Press Statement By Penang Chief Minister Lim Guan Eng In Komtar, George Town On 16.3.2015.
BN politicians are surprised at the reaction of investors to the Malaysian stock market and foreign exchange market to economic conditions in Malaysia that caused Kuala Lumpur Composite Index(KLCI) to have the unfortunate record of the worst performing stock market, and our currency the ringgit the largest depreciation in Asia Pacific in 2014. These BN politicians do not understand why our stock market dropped by 5.7% in 2014, the highest drop amongst all Asia Pacific bourses, despite a good economic growth rate of 6% last year.
Even countries like Thailand with lower economic growth rates of barely 1% in 2014, the Thailand stock exchange index rose by 15.3%, whilst Philippines was a star performer with a rise of 22.8% in the stock index in 2014 despite a growth rate less than Malaysia.
BN politicians ask “Why should a country that is supposed to record healthy economic growth rates of nearly 6% in 2014 suffer from being the worst performing stock market compared to countries like Thailand or Philippines with lower economic growth rates?” Economist will answer that foreign investors are not interested in historical performance but in future prospects of the KLCI and Malaysia.
And the future prospects for KLCI is negative due in part to many disturbing questions posed on the RM42 billion 1MDB scandal that raises doubts not only on transparency and compliance in our capital markets, but whether Malaysia’s credit ratings would be jeopardized should 1MDB unravel and default. However it is not fair merely to lay the blame on the RM42 billion 1MDB scandal, when it just happened to be “the final straw that broke the camel’s back”.
The 1MDB scandal is merely the tipping point for the traditionally poor financial management and inefficient allocation of the country’s resources by the BN Federal government, that led to Malaysia being the worst performing stock market and currency in Asia-Pacific for 2014 despite a 6% economic growth rate. There were four principal financial factors that blighted Malaysia’s hopes of escaping the “middle-income trap’ and develop into a high-income economy.
One, the implementation of Goods & Services Tax(GST) of 6% which would require at least 2 years for the Malaysian economy to “adjust”. Two, Malaysia has household debt to gross domestic product (GDP) of 87.9% or RM940.4 billion as at end-2014, the highest in Asia. Three, the Federal Government’s debt has increased by 120% from RM266 billion at end 2007 to RM582 billion at end 2014. If contingent liabilities and loan guarantees or included the figure could easily reach RM700 billion.
Finally, the government’s annual budget deficit has continued for the 18th consecutive year since 1998, the last year that Datuk Seri Anwar Ibrahim was the Finance Minister that recorded a budget surplus. With the 50% drop in international oil prices from the original estimate of USD105-110 per barrel, the budget deficit will only worsen.
In contrast, the Penang state government had recorded annual budget surpluses since the PR state government took power in 2008. What is noteworthy is that the budget surpluses for the 6 years from 2008-2013 of RM453 million is more than the accumulated surpluses of the previous 50 years under BN from 1957-2007 of RM373 million! Further the state’s debt of RM630 million in 2008 has not increased but instead been reduced by more than 90%. The asset reserves have also been increased by more than 50% since 2008.
Malaysia’s reputation as a haven for illicit funds has been severely damaged by the Financial Integrity Report, compiled by World Bank economists in Washington. As one of the top 5 country destinations with the highest illicit outflow of funds, there has been growing concerns about compliance and transparency. From 2002-2013, almost RM1.4 trillion of illicit funds have left the country, a number so humongous that each of the 28 million Malaysians would have lost RM50,000 each!
There have been serial financial scandals by BN before that were equally extensive, epitomised by the RM 52 billion missing bumi shares scandal and the RM13.5 billion Port Klang Free Trade Zone scandal, that did not have the same impact. However, the RM42 billion 1MDB came at the wrong (or right) time and place, creating a perfect financial storm especially when it involved Malaysians connected to BN leaders who are also international personalities like Jho Low.
The seriousness of the 1MDB scandal is highlighted by the historic and unprecedented action by the Prime Minister Datuk Seri Najib Tun Razak to sue DAP National Publicity Secretary and MP for Petaling Jaya Utara Tony Pua for defamation relating to Tony’s expose of the 1MDB scandal. However this legal suit by Najib will not make the problem disappear. Urgent action by a reputable international independent body other than the Auditor-General is crucial to restore confidence in our capital markets. Or else Malaysia will suffer the indignity of an anomaly and paradox of recording high economic growth rates and yet the worst performing stock market and currency in the region.
LIM GUAN ENG
—– Mandarin Version —-