Archive for the ‘Bank Negara’ Category



To claim that things are getting better in their tenure and because of them is an old Prime Ministerial habit. A PM is undoubtedly a very important person in our dispensation. The office is vested with great authority and there is an aura about the incumbent that often fools even the cameras whose lights seem to caress rather than expose the object of their focus. Our system of government, with so much power of patronage concentrated in one person, ensures that mostly fawning and obsequious people who constantly whip up a lather of simulated adulation surround the Prime Minister. PM’s consequently confuse the power of patronage with the power that ensures compliance. It is small wonder when our supreme leaders start thinking of themselves as King Canute’s who can order the waves about.

The reality is that like the ocean’s waves, economic waves too are cosmically controlled and PM’s are like King Canute’s who futilely wave their hands about. Happily most PM’s realize this and make sure they are seen waving their hands appropriately with the tides of growth and the ebbs of inflation. But once in a while we get a leader who actually believes that the waves are obeying him. That is when we enter dangerous waters.

I recently attended an event that Prime Minister Najib Razak addressed. Unlike most other PM’s with the exception of Tun Dr Mahathir, he came promptly at almost the appointed minute and walked briskly to his place on the dais. He listened as the host, with a wry sense of humor, exclaimed how fortunate Malaysia is to be united as never before under one charismatic man. The Prime Minister looked on expectantly and the audience was suitably primed to roar its approval.

The Prime Minister then spoke and without much ado took the fight straight to the critics, a few of who like me were seated in the back row. He said: “For Malaysia to be at the top of the growth tables is an unusual situation. Obviously, there are some who find that difficult to digest and come up with imaginative and fanciful ideas to belittle that achievement.” This is unfair. But it is churlish to say that his critics do so because his government is perceived unable to resolve the debt-ridden government strategic investment arm, 1MDB’s RM46 billion debt or address the falling value of the Ringgit. To be truthful based on facts as perceived does not mean a person takes pride in belittling one’s own country? Is the next litmus test of patriotism going to be supporting the PM’s extravagant flights of fancy?

The Prime Minister’s case is that “Malaysia’s economic success is the hard-won result of prudence, sound policy and effective management.” He repeated: “Malaysia’s growth rate is acknowledged as the highest among major economies.” With evident sarcasm he added that his critics are confused when they say, “the growth rate does not feel right” and generously offered to alleviate the confusion with “facts in place of feelings.” The point here is no critic of any consequence ever argued that the growth rate “does not feel right.” They have just said that his government’s interpretation of the facts is not right.

Take GDP growth for instance. Few argue that the “real’ GDP growth is 4.97% as his government is claiming though there have been serious misgivings on how the GDP calculations were tweaked to jump growth a further 1%. The problem here is the use of the term “real.” In the real world the number that matters is the “nominal” GDP growth rate, which is a measure of current market prices.

For much of the past decade Malaysia’s nominal GDP growth was in the 4% range and corporate profitability growth was also in that range. Since inflation used to be in the 0.5% to 1.5% range, real GDP was in the 5% range. The present nominal GDP growth is 4.2%.

But the popular mood is determined by actual accruals and not by economic sleight of hand. In the real world it is the nominal GDP that matters. Corporate sales and profitability are calculated in nominal terms. Everyday commerce and business takes place in nominal terms. Government revenues are collected in nominal terms and levied on nominal incomes or sales. It is not a matter of feeling but the reality of life.

The fact is that 2015-16 has been a bad year for the Malaysian economy. In the budget for 2015-16 the government set a nominal GDP growth target of 5% . The nominal GDP growth turned out to be just 4.2%, which is below target. The real GDP growth of 4.97% is because of the collapse of world commodity prices and has little to do with the so-called “prudent policies.” Comparing apples with oranges can only fool some people for some of the time, and not all the people for all the time.

While on apples and oranges, food inflation is the inflation that matters to most people in this country where the average family expends over 60% of its income on food. This inflation has been well over 5% even though the government projected in the 2016 federal budget at 2% – 3%. Since the introduction of GST, the Consumer Price Index (CPI), which is used to measure inflation, has been on the increase. By the end of April 2015, the first month when GST was implemented, CPI increased 1.8 percent when seasonally compared to April 2014. In July 2015, four months after GST, CPI index was 3.3 percent higher than the same month a year earlier.

In his speech the PM also specifically referred to The Bantuan Rakyat 1 Malaysia (BR1M) monetary aid which will be increased to RM1,200 next year from RM 1,000 under the 2017 federal budget. The BR1M allocation will cost the government RM6.8 billion, to be delivered to 7 million households. The PM then goes into Tun Dr Mahathir bashing and says that BR1M is not “dedak”, but rather, it is a sincere assistance from the government to prioritise the rakyat’s needs.

Look at theses figures, Goods and Services Tax (GST) to rake in RM39 billion in 2016 (3.1 percent of GDP) (2015: estimated RM27 billion from April). Malaysia’s fiscal deficit is projected to decline to RM38.8 billion or 3.1 percent of GDP in 2016 (2015: 3.2 percent). Oil-related revenue to drop 14.1 percent in 2016 due to lower global crude oil prices (2015: 19.7 percent). The federal government expenditure to increase 1.7 percent to RM265.2 billion in 2016 (2015: RM260.7 billion). Nominal GNI (gross national income) per capita to increase 5.6 percent to RM38,438 next year from 4.2 percent anticipated growth to RM36,397 this year.

One is tempted to dismiss this as just fanciful claims, but in these times when ones patriotism and professional integrity is apt to challenged for lesser lese majeste, it will be prudent to just say: It’s time to get real!

Meanwhile honest heart-centered Malaysians continue to struggle to make ends meet, their ideas, talents finding little or no nourishing context in which to flourish.


Before concluding that the Panama papers are the Holy Grail of global corruption, certain facts must be viewed in perspective – one that the journalists involved in the expose have been careful to articulate but readers may have overlook due to the seductive conclusions big names tend to offer.

The papers are essentially records maintained by a law firm in a tax haven showing how several individuals used its services to set up entities and investment vehicles. Independently, this may not be a crime in several jurisdictions as the journalists have pointed out. But if properly investigated, they may reveal how some of those named might have used the route to evade rather than avoid taxes.

Beyond the fact that the records of one law firm are now out in the open, their disclosure, a remarkable journalistic feat by any measure, must be obvious that neither the presence nor the role of overseas tax havens are exactly a secret. They exist, as they have for a long time, and are used as much for avoidance as they are for straightforward evasion. While the Malaysian government has not been quick to announce a probe, it must view these disclosures in the backdrop of its avowed and largely unfulfilled objective of rooting out black money, especially money salted away overseas. In this context, the response of the Bank Negara Governor has been disappointing.

The ways of Malaysia’s rich and famous are increasingly becoming public knowledge. Prominent Malaysians’s, including one of the prime minister’s sons, Mohd Nazifuddin Mohd Najib, former Prime Minister Dr Mahathir’s son Mirzan Mahathir, even Kamaluddin Abdullah son of another former Prime Minister Abdullah Ahmad Badawi, owning offshore companies in Panama is just the latest of the unraveling, and adding them to the likes of Vladimir Putin, David Cameron, Xi Jinping and Nawaz Sharif among others.

Insofar as Malaysia is concerned, the onus is on tax and enforcement authorities to probe the names and information that have come into the public domain and evaluate these against declarations and filings made by the named individuals before reaching definite conclusions. This exercise must be concluded with urgent despatch, as any delay would in the event of a default deprive the exchequer of revenue. Equally, if the transactions are kosher, a delay would prolong an infamy. The suspicion here is that because of the nebulous nature of tax laws and the frequent amendments made by governments, many of these transactions will fall in the large grey space that almost by design exists between the black and white of the legal framework. In jurisdictions outside Malaysia, especially those where public persons must maintain the highest standards of probity, the revelations are bound to cause upheavals, as indeed they already have in Iceland. They are unlikely though to cause more than momentary discomfort to political figures like Russian President Vladimir Putin or Pakistan Prime Minister Nawaz Sharif, individuals who have in the past brushed aside such charges with disdain.

Panama is a small sliver of a country in Central America joining North and South America. Its immediate geographical neighbors are Costa Rica in the north and Colombia in the south. It is the narrow isthmus that separates the Pacific and Atlantic Oceans. A 77 kilometers long manmade canal capable of accommodating large ships joins the two oceans. The revenues from this were for long the nations biggest source of income since the canal opened in 1914.

Panama soon found that becoming a tax haven that assured investors of their privacy provided a more lucrative income. The proximity to the Americas, and the balmy Caribbean islands, and countries like Colombia with its huge cocaine production and export business, and Latin America’s many kleptomaniac tin pot dictators made Panama even more attractive. Till not long ago after the overthrow of Panama’s General Manuel Noriega the Canal Zone was under the protection of US troops and that too served as an incentive for Americans seeking an offshore tax haven.

Panama as a tax haven offers foreign individuals and businesses little or no tax liability in a fairly politically and economically stable environment. Tax havens also provide little or no financial information to foreign tax authorities. This in short is the reason Panama is so important to our moneyed people who have good reason to hide their real wealth.

This leaves us to ask: Why do the rich want to hide their wealth? Well, simply because they are not as wealthy as they appear to be. And if they honestly declared their true wealth they would not only be liable to pay more income tax but could also open many of them to various charges of corporate fraud and malfeasances that could earn them hefty prison terms. So the income they cannot declare gets hidden in a tax haven. The big bucks are made and salted away.

A good part of this money is round tripped back to Malaysia via nearby Singapore. Not surprisingly in 2015 the top FDI investing countries was Singapore. Singapore is the home of hundreds of corporate entities that act as a pass through for funds being held overseas for Malaysians or Malaysian entities. Singapore is little more than cutouts for monies held in other more distant tax havens like Panama, Cayman Islands, Bermuda and Lichtenstein. The smaller the country the more pliable the officials.

According to Global Financial Integrity, a Washington DC based think-tank; Malaysians were estimated to have illicitly sent out $73 billion in 2015. Where does this money go? Countries like Switzerland that offer banking secrecy usually do not pay any interest on such deposits. So money goes to corporations in tax havens from where they are invested in businesses world over. Ever wondered how many local successful businessmen managed to get so big overseas, so soon?

This is where the Panama’s of the world come in. There was a time when Panama in Malaysia was synonymous with a man’s wide-brimmed straw hat made from the leaves of the Toquilla tropical palm tree. That Panama is long forgotten. Today’s Panama is synonymous with offshore corporations and assured secrecy. The times have changed.


In this time of stupefying political stagnation at the highest levels of the Government of Malaysia, good news is hard to come by. Good news is only possible when governments show that they are capable of firm economic and political decisions. And, there is not the smallest sign that the Najib’s government plans to do anything other than continue stagnating till the next general election somewhere on March/April 2013. Please do not allow 1Malaysia People’s Aid (BR1M) payment of RM500 to households with an income of less than RM3000 per month to fool you into believing that there are signs of renewal that are suddenly going to manifest themselves. The results of the last round of General Elections the 12th were so stunningly bad for UMNO that there is not a murmur of revival in the hot June air.

On the economic front, where there is the most urgent need for change, the Minister in the Prime Minister’s Department Datuk Seri Idris Jala also Chief Executive Officer of the Performance Management and Delivery Unit (PEMANDU) drops a bombshell that Malaysia will be bankrupt by 2019 if it does not cut subsidies and rein in borrowings. Idris a Sarawakian the former “Number One Man” for Sarawak Shell further added fuel when he said that Malaysia’s debt would rise to 100 percent of GDP by 2019 from the current 54% if it did not cut subsidies. And what is even more frightening is when Idris said that Malaysia was likely to become an oil importer as early as next year at the current rate it was consuming petroleum. It seems Malaysians continue to be among the highest fuel consumers per capita in the world fuel consumption habits pattern which generally has remained relatively unchanged despite increased oil prices in 2008. The damage that can be done by a tired, comatose government before 13th General Elections is too horrific to think about but do not despair. There are signs of good news from the states.

You would have noticed them if you read between the lines of the statements that were made in Keningau Sports Complex few days ago by Prime Minister Najib Tun Razak when he celebrated Tadau Kaamatan this year in Keningau with 20,000 Natives including, Huguan Siou Pairin Kitingan and Chief Minister Musa Aman. Najib openly acknowledged that Sabah is experiencing rapid growth under Musa Aman and Sabah in the first quarter of this year had attracted about RM10 billion from foreign investors including the Sabah Ammonia Urea (SAMUR) project in Sipitang and the Keningau Integrated Livestock Center and a lobster cultivation project in the east coast of Sabah. But, UMNO now rules only 8 states minus Sarawak, so it does not matter. What does matter is for chief ministers like Musa Aman, Lim Guan Eng and perhaps even Menteri Besars like Khalid and Tok Guru Nik Aziz to wake up to how they could become the engine that takes Malaysia forward despite the inertia in Putrajaya.

To wake up and become engine that takes Malaysia forward, sometimes the state governments should be vocal with the way development projects from the Federal is forced down their throats and not done according to the aspirations of the local population. So far they have only rebelled against the Rural Development Ministry’s attempts to set up rural development committees to bypass and to undermine the state governments without consulting them. In states were UMNO was not in control, the minister Shafie Apdal uses his district rural development committees to bypass and to undermine state governments. In states were UMNO is in control, the rural development program was used in a pork-barrel fashion to support local party leaders. And, the states are right to do so but they now need to become more vocal about other things like having centrally controlled development and welfare programmes rammed down their throats. I have met state ministers and state exco members who admit privately that they are often forced to sacrifice excellent welfare programmes of their own for the sake of national welfare programmes. Remember, the former Chief Minister Harris Salleh recently even said that Shafie’s Rural Ministry had even justified awarding a RM100 million tender amount for the Pulau Gaya electrification project when the actual tender cost was only about RM25 million. Harris Salleh even said that he had received “many complaints from rural folk” that the billions of ringgit allocated by the federal government for rural projects was not having an impact on their lives and these projects were introduced for the sake of contracts and most of them are of low standard.

This is wrong because I can confirm from my own field research that the rural development programmes and welfare programmes that work best are the ones that are locally controlled. I have said it before and I will say it again that if we are seriously interested in ensuring that not another child grows up malnourished and illiterate in Malaysia, the solution lies in giving kampong women control of food programmes. This is something that more enlightened chief ministers should start doing forthwith which brings us back to what chief ministers can do to become Malaysia’s engine of growth.

They must demand more control over their resources. The sight of chief ministers and Meneri Besars lining up outside the Putrajaya to beg for development funds is an ugly one. Some states are bigger than the whole of Peninsula Malaysia and they would develop and grow much faster if they had more control over their economies. Many distortions crept into Centre-State relations in those bad old days when UMNO controlled nearly all of our major state governments. These distortions need to be removed and should be quite easy to remove now that we see Non-UMNO chief ministers making common cause on matters of national security.

Once state governments start competing with each other to become popular tourist destinations, favorites for foreign investment and centres of excellence in rural development, education, healthcare, sanitation and infrastructure building, Malaysia will finally begin to really change.

If this starts to happen soon, then the deleterious consequences of having a stagnant government in Putrajaya and a Prime Minister who seems to be in a somnambulant state will be mitigated. At the moment, despite the “spectacular” success of BR1M, we are in the hands of so weak a government that not a day seems to go by without someone giving it a slap or two. In recent months, we have seen Ministers and supposedly faceless bureaucrat interfere publicly in matters of policy.

When Federal Ministers decide what our telecommunications and multimedia policy should be and when Ministers decides whether MAS should be refinanced or abandoned to its fate. And, when the Minister tells us despite possessing state-of-the-art warplanes, modern weapons  and submarines that the nation’s security was so fragile that it could be compromised by mineral water bottles and packets of salt, it starts to feel as if we do not have an elected government at all. The Chief Ministers and Menteri Besars have at least a mandate to rule and real administrative experience.


I picked up this letter written to Malaysia Today by a  chap calling himself  “SAS ( Saham  Amanah Sabah) Victim.” This is interesting subject, perhaps to me, because I have many  friends in KK who had invested a fair bit and lost their pants in this investment, after a steep fall of the SAS unit price during Yong Teck Lee’s time as Chief Minister. Till today many curse and swear Yong Teck Lee and Ambrose Lee whom they say is the “mastermind” behind the lost in their life-savings.

What happen was in 1998 there was a share swap deal between Warisan Harta Sabah Sdn Bhd of which Yong Teck Lee was Chairman and Suniwang Holdings Sdn Bhd of which Ambrose Lee was the Boss. The rational of entering into this transaction was that the Government through Warisan Harta could utilise a RM50 million fund. Yes Ringgit 50 juta. The RM50 million was to support counters in which Warisan Harta and Sabahans had investments.

As a result of the share swap deal Warisan Harta lost RM114 million. The RM114 million was lost after Warisan Harta under the chairmanship of Yong Teck Lee disposed its blue chip MISC shares in return for the acquisition of NBT shares and Sugar Bun shares. Both counters are delisted ever since. Both of these share counters  NBT and Sugarbun were connected to Suniwang which was controlled by Ambrose Lee.

A whopping RM 114 million losses in this deal for the State.

So don’t you have to have somewhat of a criminal mind to be a politician? Most politicians are devious. They’ll sell “hope” to the public and they’ll make it seem very rosy and people don’t even know that their investment will be paid for out of their hard-earned savings. These politicians act like it’s fine. Politicians have no problem telling people something’s fine when it’s not. Politicians are worse than criminals because really when you think about it all a criminal does is just steal your money… what politicians do is to lie to people. They’ll lie to you… they’ll tell you what you want to hear… it’s a good deal…plenty of money to make…State Government investment, so must be good. People don’t know people like Ambrose Lee the CEO of Public Companies has got no money and cannot give personal guarantees for 200 million dollars to get this deal fix. It will surely fail because the motive is to milk the cow dry on the expanse of the people.

So I mean aren’t politicians similar to criminals? I know there are exceptions to the rule – like Yong Teck Lee?  Don’t make me puke lah! Read below and make your opinion heard.

Birds of the feather flock together: Joseph Ambrose Lee comes to the rescue of Yong Teck Lee

By SAS Victim

For more than a decade Sabahans have forgotten about Joseph Ambrose Lee Yok Min, 52, who once boasted of himself as the new Syed Kechik of Sabah, after he failed in his scandalous schemes to take over the RM30-billion timber wealth of Yayasan Sabah.

The late Syed Kechik was the de facto Chief Minister of Sabah when he was legal adviser to the late Tun Datu Mustapha bin Datu Harun who ruled the state with an iron-fist from 1967 to 1976.

Ambrose was back in Kota Kinabalu, having made his home in Perth, on August 7 at the Sutera Harbour Resort defending his bosom buddy Yong Teck Lee, who was Sabah Chief Minister from 1996 to 1998, over the fiasco of Saham Amanah Sabah (SAS) arising from a scandalous share-swap between Warisan Harta, the Sabah government’s investment arm, and Ambrose’s Suniwang Holdings Sdn Bhd.

More than 55,000 Sabahans, most of them pensioners and low-income civil servants, lost all their life-savings when the price of the state unit trust plummeted to 17 sen from its RM1.00 unit price soon after he sealed the deal when he became Chief Minister.

At the press conference, Ambrose (that’s what his few friends and many foes call him) made a feeble attempt to defend Yong over the missing RM50 million from the share-swap which Yong has been unable to explain to Sabahans.

Ambrose stressed that he paid RM50 million in cash through Innosabah Securities, the stockbroker, to Warisan Sabah in a deal that saw him exchanging his over-priced shares of NBT and Sugar Bun for Warisan’s blue chip MISC shares.

No one has disputed this. But what has not been answered is that the money received by Warisan was never given to SSB as Yong has said. Yong was the Chief Minister and Warisan Chairman. Yet he has failed to tell Sabahans what happened to the RM50 million which he, as Warisan Chairman, received and which he never gave to SSB.

Dr Yee Moh Chai, Minister of Resource Development and Information Technology, told the assembly on August 3 that Saham Sabah Berhad (SSB) which manages the SAS has confirmed to him that it has never received the RM50 million out of the share dealings of Warisan Harta.

At the assembly, Dr Yee pointed out that it was Yong who linked the disastrous share-swap of blue chip MISC shares belonging to Warisan with shares of NBT and Sugar Bun, which were cornered speculative stocks. The swap resulted in a loss of RM114 million to Warisan.

Yong had defended the share-swap. As Warisan’s chairman, he was on record to say that “the wider policy in entering into this transaction was that the Government through Warisan Harta could utilise the RM50 million fund.”

Yong said the RM50 million was to support counters (stocks) on the then Kuala Lumpur Stock Exchange (KLSE,now Bursa) in which Warisan and the people of Sabah had investments. The true outcome, according to Dr Yee, is that as a result of the share-swap deals, Warisan Harta lost RM114 million.

Ambrose blamed Warisan for the loss because it refused to accept his offer to pay RM96 million for the difference between its purchase and market price of NBT and Sugar Bun shares which he said fell sharply because of the Asian financial crisis.

What he failed, in Ambrose’s own words, to tell the “entire populace of Sabah” was that he did not have the cash to pay RM96 million. He suggested another share-swap! Thus Warisan sued Suniwang for RM179,825,000. True enough, Suniwang folded. Warisan did not get a sen. If Ambrose had the money, would his flagship Suniwang Holdings Sdn Bhd collapse like a pack of cards?

Ambrose blamed Musa Aman, who was then Finance Minister, for rejecting again his proposal in 2007 to settle his debt of RM179,825,000 by transferring shares of Borneo Marble Corporation Sdn Bhd which he owned through proxies.

He said Warisan had entertained his proposal but the Sabah government rejected it. Warisan officials said it was true that they entertained his proposal but it did not accept it because the company was a liability.

Recently filings with the Companies Commission of Malaysia have proved this to be so. Borneo Marble was formerly known as Galmore Resources Sdn Bhd and was a fully-owned subsidiary of Suniwang Sdn Bhd which was owned by J Ambrose Sdn Bhd.

As at the end of December 2006, Borneo Marble suffered a pre-tax loss of RM108,793. There are no records of its financial filings from 2007 to 2009.

Ambrose boasted that his NBT owned 200,000 acres of timber land under Forest Management Unit which was bought by someone else.

Officials said what he failed to say was that NBT was in debt to the tune that the company was worthless and the timber land was pledged to a bank as collateral. The property was sold by the bank to recover its loan to NBT.

Ambrose had banked on the Sabah government to bail him out which it had rightly refused.

By his own admission, he has a Receiving Order of the court placed on his assets under the control of an official assignee. He has not been adjudicated a bankrupt yet.

Any chance of the Sabah government bailing him out now hinges on the remote chance of Yong Teck Lee becoming Sabah’s Chief Minister again. And why shouldn’t he? After all it was Yong’s late father, Yong Yun, who financed Ambrose’s law studies in London.


Ku Li today painted a bleak future for Malaysia under the Barisan Nasional government, saying it had squandered the nation’s oil wealth to the tune of billions of ringgit.

The former Finance Minister said Petronas’s oil profits had been used “to bail out failing companies, buy arms, build grandiose cities amidst cleared palm oil estates.” “Instead of helping eradicate poverty in the poorest states, our oil wealth came to be channeled into our political and politically-linked class,” the first Petronas chief and former Umno vice president said in a speech at the Young Corporate Malaysians Summit.

He said Petronas money had been used as a slush fund to prop up authoritarian rule, to corrupt the entire political and business elite and to erode constitutional democracy.

The Gua Musang MP told the conference that Petronas had contributed 40 percent to the national budget over the years. But such a great reliance on oil income was getting untenable, he said. “The oil that was meant to spur our transition to a more humane, educated society has instead become a narcotic that provides economic quick fixes and hollow symbols such as the Petronas Towers.”

Ku Li said the future for Malaysians looks bleak with the government seeking to broaden the tax base by introducing a goods and services tax (GST), requiring Malaysians to pay an additional tax on top of income tax. Malaysia is now caught in a middle-income trap, stuck in the pattern of easy growth from low-value-added manufacturing and component assembly and unable to make the leap to a knowledge-intensive economy, Tengku Razaleigh added.

Following is the text of his speech: In a speech I made in April this year, I spoke of where we stand in our developmental path and what I felt we must do to move forward. I need to revisit that argument in order to develop it further.

We are stagnating. The signs of a low-growth economy are all around us. Wages are stagnant and the cost of living is rising. We have not made much progress in becoming a knowledge and services based economy.

According to the World Bank, Malaysia’s share of GDP contributed by services was 46.2 percent in 1987. Ten years later, that share had grown by a mere 0.2 percent. Between 1994 and 2007, real wages grew by 2.6 percent in the domestic sector and by 2.8 percent in the export sector, which is to say, they were flat over that 13-year period.

Meanwhile, our talent scenario is an example of perverse selection at its most ruinous. We are failing to retain our own young talent, people like yourselves, let alone attract international talent to relocate here, while we have had a massive influx of unskilled foreign labour. They now make up 30 to 40 percent of our workforce.

Alone in East Asia, the number of expatriate professionals here has decreased. Alone in East Asia, private sector wage increases follow government sector increases, instead of the other way around. We are losing doctors and scientists and have become Southeast Asia’s haven for low-cost labour. I said that we are in a middle-income trap, stuck in the pattern of easy growth from low-value-added manufacturing and component assembly and unable to make the leap to a knowledge-intensive economy. Regional competitors with larger, cheaper – and dare I say – hungrier labour forces have emerged. China and India have risen as both lower cost and higher technology producers, and with giant domestic markets.

The manufacturing sector which propelled the growth we enjoyed in the 90s is being hollowed out. There is no going back, there is no staying where we are, and we do not have a map for the way forward. I am glad that the characterisation of Malaysia as being in a ‘middle-income-trap’ has been taken up by the government, and that the need for an economic story, or strategy, for Malaysia is now recognised. We stand in particular need of such a model because we are a smallish economy.

We cannot be good at everything, and we don’t have to be. We need only make some reasonable bets in identifying and developing a focused set of growth drivers. It is not difficult to see what the elements of such a growth strategy might be.

Whatever we come up with should build on our natural strengths, and our strengths include the following:

+ We are located at the crossroads of Asia, geographically and culturally, sitting alongside the most important oil route in the world.

+ We have large Muslim, Chinese and Indian populations that connect us to the three fastest growing places in the world today.

+ We have some of the largest and oldest rainforests in the world, a treasure house of bio-diversity when the greatest threat facing mankind as a whole now is ecological destruction, and the greatest technological advances are likely to come from bioscience.

+ We have the English language, a common law system, parliamentary democracy, good schools, an independent civil service and good infrastructure.

These advantages, however, are declining. Our cultural diversity is in danger of coming apart in bigotry, our rainforests are being logged out and planted over, our social and political institutions are decaying.

I have spoken at length on different occasions about the causes and consequences of institutional decline. The decline in our society, and indeed in our natural environment, originates in a decline in our basic institutions. The link between these is corruption.

The destruction of our ecosystem, for example, is made possible by corrupt officials and business people.

The uncontrolled influx of unskilled labour is a direct result of corruption. These are problems we need to be aware of before we speak glibly about coming up with new strategies and new economic models. We need to understand where we are, and how we have gone wrong, before we can set things right.

You are young, well-educated Malaysians. Many among you have left for other shores. Record numbers of Malaysians, of all races, work abroad or have emigrated. Among these are some of our best people. They sense the stagnation I described. There is a certain lack of energy, ingenuity and “hunger” in the climate of this country that young people are most sensitive to. In the globalised job market, young people instinctively leave the less simulating and creative environments for those that have a spark to them.

How did we lose our spark as a nation? We have a political economy marked by dependence on easy options and easy wealth. Like personal dependencies, these bad habits provide temporary comfort but discourage the growth of creativity and resilience.

I mentioned our dependence on low-cost foreign labour. The other dependence is something I played a part in making possible.

This is a story I want to leave with you to ponder in your deliberations today.

Our nation is blessed with a modest quantity of oil reserves. As a young nation coming to terms with this natural bounty in the early 70s, our primary thought was to conserve that oil.

That is why, when Petronas was formed, we instituted the Petroleum Development Council. Its function was to advise the prime minister on how to conserve that oil and use it judiciously for national development.

We knew our reserves would not last long. We saw our oil reserves as an unearned bounty that would provide the money for modernisation and technology. We saw our oil within a developmental perspective.

Our struggle then was to make the leap from an economy based on commodities and low-cost assembly and manufacturing to a more diverse economy based on high income jobs. Aware that we had an insufficient tax base to make the capital investments needed to make the leap, we planned to apply oil royalties to what you would call today strategic investments in human capital.

Whatever money left after making cash payments, allocations for development funds, etc, was to be placed in a Heritage Fund for the future.

The Heritage Fund was for education and social enrichment. In working out the distribution of oil between the states, who had sovereign rights over it, and the federal government, we were guided by concerns for equity between all Malaysians, a concern to develop the poorer states (who also happened to be the oil rich states) and a concern for inter-generational equity. That oil was for special development purposes and it was not just meant for our generation.

Sabah and Sarawak joined Malaya to form Malaysia because of the promise of development funds.

Yet today, despite their massive resources, they are some of our poorest states.

Instead of being our ace up the sleeve, however, our oil wealth became in effect a swag of money used to fund the government’s operational expenditure, to bail out failing companies, buy arms, build grandiose cities amidst cleared palm oil estates.

Instead of helping eradicate poverty in the poorest states, our oil wealth came to be channeled into the overseas bank accounts of our political and politically-linked class.

Instead of being the patrimony of all Malaysians, and for our children, it is used as a giant slush fund that has propped up authoritarian rule, eroded constitutional democracy and corrupted our entire political and business elite.

Our oil receipts, instead of being applied in the manner we planned upon the formation of Petronas, that is, according to its original developmental purpose, became a fund for the whims and fancy of whoever ran the country, without any accountability. The oil that was meant to spur our transition to a more humane, educated society has instead become a narcotic that provides economic quick fixes and hollow symbols such as the Petronas towers.

Our oil wealth was meant to help us foster Malaysians capable of building the Twin Towers than hire foreigners to build them, a practice in which we preceded Dubai. I would rather have good government than grand government buildings filled with a demoralised civil service.

It is no wonder that we are no longer productive, no longer using our ingenuity to devise ways to improve ourselves and leap forward. Malaysia is now an “oil cursed” country. We managed to arrive at this despite not having a lot of oil.

When I started Petronas in 1974, I did not realise I would see the day when I would wish we had not uncovered this bounty.

The story I have told is a reminder of the scale of the challenge of development. My generation of young people faced this challenge in the 60s and 70s. You face it now. The story tells us that development is about far more than picking strategies out of a box. You have kindly invited me to address a seminar on strategies for reinventing and liberalising Malaysia’s economy. But the story of our squandered oil wealth reminds us that it was not for want of resources or strategies that we floundered.

Our failure has been political and moral.

We have allowed greed and resentment to drive our politics and looked the other way or even gone along while public assets have been stolen in broad daylight. I encourage you to take up the cause of national development with the ingenuity that earlier generations of Malaysians brought to this task, but the beginning of our journey must be a return to the basics of public life: the rule of law, honesty, truth-telling and the keeping of promises.

The Malaysia we need to recover is one that was founded on laws and led with integrity.

With the hindsight of history we know such things are fragile and can be overturned in one generation, forgotten the next. Without a living foundation in the basics, you might sense an air of unreality around our talk of reinventing ourselves, coming up with “a new economic model” and liberalising our economy. So before we can reinvent ourselves, we need to reclaim our nation.

That larger community, bound by laws, democratic and constitutional, is the context of economic progress, it is the context in which young people find hope, think generous thoughts and create tomorrow.


Malaysia hear this….

China’s central bank says its foreign exchange reserves rose 16 percent year-on-year to $1.954 trillion by the end of March.

In a notice on its Web site Saturday the bank said reserves increased by $7.7 billion in the first quarter, $146.2 billion lower than the same period last year.

Analysts believe China holds up to 70 percent of its foreign reserves in U.S. dollar-denominated assets, including Treasury securities.

In March, the reserves increased by $41.7 billion, an increase $6.7 billion more than the same period last year.


THE GLOBAL ECONOMIC CRISIS AND THE FUTURE OF ASEAN
(Keynote Address by Anwar Ibrahim at Chulalongkorn University, March 30th 2009)

When I first uttered the unutterable in Hong Kong sometime late last year that Hayek is history I was then bombarded with accusations of having turned my back on Adam Smith. Not too long later however, we heard reluctant acquiescence from liberal institutions that the free-market principles that guided American financial development would no longer count as biblical injunctions.

In the presence of such an erudite audience today, let me take the liberty to indulge further in the discourse. Just to be clear, I make no claim to pioneering new ideas but suffice to say that I am a mere commentator having had some experience in managing an economy which was also going through one of the worst financial turmoil in Asia. We need to remember only the boom-and-bust cycles articulated by the 19th century economists such as John Stuart Mill or Alfred Marshall, before we get carried away with the modern orthodoxy, which depicts financial markets as effective, stable, and self-correcting mechanisms.

The advocates of spontaneous order which had hitherto attained the level of religious orthodoxy having rammed free market strictures about self correction and deregulation are now conspicuously silent. What went wrong?

True, the reaction against command economies of the Orwellian kind as exemplified by the Soviet Union and other Communist countries in the past was well founded. But was there really a need to subscribe to a theory where absolute reliance is placed on the law of chaos? The issue here is not whether the free market system and the pricing mechanism based on competition is viable; but in stubbornly holding on to the view that markets are benign, championed by the likes of Hayek and a distinguished pedigree of Nobel laureates such as Milton Friedman and his Chicago protégés, with Alan Greenspan as the turn of the century poster boy, Wall Street enjoyed more than two decades of financial deregulation. During this time, we witnessed the unfolding of Enron, Worldcom, and so on and the Sarbanes-Oxley laws dealt only piecemeal. But what was left unchecked was the proliferation of the weapons of financial mass destruction —such as mortgage-backed securities and collateral debt obligations. In place of the earlier institutional giants, we now have on parade the largest financial institutions in the world, brought down to their knees.

The unprecedented government bail outs nailed the lie to the dictum that the State should not interfere in the free market processes. Hayek’s devotional mantra that the invisible hand will eventually work to rectify things has vaporized into mere Harry Potter hocus pocus.

The stimulus packages in America, the UK and some other EU countries are so massive that even die hard Keynesians are spoofed. It is true that the Keynesians believe that pump priming itself with the necessary checks and balances is indeed the most effective way of powering economies out of their recessionary corners but the concern we have is the unfettered adoption of polices of reducing the cost of funds to near zero, while government goes on a spending spree on even more borrowed money. The Federal Reserve and other central banks buy up Treasury bonds and other government papers in order to give that much needed shot in the arm for the economy still waiting for the invisible hand to appear. They call this “quantitative easing” but everyone knows this is just a euphemism for borrowing one’s way out of debt.

It remains to be seen whether this phase of irrational exuberance in borrowing is different from the Keynesian prescriptions to counter the 1930s Great Depression. To be sure, the once unassailable doctrine of spontaneous order has been dealt a body blow that is destined to consign it to the dustbin of economic history. That America is opting to bail out its banks and insurance companies at arbitrary values rather than allowing the law of free market supply and demand to take its course is therefore a damning indictment of its fundamental economic principles.

What then is the real lesson to be learned from this crisis?

Is this a systemic failure arising from the unbridled practice of free-market principles or is it a case of the prophetic truth coming home to roost, that is, he who sows the wind must reap the whirlwind?

One of the strongest arguments today is that deregulation has led to the current fiasco. To go further some have made the case that regulations were always there but the regulators slept on the job. Some finger pointing here is inevitable. Alan Greenspan has already been whipped. Fannie Mae and Freddie Mac, they say, is a classic case of regulators failing to detect the cheating by accountants, something that would have been easily uncovered by a bit of fraud specific forensic accounting. It would have required just a bit more diligence perhaps but certainly it was no rocket science.

The underlying causes however must go back to the question of easy money which remained the substratum of the American political economy for the last three decades. This came on the back of a new religion of financial alchemy spawned from the fertile womb of Wall Street, a religion using sophisticated financial reengineering calculated to transform debt into wealth. This was the philosopher’s stone by which the largest economy in the world by sheer consumption alone was able to not just eke out an existence but to thrive and prosper.

To my mind, this financial maelstrom undermines not only the economic foundation but the political and moral substructure of Western capitalism. We still believe that market economies which stand solely on the feet of homo economicus are doomed to fail because the dictates of a humane economy impel us to consider ideas about right and wrong, social justice and the dignity of man. Shakespeare’s dictum against making “the orphan pine while the oppressor feeds” is a timely reminder. It must jolt us back to the issues involving the great divide between general welfare and distributive justice.

We don’t say this perched on any kind of moral high ground. It was a similar kind of profligate spending that had got us into the 1997 Asian financial crisis. And we lectured and hectored. But unlike the scenario in the U.S. there was certainly greater oversight in Asia and more regulatory control. Corruption and abuse of power featured more prominently in the case of Asia. In fact, there was a case that rogue institutions were working hand in glove with lawyers and accountants to maneuver their way through the regulatory process.

In Asia it was a case of over legislation providing a labyrinthine cover for shady and questionable transactions. And the rich were bailed out at the expense of the poor. This is where the question of accountability and transparency reigns high.

To be sure the lessons of moral hazard were relentlessly knocked on our heads in the wake of the Asian crisis and at the risk of sounding repetitive, let me say again that the massive bail outs that we are seeing today in America are nothing if not classic instances of moral hazard going bezerk, made all the more ironic considering that we are looking at the bastion of free market capitalism.

Perhaps it’s time we took another look at the factor-price equalization (FPE) theorem. We know that it was through exuberantly inflated prices of goods and services that made it possible for Americans to carry on indulging in overconsumption while the rest of the world particularly Asia had to settle for much less. As those trained in economics and international trade will tell you, this mirage will be shattered eventually as the FPE theorem sets in to bring into equilibrium the relative prices of these goods and services across the world. This may have been a tad too theoretical in the distant past but with the pace of globalization and international finance and free trade flowing the way it is now, the impact can be real.

And it is one of the great ironies that this poster nation of liberal democracy and free market capitalism is so heavily indebted to the poster nation of autocracy and command economy. Indeed it is well known that China is the biggest funder of the US federal deficit. Other Asian nations as well as Middle Eastern countries not renowned for open and liberal governments are also substantial investors.

There is the dynamics of economic self-interest and geopolitical imperatives. The question is still how long will Asian and Arab investors continue to prop up these prices?

Yes, the world has had a good five years or so of robust economic growth spearheaded no doubt by the emerging economies, but the policy shift in Asia is already under way from monetary tightening to monetary loosening. The East Asian juggernauts are moving fast with the billions in spending package proposed by Taiwan, Japan and China together with de rigueur tax cuts and interest rates lowering.

While at the start of the financial implosion, there were still brave echoes of decoupling immunity shielding Asian countries, any suggestions today would have been dismissed by the bloodbath that went on in the Asian equity markets. While it is true that generally banks in Asia are still holding up, the fact is that our economies are too closely intertwined with those in the locus of the financial meltdown. The upside of globalization that allowed export-oriented countries to thrive has a very sharp downside as well so a recession on one side of the world spreads quickly to the other. The 9% reduction in global trade predicted for this year is rendering a crushing blow to once vibrant and thriving economies.

The myth that if your exports dry up for the U.S. market there is always the emerging economies as a buyer of last resort is all but shattered. All domestic demand indices until only several weeks ago were falling. Property prices are heading south in India and construction figures in China show the steepest ever decline particularly for Shenzhen.

Growth through productivity and competitiveness remains our pathway to prosperity. It has liberated millions from the scourge of poverty and destitution and enabled our people to enjoy freedom and decent living conditions.

The temptation to explode the government bureaucracy during recessionary times must be avoided. The weight of a bloated and inefficient bureaucracy can do more harm in the long term. Money invested in entrepreneurship and stimulating the private sector will generate more value for the economy in the short and long term.

Adequate measures for ensuring good governance are essential. Government spending guided by a policy that shows little transparency in the award of contracts is a clear warning sign of mismanagement of the economy.

More importantly the spending packages that have been announced should focus on projects that are good for business and good for people. A social agenda during recessionary times would ensure that critical institutions such as public health and education are not neglected. Infrastructure development should seek growth areas in industry, public housing and strengthening transportation and communication between urban and rural areas. Fiscal intervention could then find areas to increase demand through tax cuts and incentives to hire workers and enhance their human capital through training and development.

For us in Asia, history has proven that growth through increased productivity and competitiveness is the only path to achieve prosperity. It has liberated millions from the scourge of poverty and destitution and it has enabled our people to enjoy freedom and decent living conditions. In region dominated by the economic powers of China and India the 600 million people living within Asean represent a formidable foundation upon which to regain prosperity.

It is true that our interests have never been more closely intertwined. As Asean nations buy and sell more from and to each other, as our economies become even more intimately linked by investment flows and multinational operations, and as our national borders become more porous, our fortunes will become even more inseparable and indivisible. A determined effort will be necessary to crystallize these bilateral ties into a firm and coherent pact.

A cohesive Asean regional cooperation remains an elusive goal and history has taught us that when push comes to shove Asean nations will tend towards unilateralism. This should be avoided at all costs. We would agree with Prime Minister Abhiset’s view that “As the financial crisis deepens, the world will look towards our region for action and for confidence.”

There is a greater calling that we face during these uncertain times. A looming recession and the risk of social upheaval make for a volatile political situation. Growth oriented policies that ignore the social dimension will spurn greater disenchantment. The overall societal objectives of distributive justice and fairness must not be ignored as we identify a way forward. With millions at risk of sinking into poverty as jobs become scarce the steps taken to revive ailing economies must not overlook the needs of the poor and marginalized.

We are likely to witness some leaders revive the mantra of Asian Values – that in the pursuit of economic growth the rights of the individual are peripheral. Unpopular governments would certainly need a pretext upon which they can silence dissent against policies that fail to address the problem of unemployment, poor public infrastructure and lack of quality social services.

On the contrary a prosperous Asia is merely an illusion if material wealth is subsumed in a sea of repression and denial of basic human rights. True prosperity must be accompanied by with political empowerment of the ordinary citizen. Fundamental freedoms such as the freedom from hunger, freedom from fear and exploitation, and the freedom to peacefully practice one’s religious beliefs are so basic for the growth of a truly humane society.

The growth of civil society and renewed economic prosperity will not be possible without regional stability. The political resolve to formulate an Asean pact with a mechanism to institutionalize agreements on trade, finance and human rights is necessary. This has proven no easy task but is still attainable. We must establish strong interdependibility, economic and political. The nurturing of democracy and civil society, in tandem with economic growth — for democracy and growth are not mutually exclusive — is our best guarantee of regional peace and security for future generations.


According to Bank Negara, over the last eight months, Malaysia’s foreign reserves has plunged by US$34 billion. It has dropped from a high of RM125.8 billion on 30 June 2008 to US$91.6 billion as at 13 February 2009.

What is happening here? It is difficult to understand how claims are made that our country is marching towards progress and that everything is honky-dory.

There is stark contrast between what is reported in the newspapers by politicalmasters and what is happening in real life as though there is nothing wrong in our proverbial State of Denmark. The political masters keep spinning and they say if there are problems, it is all due to the unreasonableness of the Opposition. This approach is disturbing to say the least.

Malaysia today is on a downward spiral. Unfortunately, discipline, impartiality, fairness and honesty — all such elements, are becoming rare indeed.

 I feel genuinely worried for this country.We can move forward only if there is accountability. Do we?


As far as I can see, this is just a bailout exercise. The 5 billion from EPF via Valuecap Sdn Bhd is to bailout UMNO link corporations in the KLSE which has taken a real beating the last 6 months after March 6th. They are putting wool into our eyes by using our hard-earned EPF contributions trying to solve their problems.

There should be NO BAILOUT! Besides, greed got them into trouble. Bad money practices got them into trouble. Corruption got them into problems. They don’t have financial prudence’s and they are all overrated. They know now to make money by only selling assets . Let them get themselves out of it. They did not pay any taxes on the excess profits that they made getting themselves into trouble. They dug their own grave. Let them claw their way out on their own. They got into trouble trying to justify their high priced executive packages with risky financial instruments back by imaginary money.

I really feel sorry for them that they can no longer make payments on their Bangsar Apartment and London escapades and the shopping sprees in Hong Kong. 

These fellows are running the country down so fast down the slippery slope and its getting more and more cloudy.  We are in a mess.

Malaysia needs help!