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Going bankrupt: One government, two views

“If the government continues at the rate of 12% [debt growth] per annum, Malaysia could go bankrupt in 2019 with total debts amounting to RM1,158 billion.”

MINISTER in the Prime Minister’s Department Datuk Seri Idris Jala, on the need for the government to cut subsidies on fuel, food, toll, health and education, as well as reduce its mounting debt to prevent Malaysia from becoming bankrupt, like Greece, by 2019. He said national debt is currently at 54% of Gross Domestic Product (GDP).

Idris, who is chief executive officer of the Performance Management and Delivery Unit (Pemandu), said Malaysia is one of the most subsidised countries in the world. He said in 2009, government subsidies amounted to RM74 billion, or RM12,900 per household, while the deficit increased to RM47 billion. (Source: Idris Jala: Malaysia must cut subsidies, debt by 2019 or risk bankruptcy, The Star, 27 May 2010)

“[Withdrawing subsidies should] be judiciously implemented; less it may cost a government. Idris may win the battle (cut subsidies) but will lose the war (general election). From the violent reaction, I suspect Idris will be more tactful and politically sensitive in future.

“[Idris] should have 100% confidence in the current government that it won’t allow the country to go bankrupt. It has an excellent track record in effectively and efficiently managing it for the last 53 years.”

Umno senator Datuk Akbar Ali, responding to Idris in a press statement. Akbar said Idris might not have given a comprehensive assessment of the situation. He also said the country’s economic structure was much stronger than it was in the 1980s, and that the country had adequate national savings. The government also has plans to increase revenue, such as through introducing the Goods and Services Tax (GST).

Another senator, Dr Awang Adek Hussein, who is also a deputy finance minister, said Malaysia would not go bankrupt in 2019 even if the subsidies continued. Other Umno politicians including Umno Youth chief Khairy Jamaluddin and former Domestic Trade and Consumer Affairs Minister Datuk Seri Shahrir Samad also dismissed Idris’s prediction as a mere “scare tactic” to convince the people that the government needed to slash subsidies. (Source: Malaysia: Subsidies or bankruptcy?, The Malay Mail, 2 June 2010)

“To be clear, I said we could go bankrupt IF, and I repeat the word IF, we continue with the same trend as in the past 10 years … All economists make assumptions and I did not say Malaysia will go bankrupt without qualifying it with certain assumptions … Unfortunately, some of the reports about Pemandu’s bankruptcy projections did not state these assumptions and therefore can be taken out of context.”

Idris, responding to the backlash from both Umno and the Pakatan Rakyat for his bankruptcy prediction. He said his statement had been taken out of context. The assumptions that he felt had not been considered were continued average GDP growth of 3% yearly; continued increase in deficit; and continued debt growth of 12% yearly. According to Idris, these factors have been trends for the past 10 years.

However, the Treasury said in a briefing for the Barisan Nasional Backbenchers Club on 8 June 2010 that the government only spent RM18.6 billion on subsidies in 2009, and not RM74 billion as Pemandu, or Idris, had claimed. (Source: No let-up in war against graft, The Star, 3 June 2010)

“[T]he Treasury is looking strictly from their angle and their own budgeting concern. But the Pemandu lab looked at the overall picture. So, both are right in their own contexts.”

Minister in Prime Minister’s Department Tan Sri Dr Koh Tsu Koon, defending the Pemandu findings. Koh is also Pemandu chairperson. He said the Treasury’s RM18.6 billion figure only refers to direct subsidies, while Pemandu’s RM74 billion includes all indirect subsidies and from all public sources. (Source: Tsu Koon defends Pemandu’s subsidy data, The Malaysian Insider, 9 June 2010)

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5 Responses to “Going bankrupt: One government, two views”

  1. Peter says:

    It’s interesting that during Tun Dr Mahathir’s time, none of this talk of subsidies potentially bankrupting the nation was ever raised.

    If I remember correctly, the first indications was when TDM’s successor, AAB, started to stop all major ongoing projects (remember the crooked bridge? Bakun Dam?) and increase petrol prices significantly, that we knew we were in difficulty.

    Which begs the question: were we already in a lot of trouble before that? Was the trouble so significant so much so that the government of the day was willing to risk losing votes (which they did eventually) by tremendously cutting back on petrol subsidies back then?

    • Kong Kek Kuat says:

      Whatever that is happening to us today, is the fault of Mahathir.

      Sure he did good, but he did equally bad… if not worse.

      What was AAB supposed to do? He was left with the broken toy of Mahathir.

  2. m.k. says:

    You don’t have to be an economist to agree that Idris Jala’s projection was correct simply because of the way the present government goes around approving unnecessary projects.

    A good example is the ongoing Istana construction which appears to be unnecessary since we already have a very beautiful one in KL.

    I think their plan is to plunder as much as possible so that come GE13, the new government will not have money left to govern. Simple as that.

  3. microbserver says:

    How can the information from the Finance Ministry be wrong. If Pemandu figures are right, did they also factor in the difference as income in the GDP computation. Who owns Petronas, the main donor.

    The money earned by Petronas belongs to the rakyat and not Umno. Money owned by the rakyat and used on the rakyat is not subsidy. Idris Jala may be frightening us with negative information and worst-case scenarios. Is there no growth in GDP and taxes, considering the fact that each year 500,000 people come out and work and contribute to the GDP.

    Any reduction in subsidies is indeed income for the government. If not being spent on the rakyat then where does this money goes to?

    Do we really need to spend RM2 billion on ships for disaster relief when the only relief right now is to alleviate the sufferings of the [poor]. Inflation is going through the roof. Costs are already snowballing even before the Goods and Services Tax comes into play.

    Government, please recalculate your projections. Be more positive and prudent in your expenditure. Invest those projects that brings benefits and returns.
    A high income but with no corresponding increase in productivity will inevitably lead to another Greek tragedy.

    Malaysia is a young country and is so rich in resources. The weather is fine and water is not a problem. Open up more land for agriculture and offer incentives to everyone, not just FELDA. Replicate what is happening in Cameron Highlands a 100-fold or a 1000-fold. Don’t always compare with more advance countries and try to justify that cost of goods etc, are the cheapest in the region. Are our salaries not also the cheapest when compare with more advanced countries like Singapore, South Korea or Hong Kong.

    Don’t ever compare with the Americans, for their GDP is almost 10 times that of an average Malaysian. Things and amenities are never 10 times more expensive.

  4. Alex says:

    Whatever version proclaimed, the reality has highlighted an inevitable trend and indication that Malaysia will face the financial crisis for the financial mismanagement.

    We need to be alerted of the traumatic consequences that might happened to our country if we failed to patch up the loop holes and corruptions.

    Politicians need to be more sensitive towards the national interests as political stability will be a critical essence to teh stable social economy development.

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