Archive for the ‘From the desk of Senator S Ramakrishnan’ category

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Blessed with sweet crude but cursed with bitter debts

January 17, 2016

Petronas has contributed about RM800 billion to the government since its inception in 1974. In 2008 alone Petronas contributed about 44% of the federal government revenue but dropped to 31% in 2014 and expected to drop further to 22% in 2016.

 

Fossil oil, called black gold, was once priced at US110 is now hovering around US30 per barrel. Crude oil has plummeted to a new low, never seen for a long time and the market foresee a worsening supply glut along with slowdown in demand. So the good old days of high oil revenue is over and Malaysia has to tighten its fiscal belt.

 

Wastage, pilferage and leakages in public spending have to be curbed but UMNO/BN government has a poor record on this spending. The government for the first time has turned to tax people by introducing GST to raise revenue. It’s a known fact that governments with rich natural resources are poor in managing wealth.

 

Petronas the government savior, sitting tight in its 88 floored twin towers, once the world’s tallest buildings, dominate the skyline of Kuala Lumpur. Over the years, Prime Ministers have tapped into Petronas funds to build their dream projects like the twin tower and bail out their mistakes like Bank Bumiputra Bhd in 1985 with RM3.5 billion, saving debt ridden shipping company and even rescuing proton at one point.

 

Petronas is only accountable to the prime minister’s office were used by powerful UMNO politicians for lucrative and exorbitant contracts. Now Petronas is finally trying to say no which may lead to strained relations between Petronas and the government.  Resource rich government of UMNO/BN were less dependent on taxes for revenue and thus less accountable to Malaysians and more authoritarian using oppressive laws and tactics to rein opposition and dissenting voices. Opposition to the construction of white elephant and extravagant projects built at high prices went unheard.

 

Now that oil revenue has reduced drastically and a new indirect tax, GST, has been introduced the government will be forced to be more accountable. Divide and rule policies of yesteryear may lose its bait and those taxed now for the first time, will demand more accountability.

 

Despite the RM800 billion oil revenues paid by Petronas for the past 50 years, Malaysia remains heavily indebted, with public debt at  RM582.8 billion or 54.5% of GDP and household debt at RM940.4 billion or 87.9% by end of 2014. Malaysia had to face a continuous budget deficit for the past 16 years. Essential services like supply of water, electricity and highways just to name a few are all privatized. Malaysia has driven away its skilled and knowledgeable citizens to other countries and instead imported 6.7 million legal and illegal unskilled foreign workers who are stagnating the wages of Malaysian workers. Only 28% of our labor force is considered skilled compared 50% in Singapore.

 

Malaysia did create the National Trust Fund in 1988 to ensure revenue from natural resources, including oil and gas, continues to generate wealth for future generations. As of 2013, Petronas was the sole contributor to the fund with cumulative contributions of 8 billion ringgit. With more demand for dividend payment from government, Petronas will have less to contribute to this fund in future. Malaysia have spent away RM792 billion of the revenue received from Petronas since 1974.

 

Norway started oil production in 1971 and had managed its oil wealth to protect future generations and invest the money generated in education and human resource development. For many countries resource wealth seems to have been a curse rather than a blessing. But Norway has invested instead of spending and they own one of the largest sovereign wealth funds in the world which has grown from zero to USD865 billion within 18 years.

 

Norway government emphasized on transparency in all aspect of the fund. The revenue from oil and gas were invested in a well- diversified global portfolio of financial assets to reduce the dependence on the value of remaining oil reserves. Through this fund they have transferred oil wealth into financial wealth that will benefit generations to come. Norway with a population of 5.084 million has made every citizen wealthy.

GST makes 2015 year of living dangerously

December 25, 2015

2015 will always be considered one of the most dreadful Years for Malaysians due to the GST introduction on 1st April 2015. GST may have helped to narrow the budget deficit for 2016 but it created and continues to cut bigger holes in the people’s pocket. The prime minister cum finance minister has said that the government’s collection of revenue through the SST would have amounted to only RM18 billion. But GST is expected to rake in RM39 billion. And this make Malaysians poorer by the amount. While we were dependent on oil and gas all these years, it never struck the ruling government to develop its human resources and move up the supply value chain. The oil curse has reached Malaysian shores. The oil and gas dependence by the government has made the policy makers into complacency, recklessness, extravagant and unconcerned about integrity and honesty.

Malaysia’s long history of mega scandals like the RM2.5 billion from BMF, RM1.6 billion from MAMINCO, RM12.5 billion in PKFZ, RM9.4 billion from MAS, RM30 billion from Bank Negara forex dealing , RM10 billion Perwaja steel, RM250 million national feedlot and many more have made Malaysia poorer nation. Malaysia is currently surrounded by the 42 billion 1MDB and 2.6 billion controversies. Wastages, corruption and pilferage have become institutionalized.

To save the situation, the prime minister has resorted to implementing a 6% GST. Malaysians are going into 2016 with cost of living increasing and uncertain international economic growth. The prime minister seems to depend heavily on his foreign and private advisors who are supporters of neo liberal policies in shaping his economic policies and they have strongly recommended GST. But this view is not gaining traction among Malaysians.

Before the GST was introduced government promised people that prices of goods and services will go down because SST was 10% + 6% but GST only 6%. But instead prices of goods and services increased 2 to 3 fold. Malaysians felt mislead and deceived by their own government. GST introduced along with the withdrawal of subsidies on petrol and sugar, subsidy for electricity being reduced and tolls were hiked. Government has announced that LRT, ERL charges are also set to increase. All these measures by government at the same time has increased cost of living tremendously till Malaysians from all walks of life are feeling the pinch.

GST has now become an integral part of Malaysian tax regime and whenever government need to increase revenue they can just raise the GST tariff from 6% to up 7% or 8%. Singapore started GST at 3% now stands at 7%. With Malaysian’s household debt to GDP standing at 87.9%, one of the highest in the world, this regressive tax has been a hard blow to the not only bottom 40% but also the middle 40%. The long term ramification remains unknown and grim. These added financial pressures from 6% GST on the majority of Malaysians will increase their indebtedness further leading to more crime and social tensions in society as a whole. It’s time for the government to initiate a social economic impact study on the consequences of the GST introduction.

To add injury to insult GST was introduced in the mist of the prime minister’s own worst and most expensive corruption scandals. The RM42 billion 1MDB debt and RM2.6 billion donations where the prime minister is directly implicated remains unsolved and have increased the political risk in Malaysia. All these negative developments have weakened the Malaysian ringgit considerably leading to high cost of imports and increase in prices of goods and services. The high public debt was matter of concern among policy makers. GST needed to pluck the holes.

To make matters worse GST implementation was flawed and haphazard. Of course it’s normal to have teething problems but Malaysian’s problem went beyond the gestation period. The list of zero rated and exempted items were not settled long after implementation. The lack of consultation with workers representatives on service charges led to more confusion. The inability of customs department to handle technical questions and non-Malay speaking enquiries further added to confusion and disappointments. Poor implementation of the GST caused some sundry shops and retailers to close down. There are major discrepancies in the prices charged post GST which went well beyond the 6% GST level. The government doesn’t seem to have a clue why the price increased shapely and could not put a stop on traders raising prices.

GST has become a political thorn on the government especially the prime minister Datuk Seri Najib Tun Razak’s regime. Malaysia is said to be facing its worse inflation after the GST implementation despite the many zero rated and exempted items. The concern and fear now is the government raising GST tariff to more than 6% in 2016 since oil price is expected to bottom out at US20 per barrel. In Budget 2016 oil revenue was estimated at US48 per barrel. 2016 looks grimmer than this year. Hope the finance minister provides information to Malaysians on meeting his 2016 budget proposals.

Blind bureaucratic loyalty takes the edge out of 1MDB probe

July 28, 2015

The silence and apparent collusion of law enforcement agencies like Bank Negara Malaysia, the Attorney Generals chambers, the police and the Malaysian Anti-corruption Commission in the inreasing number of criminal breach of trust episodes, while whistleblowers get reprimnded, shows the lack of governance and a culture of blind obedience prevalent in the civil service. The unaccounted flow of funds by the MOF owned GLCs are frightening and worrying.

When billions of ringgit vanished, there was no red flag raised by any of the law enforcement agencies. If not for the independent business news paper, The Edge, opposition lawmakers and civil rights groups who acted as whistleblowers, the RM42 billion debt incurred by 1MDB would not have been detected and publicly exposed. The Malaysian law enforcement agencies, instead of protecting and complimenting the whistleblowers, are instead arresting and reprimanding them for their patriotic and brave acts.

The bureaucracy and law enforcement agencies as professional bodies are committed to deliver high quality services and display cost effectiveness and high integrity in the management of public funds. The civil service displays a culture of obedience and blind loyalty to the extent that they have become ineffective and inefficient. The question foremost is “can the bureaucrats be trusted to safeguard the national coffers and arr tax collections well managed?”

The evidence revealed in social and print media are beyond reasonable doubt that there is a prima facie case for law enforcement agencies to initiate an investigation. But the culture of obedience and blind loyalty to their political masters make them ineffective and lame ducks. The order of the day seems to be corruption and sweeping wrong doings under the proverbial carpet. The recent arrest and ban on opposition MPs, corporate executives and prominent leaders of civil rights groups from leaving the country imply that whatever wrong doing or laundering Umno does, it can do no wrong.

Instead of responding to the issues raised, the law enforcement agencies are arresting and shutting the whistleblowers down. All the information of the alleged wrong doings is out for all sundry to see. What is the point of closing them down now? But even in doing this, the enforcement agencies seem inefficient and the closure of such media seems profoudly late in the day…after the horses have galloped away. This has become the hallmark of our bloated bureaucracy.

This prolonged inaction by the Malaysian law enforcement agencies and the attempt to silence the critics and cover up a serious fiduciary crime has engendered a general lack of onfidence in the governance or its ability to prudently manage financial resources. Of late rentiers, cronies and criminals have become chummy enough to walk and even seemingly own the corridors of power.

 

Honest, competent and dedicated people may never survive in the current culture prevalent in the Malaysian civil service. Whetever edge we had over our neighbours in the past, is now all gone. Where do we go from here?

 

Policy paralysis renders 11th Malaysia plan nought

May 30, 2015

The 11th Malaysia Plan announced by the prime minister was high in objectives, vision and political rhetoric but low in action plans and implementation strategies. It is common knowledge that the Achilles’ heel of the Umno-led government is implementation. The much promoted and published goal of reaching high-income status has finally reached its final lap. The vision 2020 high-income status goal was envisaged and mooted by Tun Dr Mahathir Mohamad in the early 1990s during the 6th Malaysia Plan. Since then, every Malaysia Plan was implemented to take the country closer to high-income status and finally reach it by 2020. To achieve high-income status, quality education, skills training and entrepreneurial development have to be the cornerstone of the economic policy.

Every year, the Education Ministry is allotted the highest budget (21% in 2015) to enhance education quality, competence and skills. The Education Ministry introduced a number of blueprints to achieve these objectives. But the latest OECD report places Malaysia 52nd out of 76 countries in terms of our students’ ability to grasp basic skills. While our Singapore tops the list on this score. The Program for International Student Assessment (PISA), which evaluates levels of literacy amongst 15-year-olds in mathematics, science and reading skills, as well as critical problem-solving skills—as opposed to memorisation—placed Malaysia 55th out of 74 countries. Despite the high expenditure on education, the achievements are disappointing and a letdown.

Education Minister Tan Sri Muhiddin Yassin himself got a shock at the international achievements of Malaysian students when compared to our neighbouring countries. Education has been deliberately allowed to be hijacked by racists and bigots by the UMNO government far too long. Besides public education institutions are centres of segregation and perverted ideologies. After all the hype about smart and cluster schools, only 6% of non-Malay students are in national schools (sekolah kebangsaan) compared to 12% of non-Chinese students in national-type Chinese schools.

Malaysia was ranked 64th out of 187 countries surveyed under the Human Development Index (HDI) last year, according to the 2013 Human Development Report (HDR) of the United Nations Development Programme (UNDP). All the slogan chanting and politically expedient proclamations of developing human resources have not taken Malaysians to a state of high productivity. Besides 1.5 million Skilled Malaysians who are not appreciated in their own country are developing other countries.

The addiction on cheap legal and illegal foreign workers has made Malaysia the heaven for human trafficking and smuggling. Nepotism and corruption amongst the enforcement agencies have made the country famous worldwide for the wrong reasons worldwide. All effort to upskill and automation are half hearted and ended with failure but money spent. Local university graduates are less employable compared to foreign university graduates.

According to a National Economic Advisory Council survey of household income in 2008, 80% of Malaysian households made below RM2957 a month. Putrajaya has to pay BR1M money of RM950 per year to support this group. Therefore, reaching high- income status within the next five years is uphill task, given the high unskilled foreign workers presence. The increasing economic slowdown internationally and political risk locally does not help either.

Malaysia has to reverse the outflow of skilled labour and halt the inflow of cheap migrant labour if it wants to achieve high-income status and reduce income inequality. Malaysia has to treat its own citizens equally irrespective of their racial background if it were to progress as a high income nation. All the scandals, wastages and abuse of power shows that divide and rule will ruin this country.

Ringgit weakening due to crisis of confidence

May 24, 2015

While the Prime Minister cum finance minister Datuk Seri Najib Tun Razak is struggling to stay in Prime Minister Office, Malaysian ringgit remains the worst performing currency and continues to weaken without any sign of reversal. Consumer sentiments are low after the introduction of GST which has triggered sharp increases in prices of goods and services across the board and Investors are uncertain of increasing political risk. Even Malaysians are wondering what is the direction and future of this country in the aftermath of GST, 1MDB, PFI, poor delivery system, poor quality of education, high corruption and the list goes on. Malaysia seem to be the only country stagnating and unable to move forward in the neighborhood while even the poorer countries stricken with war and corrupted dictatorship are able put the past behind and move forward.

Washington-based financial watchdog Global Financial Integrity (GFI), in its reports which tracks capital flight, says close to RM200 billions of dirty money was siphoned out of Malaysia in 2010. In 2009, GFI put the figure of illicit outflows at RM93 billion and the figure in 2011 is 174 billion. Malaysia lost over RM170.7 billion in illicit outflows in 2012 based on the Washington based financial watchdog GFI. Why the sudden upsurge in money leaving the country. The weakening of ringgit reflects the low level of confidence in the integrity and competence of the financial regulators and authorities.  The large cash outflow of funds is weakening the ringgit further.

The weakening ringgit is driving business people with cash to convert to other stable currencies. Malaysian ringgit seems to have lost the trust and confidence of Malaysians themselves. Sharp currency depreciation and the introduction of a goods & services tax (GST) are widely expected to drag 2015 gross domestic product (GDP) growth below 5 percent from an estimated 5.8 percent in 2014 reports CNBC. Besides there are about 6.5 million legal and illegal foreign workers remitting about ringgit 20 billion per year. The situation is quite critical that even government has requested GLCs to scale back foreign investments in order to contain the outflows reported a foreign Bank.

As it is, there are already concerns that the high level of indebtedness and the goods and services tax, or GST, could put pressure on growth this year. Malaysia’s household debt-to-GDP ratio at 87.1% at end-September 2014 is already among the highest in Asia, while the government debt-to-GDP ratio may have exceeded the self-imposed ceiling of 55%. The revised budget after the huge drop in oil prices doesn’t seem to have changed the public confidence in government’s ability to reduce the fiscal deficit for the past 17 continuous years.

The years of race based affirmative policies have sneaked in chronic corruption and nepotism into the government delivery system which may take one generation to eradicate. Can Malaysia ride out of the current crisis of confidence? The BN government is too embroiled in internal feuds to bring about real structural and economic reforms. All the hype of transformation programs only incurred cost but did not yield any tangible results. The government has to become realistic and take the bull by the hone. NEP has swallowed trillions of ringgit but Malays other than UMNOPUTRAS are still in the limbo. It created billionaires out of UMNO leaders’ children and their cronies. The kampong Malays and the nation are worse off supporting NEP. UMNO’s long time lying to kampong folks has blurred the truth and made them accept falsehood as real. Their thinking is colored with fear, falsehood and anger as to the 1MDB and other scandals rocking Malaysia. We need a drastic change from the past divide and rule policies to move ahead.

It takes more than Mahathir to overthrow Prime minister

May 15, 2015

UMNO leaders may have never dreamt of a day when their members may turn their back on them. Will that day materialize? Malays including UMNO members are unhappy and feel betrayed at what their top leaders have done with regards to GST, 1MDB, Tabung Haji and now KWAP. Malay community has blindly supported UMNO through thick and thin only to be deceived and made use of. But to keep the UMNO members satisfied goodies and privileges are constantly given out. UMNO has successfully kept the Malay support for the past 58 years simply by instilling fear that the Chinese will take over the country and Malays will lose their political leadership and Islam is under threat. The presences of non-Malays were conveniently used as devils to frighten off the Kampong folks into submission and blind support. UMNO has been using the race, religion and country in such inter-changeably that even educated Malays gets confused and submits into blind loyalty.

This blind and unquestionable support has brought about complacence, arrogance, care a less and grab anything and everything for myself attitude among its leaders. Religion has been recklessly used to instill fear, conformity and a false sense of superiority. Can all these falsehood and superficiality stand the test of time? May not be so. Past UMNO leaders led by none other than Tun Dr Mahathir Mohammad going all out to replace Prime Minister Datuk Seri Najib tun Razak. After 69 years UMNO is in crisis of confidence with it’s leader who is also under pressure from past leaders. Will the current debacle bring about any change in UMNO?

UMNO as a race based party has been rocked by a number of leadership struggles before. UMNO baru itself is a creation out of a bitter leadership struggle between Tun Dr Mahathir and Tengku Razaleigh. After UMNO baru formation Tun Dr Mahathir sacked Datuk Seri Anwar Ibrahim in 1998 and followed by Tun Dr Mahathir forced Abdullah Badawi to step down in 2004. Tun Dr Mahathir who has been successful in all the past leadership struggles has entered into another tussle with his own protégé Datuk Seri Najib Tun Razak. Each struggle had weaken, disintegrate and factionalized the once mighty party.

Under the leadership of Dr Mahathir Mohammad, UMNO president’s office was vested with unprecedented power. Datuk Seri Najib has inherited this powerful office. Therefore it takes a huge crisis to bring the UMNO president down. Datuk Seri Najib has rolled over his sleeves for standoff with Tun Dr Mahathir by publicly declaring that he was elected by UMNO members and the people. No UMNO leader has deserted Datuk Seri Najib yet. Under these circumstances, it is impossible for Dr Mahathir to bring down the current president. Datuk Seri Najib may have weakened his moral authority and statue, but as long as UMNO leaders stand by him, it is not possible by Dr Mahathir to bring down the current UMNO president.

UMNO president who is also the prime Minister has huge budget to keep the UMNO leaders on his side. Budget allocation to Prime Minister Office comes to about 50 billion in 2015. Half the amount is special allocations that are decided at the discretion of Prime Minister. Therefore he has enough goodies to offer the UMNO leaders to keep them happy. Corruption, abuse of power and conflict of interest cannot bring down UMNO leadership. So Datuk Seri Najib is here to stay longer. The fact that UMNO still commanded 61% of votes in Rompin and 41% of votes in Permatang Pauh despite GST and 1MDB debacle shows that Prime Minister is firm in