Sang Kelembai Is Threatening Systemic Failure

A Kadir Jasin 

THE SangKelembai effects of 1Malaysia Development Berhad’s affair continue to claim victims.

1. The task force investigating 1MDB had been effectively disbanded. The three main agencies - the Malaysian Anti-Corruption Agency, the Bank Negara and the police - appear to be working separately.

2. The second high-ranking executive of Aabar, Mohamed Badawy al-Husseiny, is exiting the company. Aabar is the subsidiary of Abu Dhabi’s International Petroleum Investment Company (IPIC). Al-Husseiny will leave the company on Aug 24. He is the second most important person at the Abu Dhabi sovereign wealth fund to leave. Media reports say his departure is another strong signal that there are major concerns in the Gulf state over being drawn into Malaysia’s escalating financial and political scandals. Al-Husseiny’s departure followed that of Aabar Chairman, Khadem al Qubassi in April.

3. Over in Thailand, Swiss national Xavier Andre Justo was sentenced to a three-year imprisonment on Aug 17 for blackmailing his former employer, PSI over information linking the company to a joint venture with 1MDB.

4. While the Arabs and the Thais had taken actions against their people allegedly involved in the 1MDB scandal – directly and indirectly - here in Malaysia government servants who are tasked with investigating the affair are being harassed, punished, transferred, cold-stored and prematurely retired. The institutions they work for are being undermined.

Towards A Failed State?

So it is hard, in this situation, to believe the Prime Minister, (Datuk Seri) Mohd Najib Abdul Razak, when he recently said that Malaysia is not a failed state.

Maybe not yet but it could happen if the escalating political and economic crises are not quickly and amicably addressed.

But can Mohd Najib do this when he is the cause of the problem?

Malaysia is among the most successful post-colonial nations in the world. That cannot be denied. But what the people are saying lately is, at the rate we are going we could end up being a failed state.

The signs are already there for everybody to see, provided they understand economy. 

Economic growth has tapered off. Gross Domestic Product (GDP) grew by an average of 5.7% between 2009 and last year – the period that Mohd Najib is the Prime Minister and the Minister of Finance. This was only a shade better than the post-Asian Financial Crisis (1997/98) average of 5.5% and way off the 8.7-per cent average between 1990 and 1997.

Yes a maturing economy grows at a slower rate but it is evident that Mohd Najib’s transformational, expansionary economic policy has yet to show results apart from ballooning government debt and budget deficit.

Instead, in more recent times many key economic indicators suggest that we are doing a lot worse. Consider the following:

1. The ringgit has fallen below the 1998 peg of RM3.80 and had breached the RM4 of the psychological barrier. Today the ringgit is among the weakest Asian currencies.

2. Bank Negara external reserves, which help provide strength to the ringgit, have fallen to below US100 billion, the lowest in almost five years.

3. Government debt is at an all time high - about 54% of the GDP. When government-backed loans or contingent liabilities – including those it gave to 1MDB - are taken into account, the total debt exposure rose to about 65 per cent of GDP last year.

4. Stagnating income and rising cost of living are forcing the people to borrow thus worsening the household debt. It touched a new record of 86.8% of GDP at end-2013. This worrisome development incidentally started in 2009 when Mohd Najib became Prime Minister and Finance Minister.Malaysia today has the household-debt-to-income levels greater than the U.S. had before its recent financial crisis.

5. While the GDP is stagnating, wealth distribution is becoming worse. The income gap between the rich and the poor is widening past the pre-NEP level. In recent years, as a result of falling profits and low share prices, even the rich are getting poorer.

Addressing Trust Deficit

So unless we do something to regain the confidence of investors and consumers, and to overcome trust deficit that the Mohd Najib is suffering, we could end up, as Idris Jala said in 2010, like Greece.

He then said, unless the government reduced subsidy substantially, the country could go bankrupt. Since then Mohd Najib had removed or reduced many types of subsidies and raised taxation by introducing GST. But the economy gets progressively worse instead of better.

Greece is the latest example of a failed state. If that happens to us, it would be worse. At least Greece has a big brother to bail her out - Germany. Who is going to bail us – China, Singapore?

Mohd Najib’s record as Prime Minister and Finance Minister is dismal. Since he took over the two top jobs in 2009, the country’s economy and government finances have worsened.

The country's sovereign ratings had either been downgraded or had not enjoyed major improvements. And in more recent times, capital - local and foreign - had taken flight.

MIDF Equities Research estimated that cumulative net foreign outflow from Malaysian equities rose to RM11.7 billion in the first seven months of this year, surpassing the RM6.9b outflow for the whole of last year. That’s one of the reasons for the massive fall in value of the ringgit.

Yes, we are not a failed state. But is there a guarantee that we will not be going down that path given the present political and economic quagmire?

The above question is not addressed to Mohd Najib or the “budak cerdik” Ahmad Maslan but to all concerned Malaysians.

Wallahuaklam.