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Tuesday, April 7, 2015

Every baby born in Malaysia is a debtor...



 by Ng Kee Seng
OUTSPOKEN: In January last year, this column had a story titled "Blessed with oil money, but why is Malaysia in huge debt?"
The story went viral and was surprisingly extremely well read. The question is still valid. And, has there been any change for the better for Malaysia today?
On March 30, a "zed" posted a washingtontimes.com link with a four-word comment "bias to the max" (referring to the story).
Well, zed, the washingtontimes.com report titled "VITENBERG: Norway’s shame: How a nation squandered its oil riches" is about just what the title says. How the Nordic government allegedly squandered its wealth does not interest this scribe. But at least the Norwegians are still wealthy, becoming a theoretical crown millionaire on Jan 8 last year in a milestone for the world’s biggest sovereign wealth fund (SWF).
But, zed, isn't that another story about Norway? In what way was the Malaysian story bias?
More than a year after, Malaysia's official federal debt as at last October is RM568.9 billion, of which 97.1 per cent or RM552.7 billion is made up of domestic borrowings while 2.9 per cent or RM16.2 billion comprises offshore debt.
All that do not include 1Malaysia Development Berhad (1MDB)'s RM42 billion debts and many other multi-billion-ringgit government debts that have and are being unearthed.
Also, it was revealed in 2012 by then Deputy International Trade and Industry Minister Datuk Mukhriz Mahathir that Malaysia's federal debt was at RM800 billion.
Well, are Malaysians steam-rolling towards the trillion-ringgit debt?
"zed", while every child born in Norway is a theoretical crown millionaire, every child born in Malaysia is a debtor.
Norway struck oil in the North Sea in 1969 or about 46 years ago. But it only set up its oil SWF in 1990, meaning it took the Norwegians only 23 years to be millionaires.
What do Malaysians have? The Finance Ministry's 1MDB had to default three times in settling a RM2 billion debt - by borrowing from a tycoon.
Laughable or seriously, does it make sense? It does not take the brain of a rocket scientist to conclude that the federal government is having "cash flow" problems.
And do we have such an oil SWF to save for rainy days for the rakyat and country? None.
According to a written reply in Parliament by Prime Minister Datuk Seri Najib Razak, Petronas had contributed RM3 billion to the National Trust Fund (or Kwan, the acronym for Kumpulan Wang Amanah Negara) as at June 2011.
He also said the money had been invested in various financial instruments and that Kwan’s fund currently stood at RM5.43 billion.
Just a measly RM5.43 billion compared with Norway’s RM2.7 trillion!
And, try digesting this: Najib said Kwan was set up to ensure that revenue from dwindling natural resources would benefit future generations.
After 39 years (Petronas was founded in 1974), all we have today is a federal debt of at least RM800 billion or more.
And, Bank Negara Malaysia (BNM) Governor Zeti Akhtar Aziz has yet to explain to the rakyat how Malaysia's current account surplus in 2015 is at RM21.4 billion versus RM49.5 billion last year!
That's a current account surplus slit by 43 per cent or nearly halved in a year!
Can Malaysians then be blamed for suspecting that the implementation of the Goods and Services Tax (GST) is the federal government's move to make the rakyat pay for the country's humongous federal debt and unabated spendings?
With a depleted federal government coffer, obviously it has to cut down subsidies. And, since it cannot continue to borrow to serve the rakyat as before, the GST is the only source of fast revenue or cash.
As highlighted in the January report last year, Singapore’s non-commodity Government of Singapore Investment Corporation, which was set up in 1981, is ranked 8th in the world with assets at US$247.5 billion (RM802 billion).
Following at 9th rank is another Singapore non-commodity SWF, Temasek Holdings, which was established in 1974. It has US$157.5 billion (RM510 billion) in assets.
What's the status of Kwan and all other so called SWFs in Malaysia?
And to quote economic adviser to the bankers union (NUBE) Sam Chee Kong, a country can only increase the size of its foreign reserve when it is running a balance of payment surplus. What exactly is the Balance of Payments?
Sam wrote: "All they (Malaysians) read from the media mainly concerns whether a country is running a balance of payment deficit or surplus. Hence, they would not have a clue on how a surplus or deficit relates to a country’s international transaction and payment flows. "The concept of Balance of Payments basically consists of three parts namely the Current Account, Capital Account and the Statistical Discrepancies.
"The Current Account deals with the import and export of goods and services. It records transaction arising from trade in goods and services, income accruing and transfers of residents in one country to residents of another.
"The Capital Account deals with the import and export of assets. It records the transactions related to international movement of financial assets.
"The Statistical Discrepancies or Error and Omissions deal with the problem of data accuracy and timing.
"In practice the Current Account and Capital Account should balance. This is because the surplus in the current account should match the deficit in the capital account and vice versa. However, sometimes there might be problems with the data due to delay and timing. To force the current and capital account into balance, the statistical discrepancy is brought into the equation.
"Our Government did not reduce our debts ... our country is running balance of payment surpluses in three out of the four years. There are two things a country can do when it is running a balance of payment surplus. One, it can add on to its foreign reserves and the other is to retire some of its debts. Malaysia obviously opted for the first option and that is to add to its foreign reserves. In 2010 our foreign reserves dropped to RM328,649 million due to the absorption of the R 2,628 million deficits. Then in 2011 it soared to RM423,331 million due to the budget surplus of RM94,682 million in 2011. Again in 2012, it went up to RM427,204 million when we have a budget surplus of RM3,873 million.
Why are we not using our large reserves to reduce some of our debts or finance our Government expenditure with the surplus? Why our Government implemented austerity measures such reducing subsidies and increasing taxes (GST) which only burden the people?
"Secondly, why such a huge Statistical Discrepancies? As you can notice the main objective of the Statistical Discrepancies is to force balance the account due to the delay or accuracy of the respective accounts.
"Normally these are only minor adjustments and don’t run into tens of billions. If the discrepancy is huge then there should be some serious problems with our data accuracy and hence suspicion. Take for example during 2010 the Statistical Discrepancy stood at RM70.7 billion which is almost 80 per cent of our Balance of Current Account? Similarly, during 2011 (RM24.5 billion) and also in 2012 (RM33.6 billion). One explanation will be due to the large hidden capital flows. Why are there such a large discrepancy?
"The only explanation is that there are people secretly diverting funds out of our country or in other words money laundering."
Sam reckons that it is about time to open up the bank records to see who the culprits are.
Nay, fat chance of that happening in Bolehland!
Ng Kee Seng believes that in a healthy democracy, every Malaysian has a role in politics and nation-building.
- theantdaily

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