Politics in general

Superfluous remark by ‘non politician’ Minister? Again?

This article is in response to blogger SatD’s recent article last night.

The Economic Transformation Program (ETP) celebrated its one year anniversary yesterday with a dire scenario stated by Tan Sri Idris Jala, the man behind PEMANDU.

But before we go on, we must understand the fiscal rules and guidelines set by the Constitution of Malaysia and few other administrative laws that would show how the Government should exercise its fiscal responsibility. Particularly this part below:

Basically the document sets out the guidelines on how the Government should manage its debt and borrowings. We must thank SatD for graciously providing us the link.

It is clear above that the government must use the money to finance it’s operating expenditure (subsidies included) through government revenue while development expenditure must only use borrowings.

This is a good rule.

Money from borrowings is channelled for development expenditure as investment in development will create more money to finance the debt while expenditure such as subsidies and emoluments is financed by revenues since these kind of expenditure normally do not create more income.

This is a simple principle similar to what is contained in Robert Kiyosaki’s Rich Dad, Poor Dad book.

Fungibility aside, essentially, you must never ever use money from borrowings to finance operating expenditure. It would be irresponsible for the Government to do so.

But Tan Sri Idris Jala in his presentation yesterday said that there is a risk this country going to bankruptcy “if it spends borrowed money on operational expenditure such as subsidies instead of investing the cash.”

He said:

KUALA LUMPUR, Nov 1 — Datuk Seri Idris Jala said today that Malaysia could still become bankrupt within a decade if it spends borrowed money on operational expenditure such as subsidies instead of investing the cash.

“If our economy grows less than four per cent… and we don’t cut our operating expenditure, if we borrow at 12.5 per cent, if our annual debt rises to 12.5 per cent and our revenue does not grow, then it will happen,” Idris said today after announcing the latest investment updates for the government’s economic transformation programme (ETP).

The performance management minister triggered alarm bells with his controversial bankruptcy forecast last year.

Malaysia’s national debt rose by 12.3 per cent to over RM407 billion last year, according to the Auditor-General’s latest report released last week.

Although the economy grew by 7.2 per cent in 2010, last year’s fiscal deficit maintained public debt at over 50 per cent of GDP for the second year running.

The Auditor-General said in the report that the government owed 53.1 per cent of GDP, slightly down from 53.7 per cent last year.

Economists have also said the country’s economic growth could slow to just 3.6 per cent next year from a projected 4.3 per cent this year due to the increasing risk of a double dip global recession.

Idris said today that Malaysia will not go through a recession but will suffer an economic slowdown as a result of the ongoing financial crisis in Europe spreading.

“It’s not as rosy as we would like,” the Sarawakian minister admitted during a public question-and-answer session.

He noted that the GDP this year was only at 4.4 per cent.

But he assured Malaysians “our government will not allow that to happen”.

He also said his forecast did not mean Putrajaya should stop borrowing.

“We should borrow money provided the money is spent as investment rather than as operating expenditure,” he said.

“We must make sure our borrowing is in proportion to investment,” he added.

Subsidies are among the government’s biggest operating expenses.

The CEO of the government’s Peformance Management and Delivery Unit (Pemandu) said bankruptcy could be avoided even if the GDP falls below the targeted six per cent a year as long as it can increase its revenue collection.

Idris said that the country’s population has grown to 28 million but highlighted that only one per cent was currently paying income tax.

He said one of the ways to raise revenue was to implement the goods and services tax (GST).

He added that the GST would also help make the country globally competitive, noting that 140 other nations have already done so.

“If we do that, it propels competition. Sooner or later, we’ve got to implement GST,” he said.

He said the government has proposed the consumption tax but was unable to carry it out due to objections from the opposition Pakatan Rakyat pact.

What does that mean?

Is he implying that there is a dereliction of duties by the Minister of Finance over its fiscal responsibilities?

Is he saying that Malaysia will go bust if Government continues to finance subsidies through borrowings?

Since we know that it is against the law to do that, we are now stuck in a quandary.

Idris Jala is harping on this ‘Malaysia will go bankrupt if it borrows money to pay for subsidies’, therefore alarm bells should be triggered because rules and guidelines have been breached.

We have two Finance Ministers and yet this simple rule cannot be adhered too?

Prime Minister Najib Tun Razak and Husni Hanadzlah have a serious issue at hand here. They have a senator in charge of the economic transformation of this country accusing the finance ministry of being irresponsible.

I am sure Idris Jala is not that reckless and misleading as what SatD implied at the end of his article posted last night.

But if there is a small chance that what Idris Jala was wrong, and that he was just listening to the many con-job con-sultans encircling PEMANDU, then he must do what is honourable; which is to retract his statement.

Because like what SatD had said:

…you (Idris) give the impression that our Government does not have any Financial Discipline and does not adhere to the Law as provided for by the Constitution and its guidelines.

True enough, looking at the many comments in the Malaysian Insider article, he had created a widespread negative perception towards Barisan Nasional. Worse, it could possibly based on a superfluous assumptions.

We all know his pride in telling the world that he is a non politician minister. The amount of backpedalling he had to do last year over his ‘Malaysia will go bankrupt’ remark caused PEMANDU some serious public relations nightmare.

Yes the powers that be within PEMANDU are all exponents of eliminating subsidies in order to proper Malaysia to a high income economy. Move away from this supposedly ‘middle income trap’, although real economist is sceptical whether Malaysia currently is suffering from middle income trap as suggested by the economic gurus in PEMANDU.

By the way, this is the summary outlook on Malaysia’s debts all through these years:

Evidence suggests our current debt ratio to GDP is manageable

It seems these days everyone can become an economist; more so when the person entrusted to manage the New Economic Model seems to be shooting in the dark when it comes to giving economic diagnosis.

When tweeted about this issue, Idris Jala response was:

Pls watch my speech on video, I spoke positively abt our economy! I spent 1 hour explaining what the Govt is doing

Which prompted me to respond with:

TQ for d reply TS @IdrisJala_ but it didn’t answer e Q. Is govt breaking e fiscal rules by using borrowings to finance subsidies? TQ

I end this article with a word of thanks to SatD. I hope The Mole will look into this issue by interviewing Husni Hanadzlah over the matter.


14 thoughts on “Superfluous remark by ‘non politician’ Minister? Again?

  1. terima kasih daun keladi

    maybe i need to register for one week anti mencarut program…

    “Just when i thought i was out……..they pulled me back in”

    Micheal Corleone pun pening kepala kalau kita ada mamat2 bingai berkeliaran dalam cabinet



  2. To be a non political minister means that you have to be good at non political stuff like becoming a PEMANDU. That would increase his vulnerability because he can’t hide behind political high ground during failures. But is he a good at not being political? Before he’s a driver for PEMANDU. He was a “pilot” at MAS. Some people would say that he did pilot MAS in profit. Perhaps technically he did. But was he a great/good “pilot”? I doubted he was. If he was then MAS would have had a great foundation for the next CEO to work on. Now we also know that he’s not a great “driver” at PEMANDU. So perhaps he’s simply a great Chelsea fan.


  3. Hi JMD,
    Good article but with some supporting facts that on first reading, seems to justify your point. I give you credit for being the smartest “pro UMNO” blogger around. However, unfortunately, there are some glaring attempts to mislead.

    Lets take a look at the graph which you put up, because I think that is the central part of your argument, namely that we have been at High Debt to GDP levels before and so this ain’t new. If you look closely, you noticed that the stock of debt remained constant during that periods (seems to be the mid 80s to mid 90s – 1985- 1996). The debt to GDP level came crashing down, so by implication the GDP expanded rapidly during that period.

    In fact, everybody that this was the period of rapid economic growth in the country due in part to the addition of capital stock through FDI. Furthermore, structurally, the country’s economic structure of having a comparatively better infrastructure, education levels, central position within the South East Asia growth corridor was all working for Malaysia. I believe the average real GDP growth rates was around 7-8% during that time, perhaps the nominal growth rates up to 10% even.

    So that’s the context. Now today, we are looking at a totally different picture. PM Najib’s prediction is a growth rate of 6% average to 2020. And even that seems to be unachievable with 2011 growth rates set to be between 4-5% (albeit a real growth rate). Structurally, the economy is not well positioned as it had been in the 1988-1996. Number 2, if we look at the macroeconomic structure, I would not expect our GDP Deflator to really blow out to some large number as the electronics industry inherently has significant price competition, and natural commodities stocks like petroleum are running out. So the idea that we will be having the kind of growth as was enjoyed in the 80s is laughable.

    The second point is the fact that structurally the Government is hard wired to deficits. If we note, it was only the pressure of the illustrious Dato Seri Anwar Ibrahim that instilled the financial discipline required to keep the stock of debt more or less constant/ slightly decreasing even. This financial discipline is now non-existent. Furthermore, the Government will be required to provide millions of additional jobs for the young Malays that are about to enter the workforce or else face massive unemployment crisis. This will further put upward pressure on the operational deficit as emoluments for staff continues to grow. In fact ever since Najib took over, the Opex expenditure has been growing at almost 10%.

    Perhaps you have an agenda in spinning this story. Structurally, Malaysia will end up like how Greece ended up, but in about 5-7 years time. The reason is simple – employment in the Government sector has low productivity but is paid above its marginal contribution to GDP. That is exactly the same problem Greece faced.

    As to deferring to professional economists, well, 2 years ago, the collective wisdom of all the best professional economists in the major investment banks thought that Greek debt yields was fair at about 6-7%. We all know what that turned out to happen


    • Unfortunately, you are the one trying very hard to mislead here. The central part of my argument is whether the government is breaking any fiscal rules and guidelines as implied by Idris Jala. The graph is just an extra information; I did not even explain the graph in a paragraph. So really now, why are you spinning this way?

      And the rest of your comment is quite right (we were one of the Asian Tigers before) on the mark except how did you come about saying that ‘we will be having the kind of growth as was enjoyed in the 80s’? I never come across the government said that we will achieve as high as 7%- 10% economic growth. You are trying to discredit the government over something that was not even stated. The world is facing an economic stagnation with clear risks of economic depression due to uncertain affect of impending financial meltdown. The government knows this. In fact everyone knows this. I am sure it is not prudent for government to say to you that we will be having a substantial GDP growth soon.

      Secondly, the illustrious Anwar instilled financial discipline? When? How? Please give us examples. What financial discipline actions has he done? Please check your sources because Malaysia have deficits and surpluses in yearly budgets all the time. It is certainly not ‘hardwired’ to deficits.

      Thirdly, by highlighting only the Malays in job seeking efforts then you are getting racial in your comment; which is not good. The agenda in your comment is very clear. Just tell people that Malaysia will end up like Greece without giving proper numbers and evidence to support it.

      But just like what Idris Jala had said… the ETP will ensure that Malaysia will not face bankruptcy.

      Thank you.


    • Quote: “I give you credit for being the smartest “pro UMNO” blogger around.”

      Wow, such arrogance! wonder where this smart alec got the idea that he is empowered to rank bloggers … my my such misplaced sense of superiority.

      Great rebuttal JMD – that should deflate his mega ego which compensated for his minute brain.


  4. Simple question: why has Malaysia, in spite of it’s sterling economic management, got only an A- rating from the international credit rating agencies, whilst Singapore (which many commentators have criticised for running up debts in excess of 100% of GDP) secured a AAA rating from all the 3 international credit rating agencies?

    Next question: how long can the Malaysian government afford to fork out RM30 billion+ in subsidies annually, with GDP growth hovering anywhere between 4-6%?

    Third question: why is the Federal government taking so long to balance it’s books, running up a budget deficit for the 14th straight year? Is the government incapable of living within it’s means? I am no economist, but if I ran my household finances like the way the Federal government handles it’s finances, I’d be headed for bankruptcy and my credit rating would be zilch.


  5. I think the answer for your question JMD is, Yes.

    For me, Idris, as a non politician had made a good move by making sure everyone in Malaysia is aware of this trend (bankcruptcy) so that everyone now can think and act notwithstanding which party you’re. That’s why he had told us the ugliest truth twice – Malaysia will go bankcrupt if…. (Please note the word ‘if’ again and again)

    When we knew the ugliest truth, then we will have to make plans:
    1) Increase our income or
    2) decrease our expenditure…………… Only this 2 ways.

    Now, everyone – including the one who attend the lab will be pushed to think, which we haven’t done for so long (Except you and SatD). Both ways are correct if you ask me, just you yourself have to focus on either one or both 2.

    1) Now, is it wrong for Idris to highlight the ugliest truth so that everyone can think? No.
    2) Is it true Malaysia will go bankcrupt ? It depends because the option now is right in front of us.
    3) How to solve this?

    That’s where everyone can make a difference:

    For those who favor ‘decrease our expenditure’ :
    1) The biggest expenditure is fuel subsidy. I agree to tackle the biggest first because that will create the highest impact.

    But the question is, can the government reduce the subsidy? The answer is NO, if…. everyone doesn’t understand that Malaysia will go bankcrupt. (Now it makes sense why Idris is shooting PM and BN on the foot). He is actually doing the most important part – to highlight the ugliest part as a start for all of us. If he did that ‘only’ in ministerial meetings, do you think that BN and Najib can reduce the subsidy easily? Sekarang ni pun ada lagi yg tak faham walau dah dijelaskan.

    2) Now if the fuel is no longer subsidize, how do we make sure all the people will not suffer?

    We have 28 millions head, just think and inform Idris in person or by being one of his lab rats.

    And for those who favor ‘increase our income’:
    1) What’s the minimum target so that we will be save from bankcruptcy?
    2) How to generate that minimum target? and bla bla bla

    We work 2 folds, but either way, it need to solve the ugliest truth – bankcruptcy.

    Now, is it great for everyone to talk about economy rather than politic? We can have 28th million differences but it’s for a good cause.

    And honestly, this is only 1 of the 1000th problem to be solved by us. Idris is just facilitating but for me he did that systematically, but not without flaw. For example MAS, I had personally heard him explained that he did mentioned MAS will go bankcrupt if..

    Now who’s fault if MAS really goes bankcrupt when it has been reminded? That’s why AirAsia is taking over so that people with ‘turnaround’ experience can turn it around no matter how.

    If UMNO / BN think tanks can’t do it, we need someone to do it for us before it’s too late, and we can be sceptical all the way, or we can join the wagon to turnaround, the choice is ours.


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