Yong: Will Malaysia be another Greece?

Yong: Will Malaysia be another Greece? .
03 Jun 2010 . .By Queville To

KOTA KINABALU: Attempts by Umno leaders to shrug off warnings that Malaysia could be heading for bankruptcy like Greece showed that they were unable to see underlying trends that have been threatening Malaysia's economy for the last decade, a senior Sabah politician said yesterday.

Sabah Progressive Party (SAPP) president, Yong Teck Lee, said that facts and figures on the state of the country's economic malaise were disturbing.

He was commenting on Minister in the Prime Minister's Department Idris Jala's recent warning that the country could go bankrupt in nine years if the RM74 billion annual subsidies are not cut.

Yong also took a swipe at economist and Umno supreme council member Norraesah Mohamad's rebuttal of Idris' stand, saying it was “ridiculous” and frightening”.

Yong pointed out that Malaysia’s tax revenue base has been shrinking because of the migration of manufacturing companies to Vietnam, Indonesia and China and a drop in foreign direct investments (FDIs).

“The fact that import and export duties, excise duties and sales and service taxes have remained stagnant at below RM30 billion for the last five years indicates low trade and business volume.

"The bulk of the additional government revenue came from Petronas dividends, oil royalties, petroleum profit tax and personal income tax,” he said.

Yong said that Prime Minister Najib Tun Razak had acknowledged, when tabling the 2010 Budget in Parliament last year, that revenue would fall by RM14 billion from RM162 billion to RM148 billion, a drop of 8.4%.

Net FDIs for the first half of 2009 dropped by RM16 billion to a mere RM 3.6 billion.

"Hence, revenues have not been able to catch up with total expenditures, resulting in an escalating deficit each year. From a deficit of RM18 billion in 2005, the figure has grown to RM19 billion (2006), RM20 billion (2007), RM35 billion (2008) and RM47 billion in 2009.

"The deficit for the first quarter of this year has already reached RM10 billion."

'Idris has a point'

Yong said the warning by Idris that Malaysia could be bankrupt like Greece is shocking because it would only take a short time for the country to deteriorate from prosperity to bankruptcy.

“The only other Asian example is the Philippines which in the 1970s was one of the richest and most advanced nations in Asia.

"Within a decade of mismanagement and abuses, it turned into the poorest, most corrupt nation riddled with civil strife and chaos,” he said.

On Norraesah's argument that the Greek debt to GDP ratio was 113% while Malaysia’s current national debt of RM378 billion is 56% of GDP, Yong said that at the rate the deficit is running up (RM50 billion each year and a GDP growth of 5%), Malaysia will indeed become like Greece by 2019.

“Idris has a point. But his Umno partners are not likely to agree with him because the national economy is subsidising the 'Umnoputras'. This is why there has to be a change in the federal government before it is too late,” said Yong.

He also warned that Sabah could be another “Dubai” if the state government is not careful with its financial management.

“Greece was eventually brought down because it was unable to pay its sovereign bonds of US$11 billion earlier this year, which resulted in its credit rating being downgraded to 'junk status'. Dubai has debts to the tune of US$60 billion.

"If Sabah is not careful, it could suffer a similar fate,” said Yong.

"Dubai’s government investment agency could not honour its bond of only US$3.5 billion. This has caused a financial crisis, loss of confidence and an exodus of investors from Dubai,” he added.

Yong is concerned that too little information is available on the Sabah government bond of RM500 million issued last year.

“The government claims to have a reserve of RM2 billion but has chosen to take a bond of RM500 million payable in full in five years, presumably in 2014.

"If we have RM2 billion in reserves, then why do we need a bond of RM500 million?

"Where will the RM500 million be invested in? Suria Complex? Sabah Development Corridor projects? One Borneo? Plantations? When will the information be made known?” he asked.

'Time for more information'

Yong, a former Sabah chief minister, recalled that at the height of the Asian 1997-98 financial crisis, an internal evaluation of Sabah’s credit rating showed that the state government had no debts.

“It is my understanding that this healthy status was maintained until the state government took out the RM500 million bond .

"What will happen in 2014 if the state government cannot afford to take out RM500 million from its treasury and pay off the bond?

"Failure to do so could trigger our own Sabah financial crisis. Civil service pay and operational expenditures will be affected.”

In the light of what has been disclosed about Malaysia's economic and financial status, "it is time that the state government released more information about the RM500 million bond”, said Yong.