A billion here, a billion there…

“A billion here, a billion there, and pretty soon you’re talking real money” – U.S. senator Everett Dirksen

Malaysians are not new to financial scams and scandals of immense proportions.

Let’s pause for a moment and consider these figures: the latest MYR42 billion losses from 1MDB, Port Klang Free Zone (PKFZ) incurred losses of MYR12.5 billion in 2008, and Bank Negara Malaysia, the central bank, blew over MYR31.5 billion between 1992 and 1994 in forex losses.

These are just some examples of plundering that have taken place over the past 30 years. Someone out there has actually put together a list on Wikipedia. Take a look here.

One of the most prolific plunderers (of taxpayers’ money) is national carrier Malaysia Airlines (MAS). The airline has turned the act of losing money into a fine art, losing MYR2.5 billion in one financial year alone, in 2011. It prompted then chief minister of Penang – now Malaysia’s new finance minister Lim Guan Eng – to describe it as “shocking”.

Lim has a point. Despite persistent losses, the airline’s parent and sole shareholder Khazanah has been unable (or unwilling?) to install professional management at the company. A German touted as a “turnaround specialist” was appointed MAS’ first expat CEO in January 2015 following a “rigorous assessment”.

Alas, Mueller left after barely a year at the helm, citing “personal reasons”. His replacement, Irishman Peter Bellew, lasted slightly longer – just over a year.

Malaysians are waiting anxiously to see what Lim, who now controls Malaysia’s purse, will do with MAS’ and Khazanah’s management.

By the way, why do photos of ousted former premier Najib Razak, the ex-second finance minister Johari Ghani and ex-secretary general of treasury MoF Irwan Serigar still adorn Khazanah’s website more than a fortnight after Malaysia ushered in a new government?

najib razak is still chairman of khazanah board of directors, according to the wealth fund's website
all the ex-premier's men

When it comes to burning money, few GLCs can rival MAS; it is simply sensational at squandering cash. In FY2005 it posted losses of MYR1.3 billion. In 2013, the penultimate year it was listed on the bourse, MAS incurred losses of MYR1.17 billion . The year before (2012) it lost MYR432.6 million.

Over a period of 20 years (1997-2017) it is plausible the carrier frittered away at least MYR20 billion, and we’re being conservative. Even after a bailout of MYR6 billion from Khazanah in 2014, and assurances that its recovery is on track, the airline remains in peril, with current liabilities of more than MYR1 billionaccording to people familiar with its finances.

Let’s open the Pandora box

On May 24, Malaysia’s new government revealed the country’s national debt had crossed MYR1 trillion. That’s 80.3% of GDP; as a rule of thumb, anything over 60% is a cause for concern as it could result in a country’s credit rating downgrade.

The previous government under Najib Razak, who was premier and finance minister, had put the official debt figure at MYR686.8 billion as of end-2017 or 51% of GDP. Here’s how finance minister Lim said he arrived at the new figures.

The latest revelation has caused astonishment and anger, not to mention shock. But while the figure of MYR1 trillion does look big – there are 12 zeros – let’s look closely at what it actually means.

Is Malaysia about to go bust? The short answer is no. In fact, Malaysia is in no danger whatsoever of going bankrupt. Is the financial system in a crisis? Again, no. As the finance minister readily said, Malaysia’s banking system remains intact and is well capitalised.

More importantly, Lim signalled Malaysia had the capability to service its debts when he said the government would pay all obligations. “We will honour those… ”, he stressed.

That’s positive news, at least to the major credit rating agencies that are assessing Malaysia’s financial standing following the installation of the new administration. Rating agencies focus mainly on a sovereign’s ability to repay debts on time, as well as how it manages its fiscal policies and the country’s cashflow.

Moody’s current view of Malaysia is A3, with a stable outlook. It has flagged the loss of revenue from the abolishment of the Goods & Services Tax (GST) as a negative, even if oil revenue improves following higher crude prices. In 2017, GST revenue was MYR44.3 billion.

Standard & Poor’s rates Malaysia A- with a stable outlook. In its most recent review in June 2017, S&P highlighted the country’s “strong external position and monetary policy flexibility”. At the same time it noted that Malaysia’s general government fiscal position carries contingent risks (including a USD3 billion letter of support for 1MDB) from its public enterprises and financial sector.

Seen in the context of Malaysia’s GDP, its debts and fiscal deficit – MYR11.2 billion in 1Q18 or 3.3% of GDP – shouldn’t make the finance minister lose sleep at night. It’s manageable. That said, we haven’t seen the end of the 1MDB saga and where it’ll take the country. Malaysia’s current woes look petty now, compared to what lies ahead. This is just the beginning…

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