Singh & Co on Jalan Pudu Lama, KL, between noon and 12.30pm on Feb 6.

In his judgment, recently promoted judge Azman Abdullah said Karpal’s action did not amount to sedition as it fell under an exception provided by law.

“After scrutinising the statements to the press, I find that they fall within the exception in Section 3(2)(a) of the Sedition Act 1948,” judge Azman said.

The section states that it is not seditious to “show that any Ruler has been misled or mistaken, nor is it seditious to point out errors or defects in the government or constitution as established by the law”.

The judge said the prosecution had failed to prove the ingredient provided in section 3(1) of the Act that leads to the tendency to incite or to incite hate and disloyalty against a Ruler.

Judge Azman also brought up a few incidents from the press conference to illustrate how Karpal’s action clearly fell under the exception rule. Two instances were:

“In a video of the press conference, the accused said ‘But I’ll make it very clear, I got nothing personal in this matter, this is a constitutional matter’.

“Few provocative questions were asked of the accused but in his answers, he did not take the opportunity to blow up the issue.”

Representing Karpal were Jagdeep Singh, Param Cumaraswamy, Gobind Singh Deo, Teoh Lip Eng, Sangeet Kaur, M Manoharan, Ram Karpal and Ponmugan Ponnan.

The prosecutors comprised Noorin Badaruddin and Melissa Mohd Akhir while Rajpal Singh held the watching brief for the Bar Council.

Outside the court, the jubilant DAP national chairman was all smiles, thanking his lawyers and reminding all present that he had always maintained his innocence.

“What I have said is in accordance with the law. I have always maintained it, nothing untoward or illegal in what I had said,” the Bukit Gelugor MP told reporters.

Asked if he had expected to be acquitted, he replied that he had always thought there was nothing wrong with what he had said.

“Justice has prevailed” he added, after his wife Gurmit Kaur presented him with a colourful garland.

He said the fact that he had been cleared showed that there was some truth in his statements.

“The message is quite clear, a Ruler can be taken to court, that what I said is in line with the constitution,” he added.

Asked if he was going to celebrate, he laughed and said that there had been lots of calls for it.

“Of course, we must heed those calls,” he said, smiling broadly.

His son Jagdeep chipped in, saying the court decision was indeed a fine present for his father’s 70th birthday, which falls on the 28th of this month.

A total of 19 witnesses had testified in the trial, among them RTM television news deputy director Roslan Ariffin, Malaysiakini journalist Lee Way Loon and Utusan Malaysia reporter Nizam Mohd Yatim.

                This entry was posted on Friday, 11 June 2010, 8:24 pm and is filed under
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10MP fails to impress economists

By
Stephanie Sta Maria
 | FMT

KUALA LUMPUR: The 10th Malaysia Plan (10MP) yesterday came under scrutiny of three economists who lauded its acknowledgment of the country’s stumbling blocks but lamented its initiatives to tackle them.

At a dialogue jointly organised by the Malaysian Economic Association and the Faculty of Economics and Administration, Universiti Malaya, the trio cited a few initiatives that have set off alarm bells in their heads.

DAP chief economist, Tony Pua, called the plan “tired” and noted that it contains many similarities to past plans. His main concern, however, lay with the “shadow” of the New Economic Policy (NEP) which he said is cast over the 10MP.

“The NEP characteristic in the 10MP is the 30% Bumiputera quota, which, in fact, was left out of the New Economic Model (NEM),” he said. “The problem is not the quota itself but the danger that such a quota would prevent this community from moving ahead because it doesn’t distinguish between the rich and poor Bumiputera.”

“If a needs-basis is used instead, then all poor Bumiputera are assured of assistance. But when you dilute it with a specific quota for one race, the better-off of the race (Bumiputeras) are able to get a larger chunk of government benefits.”

The PJ Utara MP noted that this contradiction also extends to the NEM in terms of the government’s move to increase competitiveness, meritocracy, transparency and getting value for money from government projects.

He questioned whether a project will now be awarded based on the above-mentioned criteria or on fulfilling the 30% Bumiputera quota.

“This is a major dilemma that will play out throughout the next five years and affect out economic performance,” he said. “I see the 10MP mirroring the model of the late 1980s where many mega projects were launched which ultimately had to be bailed out by the government.”

“If we repeat the same cycle without implementing measures to ensure we get the best value for money from these projects, then we may face another crisis and this time the government may not have enough funds for a bailout. I’ve seen many mega projects and subsidies being awarded to big corporations this year and I don’t see the change that the NEM is calling for. ”

“Our problem now is two-pronged. The first is implementing everything in the 10MP and the second is having the political will to enforce those changes. At this point, I’m worried that the latter is missing and I hope to be proven wrong for Malaysia’s sake.”

Extremely tall order

Former executive director for the Malaysian Institute of Economic Research, Professor Mohammad Ariff, zeroed in on Malaysia’s ambition of becoming a high-income nation. According to him, the 6% growth per annum outlined in the 10MP is an extremely tall order.

“The 10MP takes us on the path of achieving Vision 2020,” he said. “Vision 2020 envisaged that Malaysia would have a per capita income of US$20,000 by 2020 but the financial crisis hit and and the economy slowed. Today, we need at least a 7% growth rate to even reach the US$17,000 per capita income by 2020.”

“The 6% targeted growth means that investments must grow at 12.5% per annum. But during the Ninth Malaysia Plan, investment growth only stood at 2% so this is a huge leap and I’m not sure if it’s possible.”

“Foreign direct investment (FDI) has only been growing at 1% per annum, which pales in comparison to China’s 10% and Singapore’s 9%,” he added. “Our FDI is practically crawling! It’s a far cry from when we were recording 9.1% growth before the Asian financial crisis. Something is seriously wrong here and the 10MP should be addressing this.”

Prof Ariff also hit out at the government’s fondness for throwing huge chunks of funds at the education sector in the hope of boosting it further. He bluntly stated that the main problem with the country’s education system is the severe lack of quality teachers.

“In Malaysia, being a teacher is a ‘last resort profession’, which means there is no passion or interest,” he explained. “We have to start attracting the best brains into this profession the way China does. And it does that by offering very good monetary rewards. In China, being a teacher is first choice because it is the only profession that provides 100% of salary as pension. This motivates people. In Malaysia, we pay peanuts and so we get monkeys.”

Formidable challenge

For Professor Rajah Rasiah, Dean of the Faculty of Economics and Administration, the allocation of subsidies presents a formidable challenge. He noted that the utility of money will be very high for the poor and very low or nil for the middle-income and the wealthy.

“The 10MP refers to providing equal opportunity, but does it really take that stand in its recommendation of mechanisms?” he asked. “Unfortunately, it doesn’t”

He said that while the poor will be able to survive and enjoy basic needs, they will not be able to cross the poverty line and contribute to the country’s economic growth.

“When these people are out of poverty, they are able to think productively and participate in the process of achieving Vision 2020,” he opined. “But what we currently have is a misallocation of subsidies. Subsidies that are meant for the poor are being enjoyed by everyone, both foreigners and locals. The treatment of social welfare here seems to be one that takes a penny-wise, pound-foolish approach rather than one that is dynamic.”

While he praised the 10MP for recognising the urgent need to quicken GDP growth, he also said that the plan needs greater depth and dynamism in terms of turning its 10 initiatives into reality.

                This entry was posted on Saturday, 12 June 2010, 4:23 pm and is filed under
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Grand plan or grand illusion?

by
Thomas Lee Seng Hock

Mysinchew.com

June 13, 2010

Datuk Seri Najib Razak has said that to ensure Malaysia could compete globally, it needs proper implementation, co-ordination and execution.

He said that to achieve that, all Malaysians must be united and work together while embracing the 1 Malaysia concept, where people are given priority in any of the government’s programmes.

The prime minister said this when opening the Seri Murugan Centre (SMC) at the Vivekananda Secondary School in Brickfields, Kuala Lumpur, yesterday.

“When I took over as the prime minister in April last year, I decided to build a new Malaysia on the spirit of 1 Malaysia where we must be united and be part of a large family and combine the best of each community,” Najib said.

“This will enable each Malaysian, irrespective of ethnic background, to realise his or her maximum potential as a Malaysian,” he said.

“That is why we have undertaken this change, this transformation, this journey towards transforming our country to be a new Malaysia that is stronger, more prosperous — a new Malaysia that is not only confined to physical intellectual boundaries but one that can meet global challenges,” Najib said.

“We must not have any fear and instead possess a great sense of confidence to become a great nation. And this can be done if we are united.”

Great words indeed!

While I appreciate and applaud the prime minister for his vision and vitality in wanting to transform the country into a united, prosperous and globally competitive nation as encapsulated in the 10th Malaysia Plan, I cannot help but lament the fact that the current socio-political scenario in the country is such that any grand plan to move the nation forward at this juncture is almost certain to result in excruciating failure and frustration.

This is simply because, lately there has emerged an exceptionally extreme form of racialism propagated and promoted by certain reactionary non-governmental organisations (NGOs) that is causing uneasiness and jittery among the people.

The highly vigorous, vocal and visible NGOs led by some very agitated and angry characters, including a veteran MP, have been vehemently hurling accusations on the purported economic deprivation of their race and the alleged depredation or plundering of what is supposed to rightly belong to their race.

It is surely a sad and sorry situation that after more than half a century of being an independent nation, with its people living and co-existing in peace and harmony, a small group of insecure, insensitive and intolerable individuals are now throwing a racial spanner into the otherwise harmonious and progressive machine of growth.

If Najib sincerely wants his dream of Malaysia becoming a great nation to be realised, he must first of all deactivate this racial time-bomb and immediately nip the rousing racist campaign in the bud. He should not compromise with the racist elements in his efforts to eliminate racial exclusivism in his effort to build a one Malaysia.

It is no point offering a grand plan for the growth and development of the nation if no positive concrete action is taken to unite the multi-racial, multi-religious, multi-cultural and multi-linguistic population.

Perhaps, Najib may not be aware that the current high brain drain rate to other countries is a direct result of the fear of the emerging repulsive racism. Many of those who left, or are planning to leave, love Malaysia and are loyal to the nation, but the prevailing wind of racism they perceive made them uncomfortable and unhappy in the land of their birth.

The voting pattern of the March 8, 2008 general election and the subsequent by-elections is a clear indication that everything is surely not right on the racial front. The perceived inequality, discrimination, injustice, unfairness, whether real or not, of the people should not be ignored and dismissed by Najib, but should be carefully, prudently and critically studied, reflected, analysed and evaluated, with concrete constructive measures taken to resolve them.

Obviously, Najib has been and is being frustrated by the many unnecessary political obstacles and unwarrantable bureaucratic procedures in his attempt to accelerate the country’s economic engine.

At the level of public service, it has been an accepted reality that the “little Napoleons” of the civil have been giving the average person real hard times, even in dealing with very simple matters. This has alienated the government from the people. This is so obvious when it comes to complaints about various matters. The people go to Michael Chong instead of the government complaints bureau!

Truly, the prime minister faces a real uphill drive, with the many political potholes along the path, made worse by the administrative red tapes putting the brakes on his dream trip to fulfil his vision of a one great Malaysia.

He has to deal with both the racist characters and his own party warlords on the political front and, with the deadwood civil servants in his own administrative backyard which is still engulfed in a complicated bureaucratic culture.

So, Datuk Seri Najib, if you truly and sincerely want to transform the country into a great nation of excellence and prosperity, then your first task is to restore the people’s confidence and let them know that they have a real equal stake in this land they are born, breed and brought up.

You need to take a firm uncompromising stand against the racist characters and, at the same time, start cracking the whip on the little Napoleans who have been bullying the little people under your care.

Ultimately, your vision can either be a Grand Plan or a Grand Illusion, depending on your commitment and courage to take the brave and bold measures to eliminate the weed from the wheat. — mysinchew.com

                This entry was posted on Sunday, 13 June 2010, 7:51 pm and is filed under
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Tenth Malaysia Plan – how serious is Najib?

Twitters

 “We are on a burning platform.” This dire warning in 10MalaysiaPlan completely absent in Najib’s TMP speech. Is Msia on a “burning platform’?

about 5 hours ago via web

Other TMP dire warnings Najib swept under carpet “..d proverbial iceberg may b melting”; “Carrying on with the status quo is not an option”.

about 4 hours ago via web

“We r on a burning platform” dire warning not only missing in Najib’s TMP speech it is omitted in BM version of TMP. How serious is Najib?

less than 5 seconds ago via web

                This entry was posted on Sunday, 13 June 2010, 8:00 pm and is filed under
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The 10th Malaysia Five Year Plan : Old Wine in New Bottles – Part 5 (Poverty)

Poverty

Chapter 4 of the Plan document together with several Tables dealing with Thrust 3 in the Appendices present fairly detailed statistics on poverty and income distribution.

In a somewhat self-congratulatory tone, the Plan proclaims that hardcore poverty was reduced from 1.2% in 2004 to 0.7% in 2009 and that the incidence of overall poverty fell from 5.7% in 2004 to 3.8% in 2009. These claims are questionable because of the underlying methodology employed in deriving these estimates.

In the first place there is no indication as to how the Poverty Lines were estimated. Assuming that the methodology used mirrors that used in the 9th Plan, the bar to define poverty is set at far too low a level.

In the second place, the use of “households” rather than “persons” distorts the measurement.

On the flawed basis, 228,400 households were categorized as poor. It is most significant that of these 99,100 were in Sabah with another 27,100 in Sarawak. Thus, there were a disproportionate number of the poor in these two states highlighting gross neglect by the Federal government of Malaysians in these two states.

Converting the number of households to a “persons” basis, (228,400 households X 6.4 persons per household) the number in poverty is a staggering 1,462,000 persons representing some 5.2 percent of all Malaysians. It is a sobering thought that after almost four decades of the NEP, poverty exists in our midst even when a low bar is used to define it. It is a telling indictment of the failure of the NEP to deliver upon the promise of development. That absolute poverty remains despite the billions expended, points to policy failures, incompetent implementation, and failure of the political will to make adjustments.

A new beginning is needed. To sincerely and fully address the issue of poverty, it is imperative that we apply the internationally accepted concepts and methodology employed to derive the various Poverty Line Income (PLI) measures and the estimates of poverty incidence. The current methods are deeply flawed. To the extent these are flawed, they fundamentally affect the analysis and conclusions. In turn, this leads to the advocacy of policies that are patently wrong.

In both the 9th and presumably in the 10th Plan the concept of HARDCORE poverty defined as “…. Income less than the food PLI which is based on nutritionally based diet” has been used. The very term “Hardcore” is not in international use. The World Bank and UNDP, two global agencies in the forefront on analyzing poverty, use the concepts of “Absolute” and “Relative” poverty. There are no valid reasons why Malaysia deviates from standard international terminology.

 The internationally accepted and applied poverty measurement concepts developed by the World Bank are clear and precise.
Rural poverty rate
 is defined as the percentage of the rural population living below the national rural poverty line.
Urban poverty rate
is the percentage of the urban population living below the national urban poverty line.
National poverty rate
is the percentage of the population living below the national poverty line. National estimates are based on population-weighted subgroup estimates from household surveys.
Population below US$1 a day and population below US$2 a day
are the percentages of the population living on less than $1.08 a day and $2.15 a day at 1993 international prices.

It would appear that these methodologies were rejected by the EPU in favor of its own definitions and methods with the sole main of producing low “feel good” estimates of the poor. This is an insult to the poor in that we are unable to generate true and accurate estimates. It cannot over-emphasis the importance of getting the numbers right as these underpin the need policy responses and ultimately the allocation of resources to alleviate the scourge of poverty from Malaysian society.

What of the future?

Beyond the rhetoric, it is clear that fundamental policies will continue. It is no consolation to the poor. The spending proposed on poverty in the Plan is a small fraction of the total size of the Plan. These numbers are more telling than the rhetorical speeches and applause of a compliant media. The reality for the poor is that subsidies are likely to be eliminated and new taxes piled on to finance grandiose projects such as yet another convention center, more roads to nowhere and large transfers to the powerful and well connected corporations and tycoons. If the truth be told the BN are obsessed with creating more infrastructure even though much of what has been created remains underutilized.

The issue of restructuring employment is not questioned. It has been a long pursued policy from the 1970s. However, this is not just a responsibility of the private sector. It must be noted that the public sector continues to be the largest single employer with almost 1.2 million workers.  It has however failed dismally to follow the policy of eliminating or reducing ethnicity as a criteria in employment in the public sector. Ministerial statements offer lame explanations that non-Bumiputras are unwilling to enter the public service. This assertion can be challenged given the human resource management policies pursued by the responsible departments and agencies.  It is indeed most disappointing that the Plan is silent on the entire issue of balanced employment in the public sector.

It is time for the Government to state in categorical terms that it will take steps to correct the imbalance in the employment pattern in the public sector. It must put its money where its mouth is. It cannot demand of or compel the private sector until it implements an employment policy that is embedded in the national compact under the NEP when it was introduced in the 1970s.

The solutions to the issue of income disparities between groups cannot be resolved through setting targets and postulating restructuring and broad notions of human capital development in the manner proposed. There can be no denying of the fact that reform of the educational system at all levels is a first and fundamental step. The Plan throws out some tentative and meek proposals. These are insufficient. Standards must be improved, merit in selection must be a factor; the curriculum reformed, our institutions of tertiary learning need to be urgently restructured (including the pattern of employment). The focus on quantity must stop and be replaced by quality.  It is most telling that our educational institutions are producing graduates to swell the ranks of the unemployed and the unemployables.

 A nation’s competitiveness is in part determined by the quality of its human resources. That in turn is determined by the excellence or lack thereof of the knowledge and skill levels of the work force. For a generation or more, Malaysia has had the misfortune to have pursued educational policies that have impacted negatively on the creation of a dynamic, motivated, and skilled labor force. Our institutions of secondary and tertiary education have become sausage factories producing graduates unfit and unemployable in fields that hold a key to our future. The consequent loss of competitiveness is beginning to manifest. Despite the clear and present danger signals, the BN administration continues to ignore actions that are needed. Meritocracy in the selection of those that are taught and those who teach cannot be substituted with less than open and transparent processes. It must be recognized that upgrading the educational system demands more than money; throwing money at the problems will not resolve matters. There is an urgent need to move resolutely towards reforms that will improve the quality of the system, produce graduates that are equipped to meet the challenges of a harshly competitive world.

These issues are hardly addressed in the Plan.

                This entry was posted on Monday, 14 June 2010, 1:18 pm and is filed under
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Old Habits Die Hard With Malaysia’s Five-Year Plans

by
M. Bakri Musa

The old Soviet Union may have long ago crumbled, but the underlying mindset – the penchant to control and “plan” everything centrally – still has a tenacious hold, and not just on Russian leaders.

             Joseph Stalin initiated the first Five Year Plan, incorporating Lenin’s New Economic Plan (NEP).  However, not many would associate Five-Year Plans with Stalin, as he had acquired other notorieties.

             It is ironic that 82 years later, an avowedly anti-communist Malaysia would still embrace Five Year Plans and NEP with gusto.  The last Soviet Plan was its 12th; the collapse of the Empire took care of the 13th.  Even the Communist Chinese have wised up; they now call their “Plan” only a “guideline.”

             A century hence Malaysia will still be unveiling its latest Malaysia Plan (MP).  In tone and substance, I predict it will be like the present Tenth MP, and all previous ones.  It will boast of the wonderful attributes of our blessed country, and how fortunate we are to have such farsighted leaders.  Then realizing the incongruity of such lavish praises with the need for yet another plan, the report will lament the squandered opportunities of the past.

             Then just like the current Tenth MP, it will bravely call for a “transformation plan to become a high income, developed, resilient and competitive nation,” and exhort us to “think outside the box,” peppering its report with such phrases as “holistic measures,” “development with equity,” and other clichés of the time.

             If we aspire for developed status – the stated objective of all these Plans – then at least we should learn from those who are already there.  None of them have Five Year Plans.  That should be a hint for us to abandon this whole notion of five-year plans and the attendant “command and control” mindset.

The Straight Jacket of a Five-Year Time Table

There is nothing magical about a five-year time span.  At least with a decade for example, a child becomes a teenager, and a pimply teenager a young adult.  Five years?  There is no correlate in nature.

            Five years would be an eon with Information Technology.  Today few remember Netscape, much less use it as a browser.  You need a much shorter time span in planning and be incredibly nimble to survive in that sector.

            On the other hand, five years is but a fleeting moment with education.  Here planning should span decades.  We are only now seeing the follies of the changes instituted back in the 1970s.

            Likewise with trade and investment policies; investors need a stable environment so their investments would not be subjected to the latest political intrigue or capricious regulatory changes.

            Canada best demonstrates this wisdom.  It is not surprising that its banks remain robust despite the current global financial crisis.  There, legislations governing financial institutions are reviewed only every five years (previously every ten).  Consequently its banks and bankers are not seduced by the latest financial fashions and “engineering” that had snared their hip colleagues in America, Iceland, and elsewhere.

            Instead of an all-encompassing five-year plan, we should opt for a sector approach.  For education, we should have a ten-year plan; likewise with trade and investment policies.  For agriculture, the traditional five-year plan – the time-span for a rubber or palm sapling to reach maturity – is appropriate.

            These five-year plans are also disruptive.  The end of the current plan would invariably be consumed with planning for the next, a major distraction from executing the projects at hand.  There is no hiatus between plans, and thus no opportunity to pause and learn.  The learning curve is flat, the same mistakes repeated umpteen times.  Then just as the plan gets going it would be time for the “mid-term review,” an exercise less in reviewing, more excuse-finding.

            Then there is the long lapse between planning and execution.  By the time a project is completed, the original assumptions have changed substantially.  Consider the addition to the hospital in Johor Baru where I was attached.  It was mulled during the Second MP, but did not get funded until the Third.  When it was completed in the Fourth MP period, it proved hopelessly inadequate with the vastly increased demands.

            Now that the Ninth MP is coming to a close, I predict that many of its projects either remain incomplete or not yet even started.  I once suggested that the sole objective of the next plan should be to complete all those incomplete projects of earlier plans.  I did not get praised for that practical suggestion!

            Events and circumstances also have the habit of upending even the best laid plans, as the 1997 Asian economic contagion did to the Seventh MP.  I thought that experience would definitely disabuse our leaders of their obsession with five-year plans.

Disconnect From Reality

Like its predecessors, this Tenth MP has a glaring disconnect from reality.  Only days earlier a minister in Najib’s own department warned of impending bankruptcy should we stay the present fiscal course, specifically with respect to subsidies.  The Tenth MP only perfunctorily addresses the issue with the promise to rationalize “energy pricing gradually to match market price.”  Only a promise, no concrete action plan!

            A few months earlier, the National Economic Action Council (a unit of the Prime Minister’s office) unveiled its brave New Economic Model (NEM), one cognizant of market realities and the need to be competitive instead of hiding behind protective barriers and special set-aside programs.

            Alas only the talk was brave, the courage was fleeting.  NEM was an exercise in futility.  The Najib Razak who earlier boldly challenged Malaysia to transform itself was easily gertak (bluffed) by the likes of Ibrahim Ali, the populous critic of NEM.

            If Najib would easily capitulate to a two-bit politician from the ulu of Kelantan, I wonder how he would fare with tough foreign leaders.  No wonder the contested Limbang oilfield ended being given to Brunei, a real tough adversary!  What next?

             The major concerns of Malaysians are rampant corruption, escalating crime, and an ill-disciplined police force.  Yet, hardly a word on these!  Not that it would have made any difference.  The Ninth MP’s remedy for corruption was to rename the anti-corruption agency and set up the National Integrity Institute.  Meanwhile corruption remains unabated.

            The few good ideas in the Tenth MP, if competently executed (a huge caveat!), would be positive developments.  The explicit commitment away from physical to non-physical infrastructure, specifically human capital development, is one.  I also applaud the expansion of preschools, the lowering to five years the age for entering primary school (only a consideration at this stage), and enhancing the qualifications of primary school teachers.

            Old habits die hard; in Malaysia, they never do.  Najib could not wean himself from his dependency on GLCs despite their abysmal performance.  This Plan, like its predecessors, spawns its own set of GLCs.  Nor could Najib unhook himself from the “30 Percent Bumiputra Equity Participation” obsession, despite the irrelevance of that figure and objective.

            In his effort to recruit foreign talent, Najib predictably set up the Talent Corporation, another GLC to be run by UMNO operatives, of course.  Another rent-seeking exercise!  He never thought of giving our universities, the real talent corporations, the funds directly so they could do their own recruiting.  Najib cannot find a GLC he does not like.

            Najib used the metaphor of a soccer team to illustrate his point on teamwork.  Had he followed through on that metaphor, he would realize that a team is only as good as its members and leaders.  One inept player could cost the team the game.  The pathetic dearth of talent in Najib’s team is matched only by his own deficits.

             The only thing worse than a central “command and control” economy is one where the leader is also clueless, lacks conviction, and without courage.  Najib Razak is all three.

                This entry was posted on Monday, 14 June 2010, 9:15 am and is filed under
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The 10th Malaysia Five Year Plan : Old Wine in New Bottles – Part 2 (Overview)

An Overview of the Plan

The Plan that has been unveiled, when stripped of the rhetoric and clichés, represents nothing more than a reaffirmation and continuation of past and present policies. To begin with, the Plan is built upon a number of highly questionable assumptions. These include:

GDP growth rate of  6 percent as against 4.2 percent between 2006 and 2010

Exports are projected to expand by 10.1 percent as against 3.6 percent recorded during the 9th Plan period.

Private investment is projected to grow at 16.2 percent during the period of the 10th Plan versus 6.2 percent during the 9th Plan

Per capita income in 2015 is estimated at RM 38,845, increasing from RM 23,841 in 2009. This is based on a growth rate of 8.0 percent per annum for the Plan period. No explanation is offered as to why there is a sizable discrepancy between the projected GDP growth rate and the per capita income growth figure. The Plan anticipates that in US dollar terms per capita income will almost double between 2009 level to US$ 12,139.

The Plan calls for development expenditure of RM 230 billion. Of this, RM126.5 billion or 55% is allocated for the economic sector,RM69.0 billion or 30% for the social sector,RM23.0 billion or 10% for the security sector and RM11.5 billion or 5% for general administration. This allocation includes a Facilitation Fund of RM20 billion to promote private sector investment in strategic priority areas including infrastructure, education and health.

It is most significant that there is no full discussion or presentation within the main document of how the Government plans to finance the projected expenditures. This is a departure from established and prudent planning principles. Financing the projected expenditure will inevitably demand massive borrowings, both domestic and foreign. This is evidenced by the sharply increase in debt servicing – increasing at 9.4 % during the Plan period.  The rhetorical and inconsistent ministerial statements on the need to reduce subsidies on the one hand and to broaden the tax base via the introduction of a regressive GST are hardly mentioned in the Plan document. Significantly, the Table laying out the fiscal numbers indicates that the estimated subsidies paid out in 2010 amount to RM 18.3 billion and these are projected to decline to RM 15.7 billion by 2015. The reduction of RM 2.6 billion is a paltry sum in an Operating budget of over RM 200 billion.   There are indications that the Plan has been crafted in an irresponsible manner and the true resource needs have been ignored; an alternative interpretation would be that the underlying fiscal policies will be driven by a combination of an increase in the tax burden on consumers via a new GST and massive borrowings. These actions will inevitably have devastating consequences for fiscal responsibility. Furthermore, living standards will be affected and contribute to a higher the incidence of poverty. Both consumer subsidies and consumer taxes have a larger than proportionate impact on the lower income groups, the every groups who are ironically the supposed target groups for upliftment.

Significantly, both in the current ongoing debate about  subsidies and in the Plan document there is no mention of the billions of dollars that are channeled to corporate cronies and GLCs by way of tax rebates, grants, toll concessions, loan guarantees and write offs of losses and other obligations.  It is legitimate to ask as to why there is no mention of an intention to review these calls on the national budget. Equally significant is the absence of any discussion of potential cost savings by trimming the size of the bloated public sector now employing 1.2 million employees despite privatization of many services; nor is any mention made of the potential savings were the government to adopt competitive bidding processes in its multi-billion procurement of goods and services.

The new Five Year document shows a lack of intellectual rigor. Its overall incoherence, its clichés and stereotyped phraseology give the impression that the Cabinet, the Economic Planning Unit of the PM’s Department, and the other authors (foreign and domestic) assembled the Plan from the boilerplate of bureaucratic discourse and business school jargon with contempt for Malaysians to whom it is addressed. It is long on the so-called achievements backed up by some dubious and selective statistics. It reveals the administration’s response to the nation’s need for an agenda by offering a convoluted rojak of discredited ideas with some rhetorical sops to segments of the population mixed in.

The Plan’s only visible purpose is to lay out a program of spending some RM 230 billion over the next five years. The only actual “strategy” that can be deduced from it is that the administration wishes to continue doing what it has done but with a greater vengeance. The measures outlined are unlikely to enable Malaysia attain the highly inflated projected GDP growth rates and achieve developed nation status by 2020. This goal is unachievable by way of the mere proclamations and many assertions lavishly embedded in the Plan. To achieve this goal, the Malaysian economy would need to grow at 6 percent per annum, a rate well above the rate attained during the 9th Plan period. The projected private investment growth rate of 12.8 percent per annum in the 10th Plan period versus the 2 percent achieved in the recently completed 9th Plan is clearly unattainable. Serious readers and analysts, including potential investors, will inevitably conclude that the Government is not serious about addressing the real issues and concerns. They will further conclude that past ruinous policies will continue and the main beneficiaries will be the well connected, the cronies, and the chosen few that will receive lucrative contracts, licenses to collect rents and thus corruption will be fed new grease to move along unabated. The poor, the vulnerable and disadvantaged segments of the Malaysian population will continue to bear burdens.  Good governance and transparency will remain distant rainbows.

Although no details are given, the Plan proposes a new round of privatization. It would appear that public assets will be turned over to the rentier class aligned to the regime. If the past is any guide, these transfers will be done in less than transparent ways. The question arises as to why it is necessary to embark upon a new round of privatization given the disastrous past track record of abuse. Equally troubling is the silence on the issue of how the Government proposes to tackle and control loss making GLCs that require bailing out. How many billions will the Government deploy to save entities such as Sime Darby and the Pos Malaysia? Is it the intention of the Government to start granting interest free loans such as to the private water utility company Syabas that had cost the government RM250 million as it had to borrow the money in order to lend it interest free?

The Plan document makes a radical departure from past Plans by not incorporating the amounts that are to be expended on individual programs and projects. These details are to be revealed at a later date. This is tantamount to requesting Parliament to provide a virtual blank check.

                This entry was posted on Monday, 14 June 2010, 11:43 am and is filed under
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The 10th Malaysia Five Year Plan : Old Wine in New Bottles – Part 3 (Unlearnt lessons from the past)

Unlearnt Lessons from the Past: Where have we come from?

A brief review is in order to understand how the nation got to the precarious point best amplified by  a Minister sternly warning that Malaysia is heading towards bankruptcy by the end of the decade.

Malaysia is more integrated into the global economy than many other countries of a similar size and at a comparable stage of development. Globalization is a fact of life. It has contributed both positively and negatively to Malaysian development. On the upside, integration with the global economy permitted the nation to prosper through trade and flows of FDI in the years prior to the East Asian Crisis of 1997. There was rapid economic growth, rising income levels, declining poverty and unemployment and a somewhat more egalitarian distribution of wealth. A contributing factor was the fact that Malaysia was blessed with a rich resource base – its forests and oil and gas. It had reasonably well functioning institutions in the form of an established public service, a modestly independent judiciary and institutions that measured well against those in other developing countries. The nation progressed despite creeping corruption, growing race polarization, authoritarianism and a general deterioration in the delivery of public services. The early 1990s saw a degree of deregulation and the privatization that gave momentum to modest reforms. The economic fundamentals were essentially sound with the budget largely balanced, and low inflation and robust growth. These outcomes occurred despite the constraints and distortions imposed by the NEP.

The 1997 East Asia crisis provided a rude awakening. Absence of accountability, lack of transparency and the growing cronyism, nepotism and the megalomaniac obsession with mega projects
contributed to the creation of conditions that left Malaysia vulnerable to external forces. Capital flows that had sustained Malaysian growth reversed; the currency plummeted; the banking system was near collapse because of the portfolio of bad loans; confidence in the Government fell. The markets recognized these flaws and punished Malaysia. Compounding these factors was the adoption of authoritarian measures to silence dissent. The show trials of Anwar Ibrahim resulted in increasing the loss of confidence, both globally and domestically. The abuse of human rights and the destruction of judicial independence earned Malaysia the odium of the global community, to the extent that the Government had to resort to getting the private sector to bribe unscrupulous lobbyists in Washington DC to “buy” an entry ticket for the Prime Minister to visit the White House in an attempt to gain respectability. To boot, payments were made to third rate columnists to write op-ed pieces to create a synthetic image for Malaysia. Confidence declined and FDI flows began to plummet.

Malaysia survived and partially recovered from the East Asian crisis. Much of this was at a heavy cost. That cost included the adoption of an exchange rate that carried the seeds for the loss of competitiveness and the eventual importation of inflation to Malaysian shores. It included massive bail outs, a resort to unsustainable fiscal deficits, a growing debt burden for future generations to bear, and the diversion of resources away from the provision of public services and the effort to reduce poverty to feather the nests of a band of robber barons. To the extent that economic growth returned, credit must be given to the favorable trading environment. Yet the favorable circumstances were dissipated: Malaysia lost competitiveness over the past decade; FDI flows were reduced to a trickle; the stock market has under-performed virtually every other stock exchange in the region. Capital flight has reached levels that cause alarm. Outward FDI from Malaysia was RM 50.2 billion in 2008 and RM 27.9 billion in 2009 far exceeding the inflows. These numbers only reflect part of the capital flight. In addition to these, the sizable errors and omissions figure in the Balance of Payments incorporates an element of other parts of capital flight.  The Human capital stock has been eroded as thousands upon thousands of Malaysian youths have left these shores to seek a living in distant lands in the face of discriminatory employment policies in both the public and private sectors. Paradoxically, while Malaysia is in need of a better skilled labor force to sustain growth, it is losing  talent.

This then is the lost decade of the opening years of the new millennium. The rather bleak portrait painted above is not in dispute. There is some belated acknowledgement of these adverse trends on the part of the Government. Nor are the remedies difficult to find. What is wholly lacking is the political will to seek solutions by moving away from the distorting effects of the NEP. The Plan misses an opportunity to put right past missteps and to change course from the policies set in place by Tun Dr Mahathir in the aftermath of the East Asia crisis of the late 1990s.

The poisoned chalice that Tun Abdullah Badawi inherited when he took office in 2003 as the fifth Prime Minister has been passed on to Datuk Najib. It is disheartening that he is unable and unwilling to discard failed policies by matching his rhetoric to bold new policies. The launch of the 10th Five Year Plan is a missed opportunity. It is tragic that he has demonstrated his inability to exercise true leadership and to move the nation forward.

                This entry was posted on Monday, 14 June 2010, 12:10 pm and is filed under
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The 10th Malaysia Five Year Plan : Old Wine in New Bottles – Part 4 (5 Thrusts of TMP)

The Five Thrusts of the 10th Malaysia Plan

The Prime Minister stressed that the 10th Malaysia Plan is oriented around five key strategic thrusts, namely:

*     Stimulating Economic Growth – implementing a policy framework that will galvanize the private sector and promote trade and investment;

*     Moving towards Inclusive Socio-Economic Development – focusing government support on those most in need and reforming affirmative action policies;

*     Developing and Retaining a First-World Talent Base – improving schools, providing skills training to those in the workforce and implementing important labour market reforms;

*     Building an Environment that Enhances Quality of Life – investing in housing, transport, healthcare, utilities, crime prevention and the environment to support economic activity and improved living standards; and

*     Transforming Government to Transform Malaysia – building on the success of the Government Transformation Program to continue to improve government performance and transparency to best serve the people

The question that arises is: How different are these in comparison with the corresponding thrusts that were outlined in the 9th Five Year Plan?

In the so-called National Mission the five thrusts were:

* To raise the value added of the national economy;

* To raise the country’s capacity for knowledge, creativity and innovation and nurture “first class mentality”;

* To address persistent socio-economic inequalities constructively and productively;

* To improve the standard and sustainability of the quality of life; and

* To strengthen the institutional and implementation capacity of the country.

There is a remarkable similarity in the two sets of general propositions. Thus, to claim that the 10th Plan incorporates a true New Economic Model is stretching the truth. The reality is that the 10th Five Year Plan is old wine in new bottles. The approach taken raises deep and troubling questions about the competence of the Government in being able to formulate and implement policies that genuinely are in the national interest.

The Plan proposes total outlays of RM 230 billion. It incorporates a return to the era of mega projects to be financed by massive borrowings that were a hallmark of the Mahathir era. The characteristics of the earlier Plans represented by privatization, channeling of funds to crony corporations, emphasis on the Bumiputra equity ownership targets, and massive State interventions while paying lip service to the pivotal role of the private sector are once again at centre stage. The notion of a New Economic Model incorporating critical reforms that was floated as recently as March of this year was indeed stillborn. It has been aborted by the forces of reaction which place narrow interests ahead of national needs.

The macro economic framework used in framing the Plan is built upon rosy assumptions. Growth is projected at an average annual rate of 6 percent against a rate of 4.2 percent achieved during the 9th Plan. Private Consumption is projected to grow at 7.7 percent against an achieved rate of 6.5 percent; Public Investment is expected to grow at a slower pace of 5.0 percent against 6.2 percent; Private Investment which registered a rate of 2.0 percent is to rebound by a hefty 12.8 percent per annum. Increased in flows of FDI are assumed to grow although no amounts are indicated. The Plan further assumes that inflation will remain modest thus providing price stability.

Based on the past track record for projections, these projections are rosy and over optimistic. The down side risks of a global slowdown brought about by inevitable corrective measures to tame US and EU budget and external deficits which could prolong the current financial crisis do not appear to have been factored in despite obvious linkages to the Malaysian economy. Additionally, the loss of competitiveness and the growing attraction of China and India as destinations for massive capital flow diversions are largely ignored in the Plan framework.

The Plan framework asserts that domestic price stability will be maintained. The case made is far from compelling. The Plan framework is wholly silent on the inflationary impact of the planned outlays of RM 230 billion under the 10th Plan. Expenditures on this scale will undoubtedly contribute significantly to inflation in the domestic economy. Yet no account appears to have been taken. Prudence and caution appear to have been jettisoned as the Government goes on a spending binge. Irresponsible policies if pursued will be catastrophic.

How does the Government propose to finance this spending spree? Table 8 offers some indications.

Optimist assumptions are made about Revenue growth at 6.1%. – only likely if  GDP growth of 6.0 percent is achieved. Revenue is projected to grow from RM 158 billion in 2008 to RM216 billion in 2015. Similar optimistic assumptions are made with regard to Operating Expenditure, projected to grow at a lower rate of 6.5% in the next five years compared to the increase of 8.6 % during the 9th Plan.  Given the larger borrowings and higher interest rates, debt service will increase sharply by 9.4 % as against the already high rate of 8.6 % during the 9th Plan period. This is unlikely to be countered by cuts in other operating expenditures.

Taking these highly optimistic projections together, the Plan forecasts that the Overall Public Sector Deficit as reported in Table 9 will move from a deficit of RM29.9 bill in 2009 to a surplus of RM.12.7 billion over the next five years. This is a turnaround of almost RM 43 billion. It would appear that optimism has no bounds. Or are these the outlines of the iceberg of intentions to raise taxes in a sizable manner?

The Federal Government, which ran a cumulative deficit of RM 97.8 billion during the period of the 8th Plan, (initially projected at RM 29.9 billion) will see a deficit of RM 163.1 billion in the 9th Plan. As only partial figures are provided for the period of the new 10th Plan, it is difficult to estimate the cumulative deficit in the next 5 year period. On a crude basis, an extrapolation of the deficit would indicate a figure of approximately RM 180 billion, a figure almost double that recorded during the 9th Plan.

Taken together, Total Debt increases from RM 362.4 billion at the end of 2009 to RM 593.9 billion by 2015 ( an increase by 64 percent) with the Domestic component increasing from RM 348 billion to RM 562 billion by 2015 and the foreign component increasing from RM 14 bill to RM 32.

It is patently clear that the Government’s commitment to reducing the deficit rings somewhat hollow. In absolute ringgit terms the deficit will grow and will lead to borrowing on a large scale thus adding to the mountain of debt. Deficit financing is no longer a means for pump priming to counter cyclical downturns; it is now a permanent feature of Malaysian fiscal policy. Datuk Idris Jala was right on the mark when he made the point that Malaysia was headed towards bankruptcy.

These forecasts and projections are indicative of the adoption of highly irresponsible and high risk fiscal policies and an abandonment of fiscal prudence. While past prudence has been rewarded by the markets with good ratings, this turning away and the pursuit of a devil may care reckless policy will not go unnoticed by markets and rating agencies. In a globalized world, countries, more so open and vulnerable economies such as Malaysia, cannot afford the luxury of going against conventional norms. If they so chose, markets take corrective steps and mete out devastating punishment. This was one of the critical lessons from the current financial crisis which is taking a devastating toll on some of the member states of the European Union e.g. Greece, Spain, Portugal etc. It would appear that the BN Government has either not drawn lessons or is bent upon following a course in open defiance of fundamental fiscal principles.

The Federal Government deficit, it should be noted, is only the tip of the iceberg as the huge deficits of the off-budget agencies are excluded from the calculations. The GLCs have weak balance sheets. Some have been bailed out several times. The hidden contingent liabilities of the Federal Government are like a dormant volcano waiting to explode. Illustrative of these are the contingent liabilities of the Government ; the PKFZ saga is a reminder.

Any discussion of Government finances must take account of the distorted allocations of expenditure. Some key distortions are:

•	A large subsidy bill: The real size of the bill is hard to fathom given the less than transparent way in which the Federal budget is detailed. Witness the dispute between Datuk Idris Jala and the Ministry of Finance as to the exact size of the subsidy bill. Moreover, the broader issue has been distorted as the focus has been on consumer subsidies which are a smaller part of the overall subsidy bill which channels billions to corporate entities.

•	Debt servicing of public debt which has mushroomed over the past decade: Debt service now consumes well over 10 percent of recurrent expenditure.

•	A bloated and inefficient public service: For a country of the size of Malaysia (28 million) well over 10 percent (over 1.2 million) of the labor force is on the public payroll. Low productivity and inefficiency are legion. This distortion of the labor market can only be removed via a radical downsizing of the public service. The Government must answer the question: when was the last time that an overall review of the public service, its structure, and its functions last carried out? It should launch an Independent Commission to look into the workings of the public service leading to radical reforms, and the introduction of safeguards that correct the most egregious processes that are in place. The Public Service Commission has to play its due role and become more than just a home for senior level pensioners.

•	The cost of goods and services acquired by the Government are high because of non-competitive bidding practices employed by the Government. These practices also contribute to corruption. The additional “rents” generated represent a cost to the Government and ultimately to the nation.

•	Tax fraud and lax enforcement contribute to unmeasured revenue losses.

•	The regulatory regime now in place, highlighted and personified by the system of licenses, approved permits for importing a range of goods, (motor vehicles being only one) contribute in a variety of ways to reducing the role of competitive forces and provide the means for price distortions. Other practices that merit attention are the manner in which utility prices are set. The granting of toll increases and the secret agreements governing independent power generation are yet other examples of flawed policies having an impact on price levels.

On the issue of subsidies, it would appear that the generous subsidies that Petronas  extends to independent power producers (IPPs), which built a string of gas-fueled electricity generating plants in the 1990s remain in place whilst those on consumer goods are likely to be removed. Since the 1997 crisis, Petronas has supplied heavily subsidized processed gas not only to Tenaga but also to the IPPs. According to Petronas, these subsidies have totaled RM25 billion. These special arrangements enrich a handful of well-connected, wealthy tycoons. The Edge identified Genting Sanyen Power, YTL Power, Malakoff Bhd and Tanjong Plc/Powertek Bhd, as the beneficiaries.

It is legitimate to ask: Why this favored treatment? Why are subsidies still being paid?  Why are these agreements a secret? It is time for answers. It is time that the Government comes clean. A saner policy would be to review all subsidies and to develop a comprehensive plan for the reduction and eventual elimination of all distorting subsidies over an extended time frame.

Approvals and licenses are required for a host of things. They create opportunities for corruption and abuse. It is time for an in-depth look at all regulatory arrangements, with a view to eliminating those that impede freedom of commerce, investment and opportunities for entrepreneurship. Achieving the goals of Vision 2020 – becoming a developed country – will demand more than fine infrastructure, high per capita income levels, broad based manufacturing industry and the use of technology. It will demand better governance, greater accountability, and institutions that are efficient and deliver public goods effectively. Thus, addressing the appalling state of public services must be high on the agenda, lest we fall short of developed country status in all aspects of that status. The License and Permit Raj must make way for a system that is service oriented.

.

Reducing the deficit will demand a comprehensive review of all expenditures, a fresh look at the overall tax regime and greater attention to the cost-benefit calculations on future government investment projects. Particular attention needs to be directed at:

•	A review of all subsidies and their gradual elimination over time

•	More rigorous enforcement of tax laws and closing of loop holes

•	Competitive bidding for the purchase of goods and services by the Government through transparent tender procedures leading to reduced procurement costs

•	A freeze on hiring in the public service and targeted reductions in the size of the service over the next three years;

•	A review of all tax rebates and exemptions to the business sector;

                This entry was posted on Monday, 14 June 2010, 1:00 pm and is filed under
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The 10th Malaysia Five Year Plan : Old Wine in New Bottles – Part 6 (Equity Restructuring/Ownership)

Equity Restructuring and Ownership

The Plan restates that the target of attaining at least 30% Bumiputra corporate equity ownership at macro level remains. It goes on to indicate that the  focus will be on promoting genuine economic participation, consistent with the objective of sustainable high growth, rather than corporate equity allocation.

The Plan proclaims that this will be achieved through more transparent, market-friendly and merit-based instruments, focused on:

•	Strengthening Bumiputra entrepreneurship to help create competitive businesses in high impact sectors;

•	Increasing wealth ownership beyond corporate equity to include other properties and business assets such as retail space landed properties,

commercial buildings, intellectual properties and other services through pooling of funds and institutional investment; and

•	Promoting Bumiputra representation in high paying jobs through enhanced capability building and demand-side incentives.

These statements can be cautiously welcomed as they represent a nuanced shift. However, if the past is any indicator, this shift may be no more than illusionary and a mutation of the NEP.

Furthermore, as the past demonstrates, it is the manner in which policies are implemented that matter. It must be recalled that at the end of the day it is the Little Napoleons that determine how policies are implemented. Furthermore, the emergence of powerful pressure groups such as PERKASA, are in the forefront with demands for a tightened and radically rigid set of policies that reinforce the NEP. These groups will clearly be vocal now that they have seen the Prime Minister retreat. Ominously, they have succeeded in forcing the Prime Minister to retreat from the key elements of the NEM. The NEM balloon was pricked no sooner than it was floated. There is every indication that these groups will vigorously pursue their agenda and the 30 percent equity target will symbolically remain central to their demands. These demands will continue to be a distraction and impact on the investment climate both domestically and in terms of foreign investors. It is in that context that attention needs to be paid to the issue of the extent to which the 30 percent target set in the early 1970s has been attained or is close to being attained.

The current Plan follows up on the 9th Plan by repeating the need to view the attainment of the 30 percent target as a long term goal, to be achieved by 2020. The 10th Plan takes on a new dimension. It expands the scope of wealth to beyond share equity by including other assets.

The 9th Plan attempted to correct one aspect of the misunderstanding of the NEP target concerning ownership of share capital. For the first time, the 9th Plan indicated that these share valuations are done on the basis of taking the par value of the shares of all limited companies, both public limited and private limited companies, distributed by ethnic origin. Thus, the total stock of share capital is valued in nominal ringgit terms.

The calculations take no account of the true asset or equity values  which are a correct measure of wealth. Par valuations are notional and equate a single share in a small private family owned business with a single share in a large asset rich public limited company listed on the stock exchange. The resulting aggregate values (at par values) understated the net worth of asset rich companies whilst exaggerating the value of shares in private companies. The total par value of shares as measured is a gross under-estimate of the value of all corporate assets/equity or the net worth of corporate entities.

This same methodology has been applied consistently since 1970. According to the Table in the Appendix of the 10th Plan, the total par value of share capital in 2008 amounted to RM 581.8 billion as against RM 621.8 billion in 2004. It is most intriguing as to why there was a decline. Of the total share value in 2008, the Bumiputra percentage was 21.9 percent; 36.7 was owned by Non-Bumiputra Malaysians and Foreigners owned 37.9 percent. Many analysts have argued that the holdings of Nominee companies owning 3.5 percent should be aggregated with Bumiputra holdings to give an overall Bumiputra ownership of 25.4 percent, a figure close to the NEP target of 30 percent. These commentators have contended that Nominee companies are mainly Bumiputra owned. Be it as it may, the figure of 21.9 percent can be viewed as an under-estimate for other reasons beyond those cited above.

 The total value of RM 581.1 billion, it must be recalled, represents the total par value of all shares in both public and private limited companies.  It is significant that the 10th Plan, does not report data on Listed Companies on the Kuala Lumpur Stock Exchange. At the end of 2002 there were a total of 865 listed companies with a market capitalization of RM 481.6 billion, a figure that exceeded by RM 171.8 billion the total share capital of all companies (both listed and unlisted) in par value terms. This is clearly an inconsistency. No published figures are available about the ethnic distribution of the capitalized value of RM 481.6 billion. It can however be reasonably argued that all listed companies on the KLSE are companies that have been restructured, resulting in a minimum 30 percent Bumiputra ownership. It must be recalled that restructuring is a pre-condition for listing on the KLSE. On this basis, it would not be erroneous to assume that 30 percent of the capitalized value of listed shares belongs to Bumiputra. To this extent then, Bumiputra ownership is close to or even exceeds the NEP target. It should also be observed that ownership is but one dimension. Control matters. In terms of control, even through minority holdings, Bumiputras and Bumiputra controlled entities are likely to be in control of corporate wealth well in access of 30%. On this basis, the data presented in the Plan is moot and anomalous.

Be that as it may, the broader debate can easily be settled by applying a more transparent and diligent methodology than is the case at present. It is fundamentally important that this be done to dispel misperceptions about share ownership in the Malaysian economy. An independent and impartial study should be commissioned to get at the truth. This is vitally important to help avoid the adoption of radical policies, such as a return to the emotionally charged and divisive policies associated with the NEP. It is important that the nation take stock of where it stands and does not march in a backward direction towards policies that have failed and, if readopted, could result in grave consequences for the nation’s future.

                This entry was posted on Monday, 14 June 2010, 5:33 pm and is filed under
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The 10th Malaysia Five Year Plan : Old Wine in New Bottles – Part 7 (National Agenda for all Malaysians instead of a mutating NEP)

A dispassionate analysis of the forty years of implementation of the NEP-NDP provides many lessons. These include:

There is no alternative to pro-growth policies if Malaysia is to attain the original goals of the NEP, namely eradication of poverty irrespective of race and economic restructuring; pro-growth policies are also essential if the  Vision 2020 goals are to be achieved.

Malaysia has achieved rapid growth and prospered when the policy framework has been pro-market and liberal.

On the other hand, pro- distribution policies such as those favored and advocated by Faaland in the early 1970s and again revived now championed by PERKASA, have led to slow overall growth and more specifically low achievement of the restructuring targets.

The private sector constitutes the main engine of growth. Over-regulation of the sector under the NEP framework creates impediments to investment, both domestic and foreign, thereby impacting on poverty eradication and opportunities for restructuring.

There is a high cost of doing business when there is over-regulation or bureaucratic control. Distortions emerge that create opportunities for rent-seeking and corruption.

Ethnic polarization surges when the economic cake grows slowly or not at all. National unity can only occur in circumstances when there are no perceived feelings of deprivation.

Human capital investments have the highest rates of return and contribute to upward mobility for the disadvantaged. At the same time they are a prerequisite for attaining competitiveness. Present policies are skewed against real human capital development.

What the nation needs is not a return to failed and distorted policies, but a shift towards new instruments and approaches that will contribute to improved competitiveness, strengthened institutions that will deliver cost effective services in an efficient manner, eliminate corruption and rent seeking, and promote ethnic harmony via a Malaysian national agenda rather than promote divisiveness via ill- conceived and failed policies.

What the nation needs at this critical stage in its history is not rhetoric but vision. For one brief moment, hopes were raised that the adoption of the NEM would present an opportunity to move to a framework that would offer the means to escape the constraints of the NEP framework.

Alas, that opportunity has not been grasped. A mutating NEP lives on.

Malaysians need to be brought together and made to engage in a united war against divisive forces preaching race and separatism. A step in that direction would be the convening of a national congress to arrive at a consensus about national priorities foremost among which are the elimination of corruption, adoption of an educational system based on excellence,  respect for good governance and the rule of law, and last but not least a return to the underlying principles of the Merdeka Constitution.

This critique of  the 10th Plan has attempted to question some of the assumptions and assertions contained in the Plan. It has argued the case for a fresh set of policies and a different approach to confronting the many challenges the nation faces both domestically and internationally.

First and foremost, the majority of Malaysians desire a National Agenda that is not ethno-centric that contributes to national unity, prosperity and a future in which we are identified as Malaysians – not divided into Bumiputras and non- Bumiputras.

Second, there is a deep desire to live in an equitable society with absolute poverty eliminated, and income and wealth disparities reduced.

Third, Malaysians yearn for an open society that is just, in which human rights and the rule of law are respected.

Fourth, there is a deep desire for a society in which tolerance and respect for diverse views prevails.

Fifth, there is transparency and accountability in the process of governance.

Reaching these goals is as much part of the vision for Malaysia as a developed nation in income terms by the end of the coming decade. That status goes beyond some magical per capita income level. Sadly, the 10th Plan evades these issues and puts the nation on a path that entraps it further as a mediocre middle income country. Circumstances demand a new mix of policies that embrace:

Rational Fiscal Policies: In the near term, bringing the fiscal imbalances under control; eliminate the distorting effects of both consumer and corporate subsidies in gradual stages and by increasing public sector productivity through elimination of waste, fraud, and corruption.

Curb the scourge of inflation through a combination of fiscal, monetary and exchange rate policies that take account of market factors

Improved delivery of public services by revamping the public service together with a restructuring of employment, including opportunities for non-Bumiputras to be hired and not constrained by a glass ceiling

Deregulation to remove the dead hand of the bureaucracy to enable the private sector to operate effectively to achieve growth

Address the issue of absolute poverty irrespective of race by a combination of measures that would include skill development, faster employment creation, and a coherent wage policy. Establish effective safety net programs that protect the weak and the poor.

Introduce a minimum wage to ensure that those in the lowest rungs of the labor force receive a living wage. This would lift many out of poverty, reduce income disparities, and enhance competitiveness and modernizations of industry as private employers will be forced to become  efficient and competitive.

Equitable distribution of wealth; Support for competent Bumiputra entrepreneurs rather than cronies and the well connected; review the methodology for estimating equity share capital.

Address the issue of quality at all levels of the educational system  by enforcing standards and providing support to those in need to pursue educational opportunities; remove polarizing effects of various measures now in place

These proposals should be non- controversial and contribute to the development of a National Agenda that is unifying and not polarizing. It is the deepest wish of all Malaysians that there be a coming together, to confront the obstacles and challenges that lie ahead.

                This entry was posted on Monday, 14 June 2010, 5:46 pm and is filed under
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