GLC reform must be transparent
COMMENT | If one goes by the research of economist Edmund Terence Gomez, seven of the top ten companies in Malaysia are GLICs – Minister of Finance Inc, Permodalan Nasional Bhd, Khazanah Nasional Bhd, Kumpulan Wang Persaraan (KWAP), the Employees Provident Fund (EPF), Lembaga Tabung Haji and Lembaga Tabung Angkatan Tentera.
“The seven GLICs control important companies in the economy. They have majority ownership of 35 public-listed companies and in terms of market capitalisation, they control about 42 percent of the entire Bursa Malaysia,” he says.
The eighth, 1MDB, had sputtered to a stop, although it did not stop the firm from being absorbed into the Finance Ministry.
When the government is able to come clean with the amount of debt owed by these companies, and, in the words of Bersatu president Muhyiddin Yassin, "take the bull by the horns," only then will the international financial community be impressed.
As Bloomberg notes: “With a 6.6 percent rebound, the FTSE Bursa Malaysia KLCI Index is heading for its best quarter since the end of 2011, while the MSCI Asia Pacific Index has lost 2.3 percent. That pushed the valuation of the Malaysian gauge to its highest level since at least 2009 relative to the regional benchmark.”
This is an important verdict, precisely because Malaysia has several key GLICS that are being reshuffled. Prime Minister Dr Mahathir Mohamad has taken the reins at Khazanah, while the Economic Affairs Ministry has been created to oversee some GLC and GLIC reforms.
Mara, meanwhile, has been moved under the jurisdiction of the Rural Development Ministry under Rina Harun.
Be that as it may, Bloomberg’s report seems to show that Malaysia still has a healthy economy at the top. To begin with, by admitting Malaysia has a debt and contingent liabilities of up to RM 1.09 trillion, investors are aware of the government’s efforts to set things right.
"Optimism is returning after a shock election result in May triggered a plunge of as much as 10 percent in Malaysia’s equity index as foreigners fled the market.
"While the outflows haven’t completely stopped, the pace has slowed, with August posting the smallest withdrawals in four months. Morgan Stanley upgraded the nation’s shares last week, noting the recent outperformance for a market that tends to be less volatile," the report read.
Bloomberg also quoted Aberdeen Standard Investments fund manager Bharat Joshi as saying that "Investors are starting to come back into the equities market after the post-election selloff because the new government is seen to be more pragmatic towards the country’s fundamentals in prioritising financial stability over aggressive growth."
And as analyst Phar Kim Beng states, "The strength of the KLCI index is also sustained despite the deferral and outright abolition of various infrastructure projects when Pakatan Harapan took over on May 10, 2018.
"One of them was to put on hold the high-speed railway link between Malaysia and Singapore. On September 1, the government also implemented a new sales and service tax (SST), replacing a consumption levy it eliminated on June 1.
"Such an attempt allowed a tax holiday of three months, during which no international credit rating agencies ever attempted to downgrade Malaysia."
But notice how quickly the international financial community returned to Malaysia, just as quick as they left after May 9.
It is as if the international financial community only judges Malaysia on the basis of one factor: political friendliness to the market. Put differently, whether GLICs and GLCs have been revamped completely to allow fair and equitable competition.
There are two signs that Malaysia economic policymakers need be mindful of here. One, hot money or short-term capital swooshes in and out of the Malaysian capital system with the smallest of perturbations. Second, the amount of money that has entered the Malaysian economy seems to be driven by a small group of analysts.
Between May 10-Sept 20, with the exception of Alibaba, which seems committed to building the Free Trade Digitial Zone near Sepang, almost no one has sent an immediate trade delegation to assess the potential of GLICS and GLCs.
GLICs and GLCs must reform themselves in three ways. First of all, they must avoid the temptation to buy into each other's companies. How can they go local when the economy is global? Doing so would only create an interlocking mechanism within Malaysia that will result in what economist Richard Koo calls a "balance sheet recession."
In this scenario, GLICs and GLCs work within their parameters. They satisfy their bottom lines, contribute a share of their corporate tax to the government, and they pull back from enhancing the welfare of workers.
And unsurprisingly, unionisation is almost nonexistent in GLICs and GLCs. While the wages of CEOs at the top of the food chain have grown, the income of the workers below has remained stagnant.
Mahathir's economic adviser, Muhammed Abdul Khalid, has characteristically called Malaysian employers "stingy" in his book The Colour of Inequality: Ethnicity, Class, Income and Wealth in Malaysia.
Thirdly, GLICs and GLC don't seem to understand they are creatures of National Economic Policy, the 11th Malaysian Plan, the 3rd Industrial Plan and the three National Agricultural Policies, as well as Mahathir's concept of a smart partnership.
What Harapan wants to see is consistent conformity to all the key documents above, as well as its own election manifesto.
Unless GLICs and GLCs can work hand-in-hand with the Malaysia government both horizontally and vertically, the mere change in the government on May 9 will not alter the DNA of the Malaysian economy to be in tandem with Industrial Revolution 4.0.
There must be an urgent effort by the government to start the debate on reforming the GLCs or GLICs with all stakeholders. After all, this is the government for the many, not the few.
While the privatisation of selective GLCs is a welcome initiative, as it will certainly raise funds for administration, the process of doing so must be transparent.
Hence, it is imperative that public debate on neo-privatisation should be held if this path is undertaken involving relevant stakeholders. Certain strategic entities of public interest should not be conveniently privatised as it could harm the people in the long run.
The way forward then is to start the process transparently through public debates to ensure the greater interests of all stakeholders are protected, especially that of the people who voted in the current administration.
RAIS HUSSIN is a supreme council member of Bersatu. He also heads its policy and strategy bureau.
The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.