Investigate Malaysia's debts now

Newsflash:

Investigate Malaysia's debts now

Written by Pak Sako Thursday, 21 February 2013 11:34

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This is the first part of a three-part CPI series on Malaysian debt. It analyses former PM Mahathir Mohamad's claim that Malaysia's debt is healthy.

The following parts will consider respectively the trajectory of government debt and the shortcomings of the debt-to-GDP ratio used to appraise Malaysia's debt level.

Part 2 - 'Malaysian government debt to approach RM1 trillion by 2020'

Part 3 - 'Malaysia's debt: the misleading debt-to-GDP ratio'

Former prime minister Mahathir Mohamad claimed last week that Malaysia's current debt level is “healthy” compared with Greece's.

But the debt-to-GDP percentage Mahathir relied on tells next to nothing about the full extent of Malaysia's debts; the nature of these debts; or what can happen next.

The real devil lies in the details, namely:

(i) the trend in the debt level.

How has it changed in the recent past? Is there momentum in a certain direction? The federal government's debt had doubled in just four years from 2007 and 2012. Will it stop growing, or will the trend and absolute totals continue their upward rise?

In the last decade, our finance ministers have repeatedly pledged to reduce the budget deficits. This has not happened. Instead, deficits have ballooned and the federal government's debt has mounted.

(ii) the causes of debt.

For what are the borrowings and for whom? Are these borrowings for worthwhile investments that benefit the public? Are these liabilities being used to cover government operating costs or to prop up failing crony companies or the stock market? Is the use of costly loans for projects with low or no rates of return justified?

Almost a trillion ringgit was recently whisked out of the country in the form of illegal outflows. This is capital flight. It is conclusive evidence that our economy is 'leaking out' wealth.

Capital flight explains what the crony private sector and other rent-seekers are doing with their ill-gotten gains: they are squirreling these away in offshore accounts in Swiss banks and tax havens such as the Cayman Islands.

It is no wonder that private-sector investment in Malaysia is dismal. To make up for foregone domestic investment and job creation, environmental standards and taxes are lowered to lure foreign investors such as Lynas.

(iii) the types of debt, both known and “hidden”.

How much of the debt is borrowed from the savings of citizens (internal debt)? How much is borrowed from foreign lenders (external debt)? How much of these debts is government debt, and how much is private?

ringgit-debt A big chunk of Malaysia's debt, RM467.4 billion as of September 2012, is internal debt (Bank Negara Malaysia, Quarterly Bulletin, Third Quarter 2012).

This is the portion of debt that is popularly spoken about — the debt-to-GDP percentage of 53% involves almost entirely this debt.

This is money borrowed domestically from the savings of citizens. It is money belonging to individuals taken from the Employee Provident Fund (EPF), Tabung Haji, pension funds and other social security organisations and institutions (see 'Debt growing but manageable, says MOF', The Malaysian Insider, 28 September 2012).

At what rates of return are Malaysians being compensated for this borrowing? Will they recover their savings at all? Will they be fraudulently 'compensated' with funds coming from the liquidation of oil and forest assets; in other words, from the public's own pockets? Or will a Ponzi scheme be devised to borrow more to honour commitments that come due?

Wholly separate from internal public debt is private external debt — money borrowed from foreign lenders. This is a portion of debt that is hardly spoken about.

The government's external debt is RM17.3 billion as of last September, according to Bank Negara. But this is the tip of the iceberg.

We should also be very interested in the private sector's external debt.

Because when private companies borrow from foreign lenders, the government is obliged to pay off these debts if the companies fail to do so. Simply put, citizens might have to pick up the tab. That is what happened in the debt crises in the West.

That is why this category of external debt is called 'publicly guaranteed debts'.

Beyond these, there is the 'non-guaranteed' debt obligation of the private sector. These affect the overall creditworthiness of the nation and also cannot be ignored.

Bank Negara says Malaysia's total external debt was RM257.8 billion at the end of September 2012.

How much of this is publicly guaranteed debt held by private corporations?

It is alleged that one Malaysian tycoon and his group of companies owe RM34 billion ('Syed Mokhtar's debts raising fear of future bailout, says Tony Pua, The Malaysian Insider, 27 September 2012). How much is publicly-guaranteed? What about other Malaysian corporations?

More disturbing are the claims that the Malaysian government has large hidden debts.

These are “contingent liabilities” and “off-balance sheet” borrowings, which are said to have amounted to RM117 billion in 2011 (see ''Hidden debt'' edges M'sia beyond 55pct limit', Malaysiakini, 27 September 2012).

There is also little knowledge about annual interest payments and the due dates of debts.

Any meaningful public discussion of Malaysia's debt situation must consider all of the above.

Neither the Ministry of Finance nor Bank Negara give a full picture of all of the above.

Mahathir Mohamad said nothing about any of the above.

He told Malaysians not to worry about debt because our foreign reserves are strong.

But foreign reserves or public wealth are not for settling the illegitimate debts accumulated by corrupt regimes. They are not to be used as collateral to pile on new debts or service existing ones.

The size of the foreign reserves gives false comfort. During the 1997 East Asian crisis the government devalued the total stock of ringgit using a currency peg. Foreign reserves took the hit and shrunk.

Mahathir Mohamad's comments lull Malaysians into a false sense of security. These comments should however serve as a wake-up call. Malaysians should demand for clarification about Malaysia's total debt and its consequences. The Ministry of Finance and Bank Negara should respond.

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Comments (5)

27-04-2013 | ross - Reply to Stalin Harding

You are right abt Anwar can't decide whether this evil fleck shld be prosecuted or not. But has it ever occur to you Anwar fears for his life? Let's change government first and put pressure on new govt later. One step at a time. UBAH. UBAH. UBAH.

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23-02-2013 | Stalin Harding

Once upon a time . . . there was a country that had a very well-known leader.

These are some of the facts about this leader :

He wrote a book about racial issues.
His country was poor until he industrialised it.
He promoted the creation and manufacturing of the first national car.
He promoted the development of science in his country .
He made sure that his country hosted a world-class sports event.
Large and impressive stadiums were built for that purpose.
He had to deal with a severe currency devaluation.
He insisted that the problems of his country were due to a conspiracy by Jews, foreign powers and obscure elements.
He criticised the major powers of the world.
Most of the countries in the world criticised him, but some said he was right.
He reduced political opposition to an insignificant level, and the press was controlled by him.
He had a number two who called for reforms and caused the
jealousy of other big shots in the party.
His number two, who had been with him for around 17 years, was finally removed under accusations of homosexuality and treason.

And the rest of the story is very well known......
Does this person sound familiar to you ?
Do you know who he is ?
Are you sure ?
Better think twice . . . . because you may be wrong! He was Adolf Hitler, the Nazi, the war criminal, the worst thought about this person in the history of this world..

Now ask yourself, is it probable there is somebody like that living in our age & time ??

A Pakatan gomen in Putrajaya must investigate Mahathir Kutty
too much harm had been done by him and his partners/cronies in crime and too many BILLIONS hadbeen stolen during his tenure as PM and UMNO President; these BILLIONS must be retrieved for the people
Anwar has no right to say he's not going after Mahathir;if he insists on not "going after" Mahathir,the people will over=rule him;
all UMNO/bn/ politicians and their familieswho have stolen from the people must be brought to court and punished,especially Taib Mahmud and family of Sarawak
they must know in no uncertain terms that they will suffer the same fate like all the dirty and corrupt politicians like Marcos,Suharto,Gaddafi,Mubarak,etc
Maybe when Pakatan wins he may decide to jump off Petronas Towers...that will top it off and be a fitting end to the most recent most despised evil man in Malaysia
so mode it be

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21-02-2013 | terry

Scary but convincing data and new analysis from Pak Sako. I hope it can be taken up by all sides of the political divide. If Parliament were in session, there should be a special session focusing on the subject of debt and the financial strength of our nation. Terima kaseh Pak

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21-02-2013 | mark

Mahathir is a maverick(in the evil sense).
He gambled away billions of country wealth,billions in rescue money for his son,s company and GLC's(like MAS,Renong).But today where is Renong? and how has MAS fared?
When he lost in currency speculation and trading in tin futures,he never blamed himself but instead blamed the foreign parties.
He never show repentance for these blunders and always have some excuses for them.
It is no wonder the govt got to borrow more to cover all these losses.
If ever a new govt took over,he should be brought to court to answer all these criminal acts(i.e misappropriation of public money).

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21-02-2013 | najib manaukau - najib manaukau

To begin with what does this grand son of the pariah from Kerala, the shenanigan Mahathir know about economic when he couldn't even cure my cold after two visits to him as a doctor.
During his tenure as P.M. he was hiding all the nation's debt with money he took from Petronas, just look at Petronas accounts and it will affirm that. Even a current minister said that will happen !
No doubt Malaysia's debt is, at the moment, not as bad as Greece but surely it is not very far from bankruptcy.
At the rate the Najib is giving, or should I say, using the borrowed money to vote just to remain in Putrajaya it would take very long when Malaysia will have to implement austerity measure in the country. It is already rated the same as Spain and Italy. Very soon, very soon it will be the first country in South East Asia to go the way of Greece. Bankrupt and austerity measure will have to be implemented in Malaysia, where have all the nation's wealth have gone to ? May be go and borrow from Singapore or China, they have trillions of ringgit in their reserve. Or the shenanigan will bring in the billions he has stacked away abroad !
Or these scumbags and parasites from Umno can continue to dig into the people's savings at the bottomless EPF, after all these savings are not needed all at once immediately. To prevent these looting, by the Umno morons, from going on just kick them out Putrajaya in the coming GE, and this should have been done years ago. But it is better late than never !

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