Tuesday, January 31, 2017

Dato’ Seri Najib Razak must explain why the price of petrol increased so drastically despite international crude oil prices having fallen slightly in January

Malaysians of all races returning from the Chinese New Year holidays received a shock when Dato’ Seri Najib Razak presented them with a big “ang pow”, a big hike in fuel prices.  RON95 and RON97 prices went up by 20 sen to RM2.30 (9.5%) and RM2.60 (8.3%) respectively while diesel cost went up by 10 sen to RM2.15 (4.9%).

This follows from the already big hike Malaysians have experienced since January where all types of fuel already increased in price by 20 sen.

While it was painful, Malaysians could perhaps have understood when fuel prices went up for January.  It was as a result of an increase in global crude oil prices for the month of December.  Brent crude prices went up from US$51.48 to US$56.73 in December 2016.

However, Malaysians cannot understand why the prices were increased for February when the Brent crude price actually declined slightly in January to approximately US$55.86.

Even when we try to second guess that perhaps it’s due to the ringgit depreciation, it also doesn’t add up.

In December 2016, the ringgit depreciated from RM4.38 to RM4.48 for every US Dollar.  However, for January 2017, the ringgit is currently trading at approximately RM4.42 to the dollar, which means it has strengthened marginally for the month.

Therefore, the increase in fuel prices cannot be as a result of any increase in crude oil prices or further depreciation of the ringgit.

Hence Dato’ Seri Najib Razak, as both the Finance and Prime Minister, must explain why the price of petrol has increased so significantly despite the above.

The Ministry of Finance must disclose if the Government is actually imposing hidden taxes on the consumers to cover up for Government budget shortfalls?

Barely a week ago, Dato’ Seri Najib Razak said he did not want a situation where ministries use excuses, like “not enough budget” to not implement people-oriented projects.  “Not receiving money or not enough budget should not be an excuse for any operating ministries to not start a project or programme,” he added.

If the above the reason for the hefty hike in fuel prices so that the people are forced to pay for the so-called “people-oriented projects”, so that the Najib-BN administration can claim credit?

We call for the full disclosure of the data, formula and exact details on how the fuel price hikes are calculated so that Malaysians know exactly why they have been forced to suffer as a result of the Government’s policies.

Saturday, January 14, 2017

Ministry of Finance plans to wind down 1MDB by taking over 1MDB’s assets, but how much, Dato’ Seri Johari Abdul Ghani?

In a series of announcement since the middle of 2016, the Ministry of Finance has announced that it is slowing taking over all the real estate projects from debt-stricken and scandal-ridden 1MDB.

The Wall Street Journal has already reported in June last year that the Ministry of Finance (MoF) has signed a shareholder agreement that will see the ministry take over 1MDB's stake in the Bandar Malaysia development project.

The agreement will see MoF hold a 40% stake in Bandar Malaysia Sdn Bhd, the joint-venture company that will develop the 486-acre site of the former Sungai Besi Royal Malaysian Air Force base.  The remainder of the 60% stake has been sold to a joint venture between Iskandar Waterfront Holdings Bhd and China Railway Engineering Corp.

Last month, the Second Finance Minister, Dato’ Seri Johari Abdul Ghari told The Malaysian Reserve that "Tun Razak Exchange (TRX) is now taken over by the MoF and we are going to complete the entire project. We will complete it.  We will have to finish it. Otherwise, we will have to leave it to 1MDB and they will never be able to do it."

Yesterday, the Minister confirmed to Malaysiakini that 1MDB is winding down with the disposal or transfer of its assets to MoF.  "It is not winding up but it is in run-off operation. We don't conduct any new business.  We can't wind up the company until all the debts are settled and amounts due from disposal of assets are collected," Dato’ Seri Johari said.

At the surface, all appears well and good.  However, the big question to ask is, how much of 1MDB’s liabilities is the MoF taking over?  The Government must not quietly mask a multi-billion ringgit bailout of 1MDB with the innocuous announcements that the MoF is taking over 1MDB’s key assets in Bandar Malaysia and TRX.

Has the Government taken over Bandar Malaysia’s RM2.4 billion of sukuk bonds, of which only less than RM800 million was used for the purposes of the project while the balance of the bond proceeds was used for purposes unrelated to Bandar Malaysia?

At the same time, has the Government agreed to take over 1MDB’s RM800 million sukuk bonds borrowed from the Pension Fund (KWAP) which were meant for 1MDB’s real estate development but was instead used for other purposes?

The Government should assume any of the borrowings taken by 1MDB which have not been spent on the development of the 2 real estate projects.  Any amounts beyond that would tantamount to a backdoor multi-billion ringgit bailout of 1MDB which have lost billions from corruption and misappropriation.

What’s more, 1MDB has benefited from the sale of these 2 pieces of land after selling various parcels to third parties.  For example, despite acquiring the TRX land from the Federal Government for only RM64 per square feet, 1MDB sold TRX land to Tabung Haji and Affin Bank for more than RM2,700 and RM4,000 per square feet.   Similarly, 1MDB has sold 60% of Bandar Malaysia for a purported RM7.41 billion but acquired 100% of the land from the Federal Government for only RM1.6 billion.

Effectively, 1MDB gets to keep all of the multi-billion ringgit of astronomical profits from the sale of land it bought at bargain basement prices, while the Government is forced to absorb all the loans and liabilities incurred by 1MDB.

It becomes a triple-whammy for the people of Malaysia where (i) tax-payers funded GLCs were forced to pay sky-high prices to acquire the 1MDB land, (ii) 1MDB gets to keep all the ridiculous profits to cover up its stolen billions with none returned to MoF, while (iii) the Rakyat has to foot the bill of the billions of ringgit of loans assumed by the Ministry.

Dato’ Seri Johari Abdul Ghani must not hide the above matter from the public but instead provide full disclosure of the terms of the “take over” of the 1MDB assets and justify why and how much Malaysians will be forced to pay for the shenanigans which have taken place in 1MDB.

Wednesday, January 11, 2017

1MDB Foundation RM690 million spend: “corporate social responsibility” or reckless and irresponsible vote-buying for the BN administration?

1MDB has proudly announced that since 2010, its foundation has spent RM690 million into "worthy causes" which had benefited 2.8 million Malaysians through 60 projects in education, healthcare, youth development and community services.

"Examples of such activities can be found on the 1MDB website, ranging from Dana PIBG grants and academic grants to SPM and STPM students to academic grants for Sri Murugan Centre and Unified Examination Certificate holders, as well as Dana Belia 1Malaysia and 1Malaysia Mobile Clinics,” the company elaborated in its statement.

1MDB also emphasized that the funds were generated from “its legitimate business operations, formerly in energy production and more recently, in real estate development”.

1MDB’s generous spending in corporate social responsibility (CSR) appears to set the ultimate benchmark for all other companies to emulate.  1MDB’s statement and outsized CSR spend were clearly designed to enhance the perception of the state-owned firm as a benign and benevelont corporation, a stark contrast against its much maligned global reputation.

The only problem, and the crucial one, is that 1MDB never generated these cash from its businesses past and present.

For its “profitable” energy business, 1MDB borrowed extensively to acquire them for an overpriced RM12.1 billion.  The borrowings were so big that the profits from the energy companies were insufficient to even service the interest of the relevant loans in the group, what more the principal.

As a result, 1MDB was “forced” to sell its energy business for RM9.83 billion, suffering a huge loss of RM2.27 billion.

However, at least 1MDB’s energy business was generating productive revenue.  1MDB’s real estate business never took off for the years in question.  The land 1MDB acquired was alienated to 1MDB by the Federal Government at bargain basement prices.  The company was sold undeveloped land to Tabung Haji and the Armed Forces Pension Fund (LTAT) group, who were cajoled into buying at astronomical prices.  For example, LTAT subsidiary, Affin Bank paid RM4,500 per square feet for a piece of land in Tun Razak Exchange, when 1MDB acquired it from the Government at only RM64 per square feet.

What is vital to note is the fact that despite the sale of land at astronomical prices, 1MDB still cannot settle its outstanding debts that remains in excess of RM35 billion today.

As we have discovered via the Swiss Attorney-General Office and the United States Department of Justice, at least US$5 billion have been misappropriated from the 1MDB funds while more than US$730 million of the amount have found its way into the Prime Minister, Dato’ Seri Najib Razak’s personal bank account in Malaysia.

Hence effectively, 1MDB wasn’t executing its CSR programmes from its cash pile arising from the company’s profits.  Instead, 1MDB was pretending to be a big profitable company, spending big on CSR via its mega-borrowings which it is now unable to service.

Worse, the burden of these loans are now dumped squarely on the shoulders of ordinary Malaysians who are forced to bailout 1MDB via the Federal Government.  In short, we Malaysians are footing the bill, with interest, the money that 1MDB has so “generously” spent on us via its CSR programmes.

This leads to the conclusion that 1MDB is not the benign and benevolent entity it sought to portray but a recklessly irresponsible one causing greater hardship on the rakyat.  And it did so with the clear intent to influence and “buy” votes for the general elections to prop up the corrupt Najib administration.

Sunday, January 08, 2017

Be it “Parker Randall” or “Afrizan Tarmili Khairul Azhar”, will new 1MDB auditors act as “independent auditors” in an objective, professional and timely manner?

Scandal-ridden 1MDB has finally appointed new auditors to replace Deloitte Malaysia who resigned since the middle of last year.  Deloitte is the 3rd audit firm which have resigned in 6 years, following Ernst & Young and KPMG.  The new 1MDB chairman, who is also the Treasurer-General, announced that “Parker Randall” appointed to the task two days ago.

A little storm was created as “Parker Randall” in Malaysia is essentially Malaysian audit firm, “Afrizan Tarmili Khairul Azhar” (aftaas) with 4 partners, based in Sri Rampai, Kuala Lumpur.

As the corporate profile downloaded from the firm’s website stated, aftaas is “a member of Parker Randall International” which is an “international association of independent audit and accounting firms”.

As highlighted by Malaysiakini, each member firm of Parker Randall in each country is a separate and independent legal entity. Malaysiakini also pointed out that the 2011 ranking on the largest law and accounting firm networks ranked Parker Randall at 56 among 60.  Parker Randall also did not make the list for accountancy publication Accountancy Age's 'Top 100' survey for 2016.

However, what is ultimately most important for Malaysians isn’t the question of whether it is Parker Randall or Afrizan Tarmili Khairul Azhar carrying out the 1MDB audit.  What is of utmost importance is whether the newly appointed firm will carry out their responsibilities as “independent auditors”, and I emphasize “independent”, in an objective, professional and timely manner.

For a start, this is the perfect opportunity for aftaas to prove that they can do a better job than global giants, KPMG and Deloitte who have failed miserably in their audit of 1MDB by signing off financial statements which were at best misleading, at worst completely fraudulent.

Both KPMG and Deloitte failed to detect even a single dollar of misappropriation from 1MDB in the five financial years ending March 2010 to 2014.  We have since discovered, with confirmation from both Bank Negara Malaysia, the Switzerland Attorney-General as well as the Department of Justice of the United States that at least US$5 billion has been siphoned from 1MDB into private off-shore firms owned by Low Taek Jho, fraudulent entities masquerading as legitimate Abu Dhabi companies as well as dodgy investment funds which acted as money laundering conduits.

The Parliamentary Public Accounts Committee has also similarly provided evidence of the complicity of the 1MDB top management who signed dubious agreements and provided false information to the Board of Directors as well as the regulating agencies.

The previous auditors were so badly and disgracefully duped that Deloitte found it necessary to announce the withdrawal of their recognition of 1MDB’s March 2013 and 2014 audited accounts which they had previously signed off without any qualification.  Deloitte said that the above accounts “should no longer be relied upon”.

Hence, regardless of what the 1MDB directors and management might think, it is important for Parker Randall and/or aftaas to carry out a thorough audit of all the questionable transactions of the past where billions of dollars have been misappropriated.

Therefore, the first task by aftaas is simply to review and restate 1MDB’s 2013 and 2014 financial statements which have been withdrawn by Deloitte.  The Companies Act requires the annual submission of financial statements endorsed by an appointed external auditor to the Registrar of Companies.  It is the statutory requirement for the independent auditor to carry out the above task and Directors who fail to ensure that the above are duly completed in a timely matter may be punishable by up to 5 years’ jail or thirty thousand ringgit.

Following that, with the “right” opening balance determined, then aftaas can proceed to conduct the audit for March 2015 and 2016 which are both already overdue.

If aftaas fails to perform the above review and audit, they can be assured that not only their market reputation will be left in tatters in Malaysia, their international affiliation, Parker Randall – whose credibility 1MDB is banking on – will be similarly disgraced internationally and dragged through the mud.

Thursday, January 05, 2017

While blinkered Treasury-General Tan Sri Irwan Serigar continues to praise the Emperor’s new clothes, little hope of seeing meaningful changes to Malaysia’s drifting economy

The dreadful performance of the Malaysian ringgit and a listless economy under-performing its potential are not merely depressing news but have caused Malaysians plenty of pain.

And yet, the most senior civil servant in the Ministry of Finance, arguably a most powerful one, the Treasury-General insisted that all is well, and what is wrong is only “a matter of perception”.

"I go to restaurants and supermarkets, who are there? People are buying and travelling.  Some group of people are making noise as though the whole country is in trouble,” Tan Sri Irwan Serigar quipped at a press conference yesterday.

We are stunned that the Treasury-General thinks that just because there are people in restaurants and people are still visiting the supermarkets for the daily needs, everything’s fine and dandy with the economy.

Does he expect all Malaysians to be jobless and living in the streets begging for food before he would recognise that the economy is in trouble?

According to him, the plummeting of the ringgit was a short-term phenomenon that would recover in the middle-term following the measures taken by Bank Negara Malaysia (BNM).

However, isn’t that exactly what the Ministers and BNM have been telling Malaysians annually over the past 4 years as the ringgit lost more than 40% of its value against the dollar?  How can it still be a short-term problem when we are consistently the worst performer among the major regional currencies for each of the past few years?

Worse, the latest Nikkei Malaysia Purchasing Manager’s Index (PMI) clearly cited that our manufacturing production has been shrinking for 21 consecutive months, with no signs of improvement.

The PMI is derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases.

How can Tan Sri Irwan continue to insist that all is well when our manufacturing performance is so pathetic despite the fact that our substantially depreciated currency should have made our goods so much cheaper and competitive?

The biggest shocker from the press conference however, is the fact that he believed that all the negative perception arising from the problems with the economy will be righted and vanished immediately once the media publish his “all is well and good” assurance.

He told the media to contribute to the ringgit appreciation through positive reports about the currency and economy.  "Hopefully, when you publish today's briefing, the ringgit will be strengthened," said Tan Sri Irwan.

How we Malaysians can renew our hopes on the economy when we have such a hopeless Treasury-General is beyond me.

Tan Sri Irwan Serigar’s refusal to address and resolve the issues surrounding the tens of billions of ringgit which have been siphoned from the Ministry of Finance subsidiaries, 1MDB and SRC International, which made Malaysia an infamous kleptocratic capital of the world is one thing.  After all, he is not the first person you would accuse of “cari makan”.

However, his woeful attempt to wave away our economic misery with his magic wand without recognising the problems we face and without offering any concrete measures to remedy the situation proved beyond doubt that the Najib administration is completely bankrupt of ideas.

In order to have any chance of reviving our currency and economy, the Najib administration must be replaced and there is no better time than the impending general election.

Wednesday, January 04, 2017

2017 – Relief and recovery for the Ringgit, or more pain and punishment?

While 1MDB and the Prime Minister Dato’ Seri Najib Razak’s kleptocratic scandals were unquestionably the most talked about topic for 2016, it is the Ringgit’s relentless depreciation which would have caused the most pain for ordinary Malaysians.

Over Christmas, I managed to take my family for a week’s holiday in Chiang Mai – our first since I was banned from overseas travel for allegedly taking part in “activities detrimental to parliamentary democracy” in July 2015.

One would have assumed that travelling to the “backwaters” like rural Thailand would have been easy on the pocket.  Well, in the past, trips to Thailand did make me feel “richer”.  When you walked the colourful and rambunctious street markets, you needed to exercise maximum self-restraint to prevent oneself from having to purchase additional luggage space from AirAsia because everything was “cheaper”. 

Not anymore. Now, the Baht-Ringgit exchange rate will automatically keep you disciplined.

As late as August 2014, the currencies were trading at 10 Baht to the Ringgit. Today, it’s 8 to 1. And to rub salt on the wound, the Ringgit ain’t particularly welcomed by our neighbours. 

Needless to say, if a trip to Thailand could make you feel kinda poor, a journey south to Singapore would make you feel like a destitute.  Think about it, a budget Hotel 81 room in the fringe of the city would cost you just about S$100, or RM310 per night.

Ringgit déjà vu?

So, will we get to see some desperately yearned for relief and recovery of the Ringgit this year?

Most pundits are telling us that the Ringgit is undervalued and will recover by the second half of this year.  PublicInvest Research said the Ringgit will recover to average between 4.10 and 4.15 for 2015 against the US Dollar, which is currently trading at 4.48.

Dato’ Seri Najib Razak would similarly like you to believe that the ringgit will recover.

“With the recent changes and developments, we are confident the ringgit will recover.  It is due to speculation by outsiders and the uncertainties in the United States that the ringgit dropped, and not because the ringgit is weak,” he said in December when the Ringgit traded at 4.42 to the Dollar.

But didn’t they all say the same thing last year?  Or for that matter, the year before?

The Prime Minister told us way back in January 2015 that the Ringgit will bounce back from the then five-year low versus the US dollar as “Malaysia's financial market is sufficiently robust”.  Believe it or not, the Ringgit was then trading at 3.60 to the Dollar, which now seemed like a parallel universe away.

If we had all trusted our Ministers and invested based on his financial advice, some of us would be bordering suicidal tendencies today.  2016 was the Ringgit’s 4th consecutive year of decline against the US Dollar.

The thing is, if everyone else had declined at the same rate against the Dollar, it wouldn’t have felt so bad.  What is particularly galling is that the Ringgit performance is the worst among all the major regional currencies.

In 2015, the excuse given was straightforward – the Ringgit suffered more because we were an oil-exporting nation.  As the price of global crude collapsed from US$102.10 in January 2014 to US$60.70 (Dec 2014) to US$36.57 (Dec 2015), it is almost understandable that the Ringgit would be disproportionately pummelled. 

The pundits had predicted that the Ringgit would recover with the recovery of oil prices last year.  They were indeed spot on in their prediction of higher oil prices with the Brent crude trading at US$55 a barrel by December 2016.  Unfortunately, despite the oil price reversal, the Ringgit value worsened significantly.

How was that even possible?

No more an export powerhouse

Back in November 2015, the then Bank Negara Governor, Tan Sri Zeti Aziz told an international audience that the Ringgit was “significantly undervalued” as our “export growth remains fairly strong”.

Except it wasn’t.

Conventional economic theory tells us that as our currency gets depreciated, our goods become cheaper and consequently the demand for them increases.  A robust increase of the export of our goods and services would in turn increase the demand for our currency and hence provide a strong platform for the recovery of our ringgit and economy.

Well, the Ringgit was massacred in 2015 when it depreciated by nearly 20%.  On paper, that makes our exports dirt cheap in 2016.  And given that we have always prided ourselves as an export-oriented economy, our goods should definitely be flying off the shelves as they became extremely competitive.

But the Government’s own statistics tell us that our exports barely eked out a gain.  The 2016/2017 Economic Report published in October 2016 tells us that our Gross Exports for January to August 2016 grew by only 1.1%, compared to 1.6% in 2015.

More specifically, the electrical and electronics exports, the pride of our manufacturing industry, grew by only 2.2%, a substantial decline from 7.4% in 2015.  While 2.2% might have been just about acceptable under normal economic circumstances, the number is pathetic given the depreciation the Ringgit suffered.

Worse news followed since the above report, when the Department of Statistics disclosed last month that our exports declined 3.0% and 8.6% for the months of September and October respectively.

Separately, the latest Nikkei Malaysia Manufacturing Purchasing Managers' Index, or PMI which measures manufacturing activities shows that the sector “in contraction territory for 21 consecutive months”.

The headline PMI posted for December was 47.1 signalling continued deterioration.  A score above 50.0 signals improvement in manufacturing conditions, and Malaysia has not reached a score of 50.0 since early 2015.

Living and La-La Land

There is no question that our economy is suffering from something chronic which needs immediate treatment.  Alarm bells should have been blaring deafeningly in Putrajaya but all we get is Ministers with their heads in the sand. 

Prime Minister Najib Razak welcomed 2017 by boasting that Malaysia has achieved a growth rate the Western world can only “dream of”.

“Our estimated growth rate of 4.3 to 4.5 percent for this year is one that developed countries in Europe and North America can only dream of.  Malaysians should be proud of the growth we are achieving.”

A statement from the Barisan Nasional strategic communications team earlier in December also boasted that “Malaysia’s economic growth is less volatile and more robust than Singapore’s as a result of the Najib administration’s shift towards the domestic economy.”

Of course the fact that developed countries have a different growth trajectory compared to developing ones was irrelevant.  What was more important to the ruling leadership was the continued thumping of the chest to praise and glorify the Emperor in the eyes of seemingly gullible Malaysians, even if the Emperor is really naked.

So what’s really happening?

A loss of confidence

The anticipated explosive growth in exports and manufacturing activity as a result of persistent depreciation of the Ringgit never materialised. Either no one wants to buy more Malaysian products even though they are significantly cheaper or more plausibly, businesses and investors are not investing in additional production capacity in Malaysia.

They are at best adopting the “wait and see” strategy or at worst, have decided in investing their money in other countries.  There could be many reasons for this, including perhaps a increasingly limited supply of skilled and quality labour, a weakening education system or the bureaucratic and corruption cost of doing business. 

However, anecdotal evidence would tell you that one of the key factors is the fact that they have lost confidence in the country.  A country led by a Prime Minister who has been indicted as one of the worlds biggest kleptocrat would and could never inspire confidence in genuine investors.

The complete failure of the institutional authorities to take enforcement actions against blatant and brazen corruption has destroyed whatever that’s left of Malaysia’s long-standing reputation as a country they could do business in.

Bank Negara saves the day?

Bank Negara Malaysia is now forced to implement increasingly desperate measures to stem to tide against the Ringgit.  They now include the restricting the off-shore trade of the Ringgit via non-deliverable forward contracts, and more controversially, the move to compel exporters to convert 75% of their proceeds into Ringgit.

The Central Bank is claiming success for its policies, stating that the measures are starting to bear fruit, following lower volatility in the ringgit.  Sure, such short term measures will provide immediate support for the Ringgit as it mops up whatever excess liquidity existing today. 

However, as explained earlier, Malaysia being an “export-oriented country” is heavily dependent on continued investments in our export sectors, manufacturing or otherwise.  If the use of your future export proceeds are restricted and the hidden cost of doing business in Malaysia increases, then who would want to invest in new or additional production capacity in the country?

Current exporters would not have a choice in the repatriation of export proceeds as demanded the authorities.  But they and future investors – both local or foreign – have a choice in where they choose to invest in the future.  With alternative competing investment destinations aplenty today, such short-term Bank Negara measures will only further dampen the medium and longer term demand for the Ringgit, jeopardising any eventual recovery.

A new normal

We used to pride ourselves as an export and manufacturing powerhouse.  We are used to being described as an “economically resilient” country, even if it was somewhat a function of striking oil lottery, especially during the decade of high oil prices.

Unfortunately, the hard statistics are becoming hard to refute.

I would be foolish to give a specific prediction of how the Ringgit will perform over the next 3, 6 or 12 months even as it hit 4.50 to the Dollar yesterday, a new record low since the Asian Financial Crisis.  However, it would be more than fair to say that the downside risks significantly outweigh the upside prospects given the reasons explained above.

For Malaysians, perhaps its time to accept the new normal.  We have lost more than 40% of our wealth in US Dollar terms over the past 3 years. The lost of wealth will be reflected in higher prices of goods and services – including the higher price of petrol as oil is traded internationally in Dollars.

Although it is not impossible, this new normal will be extremely difficult to reverse.  In fact, it more than likely to get worse given the utter inability by the Najib administration to rectify the failures of the economy.

I would be foolish to give a specific prediction of how the Ringgit will perform over the next 3, 6 or 12 months.  However, it would be more than fair to say that the downside risks significantly outweigh the upside prospects given the reasons explained above.

The only way Malaysians can hope for “the good old days” to return is to see a change of regime.  The new regime needs to cleanse the country of its kleptocratic reputation and wipe out the scourge of grand corruption from the Government.  It needs a new, intelligent economic team which isn’t encumbered by sacred cows decreed by those who are desperate to stay in power at all costs.  It really isn’t rocket science.

Then perhaps, we will see a meaningful, significant and sustained recovery of the Ringgit, and our wealth over the longer term.