Saturday, October 29, 2016

The Second Minister of Finance is living in a different planet for claiming 1MDB is not related in anyway to the Federal Government Budget

It is amazing how an UMNO MPs speaks when he is in or out of the Cabinet.

Dato’ Seri Johari Abdul Ghani, before he was appointed to the Cabinet in July last year, was one of the more vocal UMNO members of parliament who asked probing questions with regards to the unravelling RM50 billion 1MDB scandal.

Today, after being promoted to become the Second Finance Minister recently, he would tell Malaysians that 1MDB has nothing to do with the Federal Government budget.

In his explanation to Malaysiakini, he said the government's budget had nothing to do with 1MDB, which was managed by its board.

“A budget is a budget, 1MDB is 1MDB, they are two separate matters.  Budget is something that we present to the public to explain what the government is going to do - how to spend the money with the revenue. The budget has nothing to do with 1MDB. Please tell me which part is related,” he rationalised.

Instead, today we have former Cabinet Ministers, including the former Second Finance Minister, Datuk Ahmad Husni Hanadzlah asking probing questions about 1MDB and its very existence during his budget speech.

1MDB has everything to do with the Federal Government Budget not only because the global scandal has made Malaysia a renown kleptocracy and puts into question on why a tainted Dato’ Seri Najib Razak, who was found to have siphoned US$731 million into his personal bank account, is still the Finance and Prime Minister of Malaysia.

1MDB has everything to do directly with the Budget because Federal Government funds are being utilised to bail out 1MDB.

Most crucially, the Federal Government has given direct and indirect guarantees on RM5 billion and nearly US$8 billion, or an estimated combined RM32 billion worth of 1MDB’s borrowings and liabilities. If 1MDB fails to repay its loans and obligations, then the Finance Ministry will have to foot the bill.  RM32 billion will raise our targeted deficit of 3% of the GDP to 5.4%!

Any responsible Finance Minister will have the obligation to explain to the Malaysian tax-payers as to how the financial scandal will be resolved, especially since the much-hyped rationalisation exercsise which was supposed to by completed by June this year has collapsed.

The collapse was a result of the discovery that 1MDB has made as much as US$3.51 billion payment, according to information submitted by the 1MDB CEO, Arul Kanda to the Auditor-General, to a fraudulent Aabar Investment PJS Limited which was incorporated in the British Virgin Islands.

As a result, the parent of the “real” Aabar Investment PJS of Abu Dhabi, International Petroleum Investment Corporation (IPIC) has brought a suit against 1MDB and the Malaysian Government to the Arbitration Court in London. Of interest is the fact that the Ministry of Finance Incorporated has indemnified IPIC of up to US$4.8 billion of 1MDB’s obligations.

The failure of Dato’ Seri Najib Razak in addressing the 1MDB issue, especially in the Budget, is a clear attempt to hide the scandal and cover up for the guilty parties, including himself, who had misappropriated billions of dollars from the state-owned investment firm.

It might be useful to remind Dato Seri Johari Abdul Ghani that in the Budgets prior to 2013, Dato’ Seri Najib was happily gloating about 1MDB projects and achievements in his Budget speeches and including the proposed 1MDB investments in Bandar Malaysia and Tun Razak Exchange in the data compiled for the Non-Financial Public Corporations (NFPCs).  If it was relevant for the Budget then, why is it suddenly not relevant today?

The Second Finance Minister should be ashamed of himself for failing the people of Malaysia after he has been appointed to the Cabinet to get to the bottom of the single largest scandal ever suffered by Malaysia, and instead turned into a stooge to defend the kleptocrats of this nation.

Treasury-General not telling the whole truth when dismissing Non-Financial Public Corporations as a time-bomb for Budget 2017

After the Prime Minister Dato’ Seri Najib Razak announced the Budget for 2017, I had issued a statement warning of a time-bomb hidden in the depths of the Economic Report, often unnoticed in budget presentations.

In 2013, the budget deficit was 3.8%.  The figure declined to 3.4% and 3.2% in 2014 and 2015.  For this year, the Government estimates it to be 3.1% and is forecasting 3.0% for 2017.

However, what is the above relatively benign figures mask is the increasing shift of expenditure from the official Federal Government budget to state-owned corporations.  Hence in reality, Government spending is higher than ever, increasing the risk to the economy with larger borrowings and contingent liabilities.

Some of these hidden off-budget spending are exposed in the obscure Non-Financial Public Corporations (NFPC) Financial Position (Table 6.13 p161 Economic Report 2016/7 – see below).

NFPCs includes 29 key government-linked companies including Indah Water Konsortium, KTM Bhd, Telekom Malaysia, Malaysia Airlines Bhd, Malaysia Airport Holdings, Petronas, Prasarana, Syarikat Perumahan Negara, Tenaga Nasional, MRT Co and the UEM Group.

The table clearly showed that the the NFPC deficit which was a modest RM10.6 billion deficit in 2013 leaped astronomically to RM52.3 billion in 2014 and further increased to RM56.9 billion in 2015.  The estimated deficit for 2016 is currently RM50.5 billion.

Effectively, Government-owned enterprises are having much larger deficits than the Federal Government itself.  The Federal Government budget deficits for 2015 was RM37.2 billion.  In 2016, it is estimated to hit RM38.7 billion while the Government forecast RM40.3 billion for 2017.
When this matter was raised to the Treasury-General Tan Sri Irwan Serigar on Monday, he dismissed my warning that the NFPC deficit is a ticking time-bomb waiting to explode.

He said “NFPCs are Government-Linked Companies which huge investments, and they have borrowings… Everybody needs to invest”.

He further added that “It is a contingent liability, but its not a time bomb kind of thing as they can repay their loans.  They are big entities with large resources.

“For example, Tenaga Nasional and Telekom Bhd, they are making profits. If they have borrowings for their projects, are you going to say it’s a time-bomb?” Tan Sri Irwan asked rhetorically.

The Treasury-General is being extremely disingenuous by citing only the big public listed companies as examples.  Out of the list of 29 companies, there are also other companies which are generally well-managed and would have no problems servicing their financial obligations, such as Axiata and Petronas.

However, there are many other entities among the 29 which are nothing other than vehicles for Government expenditure which more likely than not, will never generate sufficient income to service their loan obligations.

Why didn’t Tan Sri Irwan Serigar point out the fact that Prasarana’s RM13 billion of debt and mounting expenses have only increased and requires annual Government grants to keep the company afloat?

Why didn’t he point out that MRT Co is undertaking a RM22 billion investment for the current Sg Buloh – Kajang line and is planning another RM26 billion MRT II line which is financed almost entirely debt which are never likely to be repaid without future Government support?

Or the fact that among the 29 companies lie many critically ill GLCs which had required or will require government bailout, such as Keretapi Tanah Melayu (KTMB), Malaysia Airlines, Penerbangan Malaysia, Silterra Malaysia and Syarikat Perumahan Negara?

Worse, the list of 29 NFPCs isn’t even conclusive.  They leave out a number of other key Government-owned enterprises which heavily commit the federal government to meeting their obligations for many years to come.  This list will include PFI Sdn Bhd which took a RM30 billion loan from EPF to carry out general public infrastructure works, Pembinaan BLT with a RM10 billion debt to build police stations nationwise, and of course more recently controversial companies such as 1MDB and SRC International.

I call upon the Secretary-General to be stop creative accounting with the country’s national budget in order to manipulate the perception towards the Government’s financial position.  Such actions will only bring short term benefits but bring long-term pain, reminiscent of the Greek-type government spending which ultimately brought collapse to the country.

Tuesday, October 25, 2016

Apa sebabnya Menteri Kewangan merahsiakan pengurus dana dan bank kustodian bagi pelaburan “unit” yang dikatakan bernilai US$940 juta?

Laporan Ketua Audit Negara dan Laporan Jawatankuasa Kira-kira Wang Negara yang dibentangkan di Dewan Rakyat pada bulan April yang lalu telah menyatakan bahawa nilai dan aset sejumlah US$7 bilion (RM28 bilion) tidak dapat dikesan atau disahkan.

Antaranya ialah pelaburan “unit” bernilai US$940 juta yang pada masa itu disimpan dalam bank kustodian, BSI Bank di Singapura.  Ketua Audit Negara tidak dapat mengesahkan kewujudan dan nilai semasa pelaburan tersebut sebab 1MDB telah gagal menyerahkan sebarang dokumen daripada BSI Bank kepadanya walaupun dokumen telah diminta selama setahun.

Aset “unit” yang dikatakan bernilai US$940 juta ini merupakan baki aset yang ditebus daripada pengurus dana di Cayman Islands pada bulan January 2015.

Sehingga hari ini, “unit” yang disimpan di BSI Bank ini merupakan misteri sebab kalau 1MDB begitu terdesak kekurangan aliran tunai, sehingga terpaksa menjual aset-aset penting negara seperti penjanakuasa bebas dan hartanah emas seperti Bandar Malaysia kepada pelabur asing, kenapa pelaburan “unit” ini tidak dijualkan dahulu untuk membiayai hutang gergasi 1MDB?

Keengganan 1MDB untuk menyampaikan sebarang matlumat dan dokumen kepada Ketua Audit Negara, dan keputusan Deloitte Malaysia untuk menarik balik pengakuan kepada audit 1MDB bagi tahun 2013 dan 2014 mengemukakan keraguan besar terhadap kewujudan “unit” yang dipegang dalam BSI Bank tersebut.

Kini, lesen perbankan BSI Bank telah dibatalkan oleh kerajaan Singapura kerana didapati bersalah dari segi pengubahan wang haram yang berkaitan dengan skandal 1MDB.  Saya telah bertanya kepada Menteri Kewangan, apa telah terjadi kepada “unit” tersebut.

Inilah jawapan yang saya telah terima daripada YB Menteri Kewangan pada Hari Khamis yang lalu.  Beliau menyebut bahawa “Ahli Lembaga Pengarah Brazen Sky Limited mengesahkan bahawa sebuah bank berlesen antarabangsa telah diberi mandate sebagai custodian bank untuk mengambilalih peranan BSI Bank, Singapura.  Ahli Lembaga Pengarah Brazen Sky Limited juga telah melaporkan bahawa tiada perubahan status di dalam nilai pelaburan tersebut.”

Ini merupakan jawapan yang cukup tidak bertanggungjawab daripada Menteri Kewangan.

Pertama sekali, kenapa Menteri tak sebut, siapakah pengurus dana dan custodian bank yang baru?  Apakah kerahsiaan yang diperlukan sehingga nama tidak boleh dimaklumkan kepada Dewan Rakyat?

Dulu bila Menteri Kewangan ditanya siapa pengurus dana pelaburan 1MDB di Cayman Islands, Menteri Kewangan sama-sama enggan menamakan nama pengurus dana walaupun beliau menegaskan bahawa ia dilaburkan dalam sebuah syarikat kewangan yang berlesen.

Kini, kita faham kenapa Menteri enggan menamakan syarikat. Ini adalah kerana syarikat pengurus dana pada masa 1MDB membuat pelaburan telah didapati oleh Ketua Audit Negara bahawa syarikat itu tanpa lesen.

Adakah keengganan Menteri Kewangan untuk menamakan pengurusan dana “unit” ini adalah kerana ia juga tidak berlesen seperti syarikat di Cayman Islands yang dulu?

Adakah Menteri Kewangan takut bahawa kalau dinamakan, bank kustodian yang baru ini juga akan dibatalkan lesen perbankan seperti apa yang terjadi kepada BSI Bank Singapura?

Kedua, jawapan Menteri Kewangan tidak boleh diterima kerana beliau bertanggungjawab untuk memastikan kesahihan segala jawapan yang diberikan oleh syarikat yang dikawalnya.  Menteri Kewangan tak boleh jawab bahawa Ahli Lembaga Pengarah berkata bahawa apa-apa.  Menteri Kewangan kena pasti bahawa nilai “unit” itu benar-benar bernilai US$940 juta!

It is not right for the Finance Minister to try to protect himself with deniability.

Adalah jelas bahawa kesemua kekurangan keterbukaan dalam jawapan Menteri Kewangan ini menunjukkan bahawa adanya udang disebalik batu yang disembunyikan daripada rakyat Malaysia.

Sunday, October 23, 2016

The Economic Report 2016/7 exposes Dato’ Seri Najib Razak’s hidden budget time-bomb

Since the last general elections, Dato’ Seri Najib Razak has successfully managed the investment community’s perception of the “prudence” of the budget with declining budget deficits, albeit at a snail’s pace.

In 2013, the budget deficit was 3.8%.  The figure declined to 3.4% and 3.2% in 2014 and 2015.  For this year, the Government estimates it to be 3.1% and is forecasting 3.0% for 2017.

Despite the fact that Dato’ Seri Najib will never achieve his zero deficit target in 2020 at the current snail’s pace, credit should be given to the Finance and Prime Minister for the moderating deficit in the light of difficult economic conditions – that is if the deficit figures truly reflect government spending.

Even for a non-economist, you might raise an eyebrow as to whether deficit decline looked too “uniformly smooth” in a choppy global economy.  If you think that the numbers look too good to be true and have been manipulated, you are absolutely right.

In practically every budget in recent years, Dato’ Seri Najib Razak had announced multiple multi-billion ringgit projects such as the LRT Extension Project, the MRT I and II Projects and soon, the proposed High-Speed Rail and the RM55 billion East Coast Railway Link.

However, these spending were never reflected in the Government budget expenditure which showcased the “prudent” budget deficits.  Where did these massive spending disappear to?

You will find part of the answer in the Non-Financial Public Corporations (NFPC) Financial Position (Table 6.13 p161 Economic Report 2016/7 – see below).

NFPCs includes 29 key government-linked companies including Indah Water Konsortium, KTM Bhd, Telekom Malaysia, Malaysia Airlines Bhd, Malaysia Airport Holdings, Petronas, Prasarana, Syarikat Perumahan Negara, Tenaga Nasional, MRT Co and the UEM Group.

What is most alarming from the table is the NFPCs’ spending deficit.  In 2013, the NFPC deficit was a modest RM10.6 billion.  However, since then, the NFPC deficit leaped astronomically to RM52.3 billion in 2014 and further increased to RM56.9 billion in 2015.  The estimated deficit for 2016 is currently RM50.5 billion.

To lend context and perspective to the scale of these NFPC deficits, the Federal Government budget deficits for 2015 was RM37.2 billion.  In 2016, it is estimated to hit RM38.7 billion while the Government forecast RM40.3 billion for 2017.

In lay man’s terms, the Government has hidden the bulk of its excessive spending under the NFPCs to maintain a semblance of “moderate” budget deficit.  However, so much spending has now been shifted to these NFPCs, that the NFPC deficit has grown by leaps and bounds to now become even bigger than the Federal Government deficit!

To make matter worse, the 29 GLCs accounted in the NFPC does not include debt stricken 1Malaysia Development Bhd which is mired in more than RM20 billion of debt.

There is no question that the NFPC deficit is the biggest time-bomb to the Malaysian public finances.  We can already feel its ticking with the rapidly rising “Debt Service Charges” which the Government is forced to bear annually.  This is caused in no small part, to the Government being obligated to pay for interest and loans which the NFPCs are unable to fulfil.

The Federal Government Debt Service Charges have increased from RM20.3 billion in 2013 to a projected RM28.9 billion in 2017.  The increase will only accelerate and snowball as NFPC financial obligations arising from the massive deficits are realised in the years to come.

By the time the time-bomb explodes, the 2017 Budget which is already depressing, will feel like a Hawaiian vacation on hindsight.

Friday, October 21, 2016

Budget 2017 proved that the Government is not only running out of cash, but the situation will only deteriorate further, making 2017 possibly one of the worst years for ordinary Malaysians

Federal Government failed to meet 2016 revenue targets

Last year, Dato’ Seri Najib Razak announced in his budget that the Government expected to collect RM225.7 billion of revenue for 2016. However, the 2016 revenue has now been revised to RM212.6 billion based on the latest estimates.  That represents a very substantial 5.8% or RM13.1 billion shortfall for 2016.

To put things into perspective, and to highlight the severity of situation, more often than not in the past, the Government will collect more than they projected. 

The shortfall has in turn caused lower than projected operating and development expenditure.  The Government now estimates 2016 operating expenditure to drop from RM215.2 billion to RM207.1 billion, while development expenditure will drop from RM50 billion to only RM45 billion.

For example, this is the reason why we are seeing a substantial shortfall in health expenditure, resulting in shortages of reagents for conducting critical blood tests as well as increase in cost of medication for the man on the street.

The ability of the Federal Government to allocate the already limited operating expenditure budget is further constricted by Emoluments and Debt Servicing

In fact, it will only get worse in 2017 as the sins of the past catch up with the Government of the day.

The increasing size of the civil service has ensured that the “Emolument” payments for 2016 has increased by RM3.8 billion to RM73.9 billion despite the RM8 billion decline in operating expenses.  For 2017, the Government has further projected that emoluments will increase further by at least RM3.6 billion.  In the meantime, pension contributions, or “Retirement Charges” will also increase substantially from RM19.0 billion in 2016 to RM21.8 billion in 2017.

In addition, the annual “Debt Service Charges” – the instalments and repayments the Government has to pay for loans taken in the past – has increased significantly.  For 2016, it is estimated at RM26.6 billion or a RM2.36 billion hike from 2015.  For the next year in 2017, the amount would further increase to RM28.9 billion.  This is as a result of the Government’s reckless ramping up of Federal Government debt over the past decade on the back of high oil prices.

The twin increases in emoluments & retirement charges and debt service charges in the context of constricted revenue and operating expenditure would only mean less funds for other crucial expenses.

“Subsidies and social assistance” has already been reduced from RM39.7 billion in 2014 to RM27.3 billion (2015) to an estimated RM24.6 billion (2016).  It will be further reduced to RM22.4 billion in 2017.

There will also be less money for medicine supplies, housing, scholarships and other forms of educational support.

Federal Government is overly optimistic on its 2017 revenue projections

Finally, the only reason the Government was still able to project a “moderate” 3% budget deficit for 2017 was by giving an optimistic projection in its tax revenues.  Despite a significant drop in the estimated Petroleum Income Tax (PITA) from RM11.6 billion in 2015 to RM8.5 billion in 2016, the Government is assuming higher oil prices and demand for 2017 to collect RM10.6 billion.

The Government also assumes an increase in Corporate Income Tax (CITA) despite no corresponding assumption in a higher economic growth rate. CITA actually declined marginally in 2016 to RM63.2 billion from RM63.7 billion in 2015.  However in 2017, the Government has inextricably projected that it would receive RM69.2 billion.

Similarly, despite a declining trend of Goods and Services Tax (GST) collection in the recent quarters, the Government is still projecting an increase in collections of GST from RM38.5 billion in 2016 to RM40 billion in 2017.

All the above goes to prove that the Government is running out of cash very quickly and is struggling to balance its revenue and expenses.  The Government’s excesses of the past – including increasing the civil service hires to reduce graduate unemployment, excessive borrowings to finance inefficiency, corruption and wastages have severely constricted the Government’s ability to allocate expenditure today.  

Hence when the overly optimistic projections in government revenue collection fail to materialise, we can expect 2017 to be a very painful year for ordinary Malaysians. 

Saturday, October 08, 2016

Forum & Objection Townhall: Constituency Re-Delineation - How To Steal An Election?

DAP will be organising a Forum cum Objection Townhall on the Election Commission’s proposal to re-delineate the electoral constituencies in Malaysia.

The Objection Townhall will give Malaysians, especially those in the Klang Valley, the opportunity to register our protest by signing the objection forms we have prepared.

We call upon Malaysians to make your voice count as all objections to the EC Re-Delineation Proposal must be submitted by Oct 14.  Hence this event will in all likelihood be the last opportunity for you to state your stand and be part of the process to fight and reject the gerrymandering exercise.

The delineation of constituencies in Malaysia is already skewed.  That’s why in the 13th General Election, BN won only 48% of the votes but secured 60% of the Parliamentary seats.

So now, BN’s ingenious plan is to skew the electoral boundaries even further by shifting pro-BN voters from opposition strongholds into opposition and BN marginal seats.  The proposal by the Election Commission is the worst gerrymandering exercise ever seen in Malaysia’s history.

Malaysians must rise to object against the audacious attempt to now cheat us of our democratic rights to a free and fair election.  We must not let a corrupt government hang on to power via the abuse of power.

The Forum entitled “Constituency Re-Delineation – How to Steal an Election?” will feature distinguished speakers discussing various aspects of the re-delineation exercise.  They include:
  • Tony Pua, MP for Petaling Jaya Utara
  • Rafizi Ramli, MP for Pandan
  • Dr. Mohd. Hatta Ramli, MP for Kuala Krai
  • Maria Chin, Chairperson for Bersih 2.0
  • Dr Ong Kian Ming, MP for Serdang
  • Wong Chin Huat, Fellow, Penang Institute
  • Michelle Ng, a lawyer who also leads dedicated legal team to assist DAP with re-delineation issues with the Election Commisson

The event will be held at The Club, 1 Club Drive, Bandar Utama on Wednesday, 12 October 2016 at 8pm.

Thursday, October 06, 2016

Is Dato’ Seri Najib Razak’s strategy to deal with Malaysia’s entrenching reputation as a global kleptocracy to remain silent like a mouse?

Malaysians have been demanding answers from Dato' Seri Najib Razak on the 1MDB-related scandal, that is the RM4 billion SRC International, which is the former subsidiary of 1MDB.  Similar to 1MDB, the money which was borrowed from KWAP has been invested in mysterious and unknown funds overseas.  No one, including anyone from the Ministry of Finance (MOF) knows where the money has disappeared to.

The Prime Minister and the Attorney-General have also stubbornly refused to respond to the clear-cut evidence which have shown that SRC International has transferred, via intermediaries, at least RM67 million into the personal bank account of Dato' Seri Najib Razak.

However, it appears that Dato' Seri Najib cannot remain silent forever as, like 1MDB, the international authorities are catching up to the SRC International laundering scams.

The Swiss Attorney-General Office (OAG) has publicly stated that investigations revealed that substantial amounts of money were allegedly misappropriated from former 1MDB subsidiary SRC International and that fraud was committed based on a form of “Ponzi” scheme to cover it up.

Dato' Seri Najib Razak can no longer choose to remain silent in the face of another international investigation over funds which he controls.  He must come forward and disclose if the allegations made by the Swiss authorities are frivolous or are they substantive, which will require an open and thorough investigation in Malaysia.

In addition, Dato' Seri Najib Razak must state if he will provide full cooperation with the Swiss authorities who are demanding and requiring information from their counterparts in Malaysia.  Or is he going to merely pay lip service and ignore the requests?

At least in 1MDB, for the longest time, there were "faces" who responded to questions and queries, like Datuk Shahrol Halmi and Arul Kanda.

The question Malaysians have is, who is or are running the show in SRC International?  As far as we are aware, the Managing Director of SRC International, Nik Faisal Ariff Kamil has disappeared off the face of Malaysia together with another fellow Director, Datuk Suboh Yassin.  And yet despite their disappearance, they have remained Directors in SRC International over the past year or more.  In fact, when asked, the Prime Minister had responded in Parliament that there is no need at all to appoint new Directors or a new management team.

It is a testament to the failure of Malaysian institutions, entrusted to safeguard the people's money as well as law and order, that nothing concrete has been done to uncover another massive embezzlement of RM4 billion of funds from a state-owned subsidiary.  What have the police, Bank Negara Malaysia, MACC or the Attorney-General's office been doing?  Have they been closing both eyes because the scandal involved the Prime Minister himself?

If Dato' Seri Najib Razak believes that the Swiss allegations are frivolous and untrue, then he should immediately demand the Auditor-General commence a new report specifically on SRC International and table the report to Parliament.  If not, there is no longer any credibility to his administration which will be etched in history as the single biggest den of thieves.