Sunday, March 31, 2013

Malaysia's debt: the misleading debt-to-GDP ratio

This is the third part of a three-part CPI series on Malaysian debt. The first part, entitled, 'Investigate Malaysia's debts now' , surveyed the overall debt situation. The second part, entitled, 'Malaysian government debt to approach RM1 trillion by 2020', looked at the trend in government debt.
This part critiques the debt-to-GDP ratio and questions Malaysia's official debt figures.
An over-optimistic and misleading impression of debt results when the government puts its faith in one number, the debt-to-GDP ratio.
The current government-debt-to-GDP ratio for Malaysia of 53% is assumed as being within safe limits, below the 55% ceiling set by Malaysian policy.
Here it is argued that judging the nation's debt condition primarily on account of this one indicator is wrong. A critical look at debt is required to understand the real situation and health of the economy.
Problems with the debt-to-GDP ratio
(i) It is an incomplete measure of the debt situation
The debt-to-GDP ratio is useful in providing an idea of a country's debt level and potential capacity to repay debt, but it has discrepancies.
GDP, the value of goods and services produced in the country, is a crude measure that does not reflect the money actually available for servicing debt. Only part of GDP belongs to Malaysians and can theoretically be used to settle debt— the amount collected by the government as tax and the disposable cash that enters the savings of citizens.
More accurate indicators of debt would be government debt as a percentage of export earnings and government debt as a percentage of the government's capacity to tax.
However these indicators too are imperfect. Clearly, not all of export earnings is cash that is available for debt repayment. Measuring debt as a proportion of government tax receipts is questionable when domestic debt is involved, since it implies that the government can tax its citizens to repay what it borrowed from the savings of the citizens themselves.
It is clear that “no individual indicator can provide an adequate measure of the complexity of a country's debt problem” (K. Pilbeam,International Finance, 2006, p. 384). These indicators “neglect factors such as differing degrees of vulnerability to external shock, differing capacities to increase export earnings”, “differing future economic prospects of the economies”, or institutional and political factors.
(ii) Domestic debt matters
A study asked why countries default on foreign debt even though these debts seemed relatively small (C. Reinhart and K. Rogoff, 2011, 'The forgotten history of domestic debt', Economic Journal, Vol. 121).
It found that large domestic debt is linked to external debt defaults. This helps explain why “emerging market governments tend to default at such stunningly low levels of debt repayments and debts-to-GDP”.
Unlike external debt defaults that grab headlines, the study found that defaults on domestic debt— money borrowed by governments from the savings of its own citizens (pension funds etc.)— have been numerous, but are hidden. This finding raises the question of whether governments cheat when it comes to repaying what is owed to its citizens.
The Malaysian government's external debt is about RM17 billion, but its domestic debt holdings are substantial. At the end of 2012, domestic debt stood at RM485 billion and accounted for 97% of total Malaysian government debt, and 66% of all Malaysian government and private sector debts.
Government debt is predicted to almost double to close to RM1 trillion by 2020, following the historical trend and forecasts suggested by the IMF (see 'Malaysian government's debt to approach RM1 trillion by 2020', Center for Policy Initiatives, 25 February 2013).
Can the Malaysian government default on its domestic debt? The debt-to-GDP ratio gives no clue.
(iii) The debt-to-GDP ratio is only as good as its underlying numbers
The debt-to-GDP ratio is only as meaningful as the debt and GDP values used to calculate it.
Malaysia's current GDP figures may not be reflecting long-lasting or sustainable growth.
GDP numbers may be artificially high when we rapidly draw down on natural resources, such as petroleum reserves and forests, without regard for future generations, or stimulate all sorts of economic activities even if they are unproductive and have questionable returns for the public.
Therefore using unsustainable GDP figures to calculate the debt-to-GDP ratio understates the seriousness of our debt situation.
There is also suspicion that the Malaysian government's debts are higher than what is being revealed.
Questions have been asked about the government's hidden debts, such as 'contingent liabilities' (see ''Hidden debt'' edges M'sia beyond 55pct limit', Malaysiakini, 27 September 2012). Contingent liabilities are difficult to trace, less transparent and its existence may pose a greater risk than the official debt size alone.
Because such debt can be kept hidden, “it is questionable whether many governments face sufficient incentives to reduce the use of contingent liabilities” (T. Ito and A.K Rose (eds.), Fiscal Policy and Management in East Asia, 2007, p. 285).
The Malaysian government's contingent liabilities are not fully known but are growing (see IMF Country Report No.13/51, February 2013, pp. 12, 22). Although Malaysia is not alone in its failure to account for this openly and transparently, it is important to take action to reduce the use of contingent liabilities before they reach a dangerous level and overwhelm the country’s fiscal capacity.
Another type of debt not captured by the usual debt-to-GDP ratio is household debt. The above-mentioned IMF report says that Malaysia's “household debt is high, as is bank exposure to households (55% of bank credit)”, and “growth in credit to households remain in double digits” (p. 9).
If these other debts are taken into account, the debt that the Malaysian government is exposed to breaches the 55% ceiling.
Also worrying is the evidence that Bank Negara Malaysia's statistics is giving conflicting information about Malaysia's true total debt.
In one part of Bank Negara's Quarterly Bulletins, Malaysia's domestic and external debts, both private sector and government, are provided and total up to RM695.4 billion for 2011 and RM737.6 billion for 2012.
Elsewhere in these bulletins, there are indications that Malaysia's total debt is much higher:
“Malaysia’s total external debt declined to RM257.2 billion... as at end-December 2011... and remains small as a share of total debt (12.7%)” (BNM, Quarterly Bulletin, fourth quarter 2011, p. 134).
“Malaysia’s total external debt declined to RM252.8 billion at end-December 2012... and accounted for only 14.5% of total debt” (BNM, Quarterly Bulletin, fourth quarter 2012, p. 146).
Simple calculations show that the total debts implied here are RM2.025 trillion for 2011 and RM1.743 trillion for 2012.
The total-debt-to-GDP ratio becomes 230% for 2011 and 184% for 2012.
Given that government debt is currently around two-thirds of total debt, a speculative estimate of the government-debt-to-GDP ratio gives us the figures of 115% for 2011 and 92% for 2012.
These are crisis-level percentages.
(iv) The debt-to-GDP ratios of different countries cannot be directly compared
It is sometimes simplistically argued that Malaysian debt level is healthy because other countries tolerate higher debt-to-GDP ratios than Malaysia's without adverse effects, or that Malaysia's debt-to-GDP ratio is similar to that of other countries that are doing economically well.
This is fallacious thinking. A well-regarded study on sovereign debt has found that debt thresholds are importantly country-specific (C. Reinhart, K. Rogoff and M. Savastano, 2003, 'Debt intolerance', Brookings Papers on Economic Activity, Vol. 1).
Comparisons with countries such as Japan, Germany and Australia, which may have similar or higher debt-to-GDP ratios, can be erroneous.
These countries may have far more 'leg room' to take up larger debts.
For instance, Japan and Germany have the capacity to innovate, create homegrown technology and export without undermining their resource base. Australia, with a population size that is close to ours, has immensely large and important mineral deposits.
Malaysia lacks world-beating innovative capacity (hence the 'middle income trap'), is reliant on limited resources (oil reserves and land area), and suffers brain drain. Malaysia may not be as equally geared as some other countries to assume the same proportion of debt for this and other reasons.
More accountability is needed on debt
The Malaysian government appears to have carte blanche in procuring debt. The ordinary citizen is left in the dark about debt levels and debt policy.
A more democratic approach is required given that debt has a critical effect on the people's wellbeing. Debt amounts and debt policies should be brought under parliamentary scrutiny. Critical debt decisions could be put to public referenda.
Transparency is required. The government must clarify how it intends to repay the money that it has borrowed from the savings of its citizens, and at what rates and by when. The government is obliged to inform its citizens about the use that is being made of borrowed money. The government must reveal the full extent of the government's debt holding and the annual interest payments that are being made on it.
In a genuine democracy, the people must be able to evaluate how much absolute debt they would be willing to collectively shoulder.
~ Centre for Policy Initiatives

SDNU openly champions Native Customary Rights and Lands!

30 March 2013

Surprise! Surprise!

It has taken the Sarawak Dayak National Union (SDNU) a week and a half to react to the Global Witness video. SDNU’s Vice President Anthony Banyan, in a statement published in the Borneo Post last February, was quite clear that“SDNU has no political affiliation and this is how it should always remain,”and I applaud him for his neutrality (see And today, Banyan has kept his word by coming out strongly against the allegations made in the Global Witness video (see

Based on the report published today, SDNU issued its statement following the SDNU supreme council meeting on Wednesday, which we presume must have been chaired by its President William Mawan, whose other hat is, of course, President of the Sarawak People’s Democratic Party (SPDP), a Sarawak based party in the BN ruling coalition with a Dayak majority membership. However, the eye-brow raising statement was released and signed by its Vice-President, Anthony Banyan, and not by William Mawan. Which is intriguing, to say the least.

Why do I say intriguing? Well, SDNU did not mince its words. In fact, SDNU used very strong words, and the underlying message behind those words is even stronger. Just to quote several sentences from the SDNU statement:

“Whether the remark was designed to put a wedge between the Dayak community, particularly the Iban and the ruling government or uttered naturally by the subjects in the video, we still view such remark asdemeaning and deplorable.”

Thank you SDNU for standing up for the Dayak community and calling a spade a spade. The remarks in the video were indeed demeaning, deplorable, disgusting, humiliating and most shockingly, uttered nonchalantly by subjects related very closely by blood to the Chief Minister. It must have taken SDNU a lot of courage to actually tell the Chief Minister off, in a roundabout sort of way, that it.

However, the real meat of the statement came blazing through loud and clear:

“We also condemn the remark suggesting that the Dayaks are squatters on state land as it is baseless.

SDNU was being polite in using the word ‘suggesting’. Datin Norlia Tun Abdul Rahman Yakub did not ‘suggest’ that Dayaks are squatters. She said it outright. But let’s not quibble. The point is that SDNU has publicly declared that Dayaks living on state land are not squatters, and this in itself is a milestone and one that should be applauded by all sensible Dayaks. To put it in a nutshell, SDNU condemns anyone who is saying that Dayaks who live on so-called ‘state lands’ have no Native Customary Rights, and are therefore, in effect, agreeing with what Pakatan Rakyat has been saying all along.

At first reading of the statement, I was quite taken aback. I had to re-read the sentence, to be sure that this was the underlying message that SDNU was sending out. And sure enough, there it was, in black and white.

The next paragraph removed all doubts I had. No underlying theme, but an outright clarion call:

“We call upon all quarters to stand up for the Dayak community andrecognise our rights over land as well as be sensitive towards the feelings of the Dayaks.”

Nothing can be clearer than what SDNU had just written; recognise our rights over land.” This is an overt and direct statement relating to Native Customary Rights and Native Customary Lands, and follows the precedent set by the celebrated Mabo vs. Queensland Judgment and its implications worldwide where English Common Law overrides Constitutional Law in legal systems that are based on the English legal system. The precedent created by the Mabo Case was applied successfully by Baru Bian in the landmark Malaysian case of Nor Anak Nyawai vs. BPP & Ors, which went to the highest Malaysian court, the Federal Court, TWICE. And both times Baru Bian won. Dayaks HAVE rights over ‘state lands’. Yet, the Sarawak Government refuses to accept the Court’s decision and continues its policy of alienating ancient Dayak lands. 

Based on these very clear words, we can surmise and come to only one conclusion: that SDNU’s Supreme Council, made up of several BN senior politicians, has issued a statement that unequivocally says that it now agrees with Pakatan Rakyat’s policy on indigenous lands. Now this is why I say it is intriguing because this is definitely news! Big news! SDNU, despite being led by top Barisan Nasional Dayak leaders, are going against the grain and in no small way!

YBs William Mawan and his deputy in SDNU, Alex Nanta Linggi, may not have signed the statement but getting their subordinate Vice-President Anthony Banyan to sign the statement is telling. What is William Mawan, boss of SPDP and Alex Linggi, senior member of PBB, exactly saying with the issuance of this very bold statement via SDNU? Are they striking out at Taib through the backdoor? Is this a veiled condemnation of Taib’s policies on NCR lands?

Most shocking of all, the Women’s Wing of SDNU, which is headed by Empiang Jabu, the wife of the Deputy Chief Minister, also gave its fullest backing to the statement. Stunning! Is Jabu now tacitly telling his ‘beloved Pehin Sri’ that he too is upset by the slur on the Dayaks and that he has finally had an epiphany on the eve of Easter? Are our Dayak ‘leaders’ finally staging a silent protest against Taib and family? 

The plot gets thicker and I am literally at the edge of my seat with excitement! The political landscape is shifting, and it seems clear now why our Dayak leaders did not come to Taib’s aid and rescue when the debacle exploded last two weeks ago.

The Game of Thrones is afoot in Sarawak and the first very public crack in the polished façade of BN Sarawak’s frail unity is now vividly clear, thanks to SDNU's unmistakably refreshing and about-turn statement. And by any account, this is a big crack which Taib cannot ignore and hope will go away. SDNU has spoken loud and clear. Are the daggers finally drawn? We wait with bated breath for the next public reaction from either Taib or Mawan or for that matter, from the self-proclaimed Paramount Chief of the Dayaks, Jabu himself. Mutiny is always fun to watch from a distance.



Julau People Outraged Over Taib Family Land Grabs

30 Mar 2013
Don’t you dare call us “Squatters” in our own lands!
The people of Julau who saw themselves victimised on the devastating film expose by Global Witness last week have come out in fury to protest at the secret disposal of their Native Customary Rights lands to Taib’s family members.
PKR front-runner in the area, Andy Wong, made a police report on the 23rd of March, followed by a report to the MACC on the 26th of March.
On the same day Andy and many from the PKR Julau Branch attended a demonstration against the alienation of their land to the greedy daughters of of the former Chief Minister, Rahman Ya’kub, who are cousins of Taib Mahmud.
There is particular fury that not only did the sisters boast that they could be certain of their right to take the land, because the Chief Minister “gave” it to their company Ample Agro Sdn Bhd, but they described the traditional native landowners, who have lived in the area for generations as “squatters”.
“They are actually squatters on the land, because the land doesn’t belong to them it’s the government land, so they’re squatting”,
“Actually, they are squatters on the land” – Norlia Abdul Rahman brushes aside native land rights standing in the way of her planned multi-million dollar profits
says the eldest sister Norlia, who seems to think somehow she instead has a right to it, because of her favoured position as a relative who can easily talk to the Chief Minister.
Adding insult to injury her younger sister Fatimah further insulted the local people of Julau by saying they were “naughty” for wanting compensation for the grabbing of their recognised rightful native lands.
“You know they are pretty naughty people. They try to make money, the moment they hear (they have people in the Land and Survey Department who tell them look this land has been given, has been titled to this company to do oil palm or what not) they plant themselves there” [Fatimah Abdul Rahman]
The sisters’ ‘vehicle’ for taking the land was the company Ample Agro Sdn Bhd
In their interview with the NGO Global Witness, which was secretly filmed, the sisters explained that they had set up the Ample Agro as a “shell company” to act as the vehicle whereby Taib could hand them the 5,000 hectares of forested land registered as native customary rights land in Julau.
The Chief Minister “handed” us this land, Fatimah Abdul Rahman is registered Director of Ample Agro
One of the sisters Fatimah Abdul Rahman is registered as the contact for Ample Agro, as we had already reported.  Our research into leaked Land and Survey Department records has shown that hundreds of thousands of state and native customary rights land have been given out in concessions to various members of Taib’s family.
Ample Agro is just one example of scores of companies owned by the Chief Minister’s family, friends and nominees, which have been handed this land cheap and then swiftly sold it on at the much higher market prices to plantation companies.
At the price the Abdul Rahman sisters were asking for the land they would have made US$16million profit from the sale, which was a sign of how cheaply Taib had handed them this valuable property belonging to the native people of Julau.
Sarawak Report has also already exposed similar massive, profit-making sales by companies owned by Taib’s brothers ArifTufail, Ali andIbrahim as well has his sister Raziah and brother in law Robert Geneid and various nieces and nephews.
Andy Wong (centre right) and PKR colleagues submit their protests on behalf of the people of Julau
The biggest handouts of all have gone to companies belonging to Taib’s own sonAbu Bekir Taib and to his cousin and proxy Hamed Sepawi.  Companies like Titanium Management (Abu Bekir) and Grand Perfect (Hamed Sepawi).
The Chief Minister himself has developed his own interests in a number of land grab concerns through another company that has received substantial interests in various property handouts, namely as a shareholder in Mesti Bersatu Sdn Bhd.
However, his main profits have come through secret kickbacks and nominees.
Time and again these land grabs have been challenged in court over the past few years and time and again the State of Sarawak and Chief Minister have been found to have acted illegally in grabbing land this way.
However, acting as a self-appointed sultan (the cousins described their family as ‘kings’) Taib has chosen to ignore the ruling or appeal against them rather than do the right thing by the Dayak of Sarawak.
The enraged people of Julau say they will not accept that their land was secretively and illegally taken from them and handed to a company owned by the greedy and insulting Abdul Rahman sisters and that they will be bringing their protests to Kuching in coming days.
 ~ Sarawak Report

Contentious Global Witness video hotly debated at DCCI’s meet

Posted on March 31, 2013, Sunday

KUCHING: The controversial Global Witness video on the alleged corruption involving land deals in Sarawak was hotly debated among Dayak Chamber of Commerce and Industry (DCCI) members during its annual general meeting yesterday.

In one of the resolutions passed at the meeting, DCCI stated that they took exception over the highly demeaning and racist views as well as deplorable actions as exposed in the video now circulated widely in the social media.

Among the contents of the video which are offensive were the labelling of the natives as squatters on state land, and the exploiting and manipulating of the natives as tools to circumvent the requirement of the law.

“We firmly believe that the natives have rights in our land. Our rights in land have been well entrenched in our laws, culture and customs which are duly recognised and accepted by our courts. These rights should be respected by all,” said a statement issued by DCCI secretary-general Libat Langub after the meeting.

He elaborated that while it was true the native communities are still lagging behind, but they as equal citizens of Malaysia should be respected and not be manipulated nor exploited by others.

“Indeed, the way forward is to ensure that all communities are provided with greater opportunities to meaningfully participate in all sectors of development, including in land development, to ensure that we can achieve the government’s objective of a higher income and an all inclusive economy.

“We hope, in that way, to progress and find our rightful place in ‘one’ Malaysia,” he said.

The meeting yesterday at a local hotel here was attended by some 100 members including those coming from Miri, Bintulu and Sibu. It was chaired by DCCI president Tan Sri Datuk Amar Leo Moggie, with advisor Tan Sri Datuk Amar Leonard Linggi and deputy president Dato Sri Celestine Ujang also in attendance.

Another resolution passed by DCCI was to request the federal government to take cognisance of the peculiar local ‘adat’ (customs), culture, conditions and circumstances in framing and implementing policies with regards to Sarawak.

It was learnt that DCCI members have expressed their concern over the policies which deprived them from participating.
“A case in point is in relation to ration cooked supplies catering tendered in rural schools where there are no Muslims, which require the participating companies not only to have halal certificate but be owned by Muslims,” said Libat in the statement.

DCCI currently has more than 500 members comprising entrepreneurs and professionals.
from the Dayak community.

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Dayak NGOs demand apology over disparaging remarks

Posted on March 30, 2013, Saturday

Anthony Banyan
Anthony Banyan

KUCHING: Sarawak Dayak National Union (SDNU) and its women wing Sarakup
Indu Dayak Sarawak (SIDS) have expressed their displeasure over the contents of a controversial video footage insinuating the Dayaks as a community easily manipulated by the business community due to perceived hardcore poverty and low intelligence.

They are demanding a public apology from those who uttered the remarks.

According to a press statement signed by SDNU vice- president Anthony Banyan yesterday, they detested such remark which appeared in the Global Witness’ controversial video ‘Inside Malaysia’s Shadow State’.

“Whether the remark was designed to put a wedge between the Dayak community, particularly the Iban and the ruling government or uttered naturally by the subjects in the video, we still view such remark as demeaning and deplorable.

“We also condemn the remark suggesting that the Dayaks are squatters on state land as it is baseless.”

The Dayaks are civilised people with dignity and respect and therefore they (SDNU/SIDS) request those who uttered the remarks to issue a public apology and own up to their doings in disparaging the image of the Dayak community.

“We call upon all quarters to stand up for the Dayak community and recognise our rights over land as well as be sensitive towards the feelings of the Dayaks.”

However, the NGOs acknowledged that some parts of the rural areas in Sarawak where the Dayak live were still lagging behind in terms of mainstream development and also outside the framework of economic transformation.

In view of this, they hoped the relevant authorities would immediately ensure that the Dayaks are given greater opportunities under the government and economic transformation programmes so that they can improve their livelihood.

The press statement was issued following SDNU supreme council meeting on Wednesday.

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