Published in Free Malaysia Today Online 24 October 2016
KUALA LUMPUR: The Institute for Democracy and Economic Affairs (IDEAS) has released a study on the 1Malaysia Development Berhad (1MDB) controversy “to help improve regulations on GLCs (government-linked companies)”.
The study, authored by Rama Ramanathan of Proham (Society for the Promotion of Human Rights), highlights 1MDB’s excessive borrowings, high interest rates, risk of loan default and adverse impact on sovereign credit ratings, said the think tank in a statement.
It recommended parliamentary approval for letters of guarantees for loans, said the study.
“In the case of 1MDB, RM13.6 billion in letters of support were issued in 2015.
“1MDB had unsustainable debts of RM42 billion in 2014 or 2.5 per cent of Malaysia’s GDP according to Moody’s.”
The company was cited as an example of the adverse impact that GLCs may have on the economy when not regulated correctly.
Laws must be put in place to prohibit GLCs funding political parties or individual politicians, added IDEAS on the study.
“This is in the wake of allegations that 1MDB funds had been misappropriated to fund elections.”
The study stressed the need for the Public Accounts Committee (PAC) and other regulatory bodies to play a stronger role in overseeing GLCs.
The study also makes several other recommendations:
· A registry of GLCs to track performance;
· Clear debt-gearing goals or a debt-to-equity ratio, with non-compliance treated as a criminal offence;
· End appointment of public officials to GLC boards to prevent any conflict of interest;
· Curb profiteering. “Land sold by 1MDB to Tabung Haji was at 42 times its initial price,” noted the study.
Elsewhere, the study recommends empowerment of regulating authorities.
For example, it said, although regular audits were conducted on 1MDB, they did not reveal mismanagement in the company until it was too late.
The study further recommends the auditor-general conduct regular in-depth audits of GLCs.
Malaysia’s economy has a high dependence on GLCs.
The 15 GLCs in the GLC Transformation Programme, for example, contribute to 5 per cent of the national workforce.
They account for 36 per cent and 54 per cent respectively of the market capitalisation of Bursa Malaysia and the benchmark Kuala Lumpur Composite Index.