By Pauline Ng, (c) 2016, ASIAONE GROUP(c) 2016
The Invest Malaysia conference opening in Kuala Lumpur on Tuesday could prove awkward for the country, coming as it does after last week’s release of a parliamentary report revealing poor governance and management controls at the Ministry of Finance-owned company, 1MDB.
Prime Minister Najib Razak is scheduled to deliver an address to about 2,000 delegates at the event, even as the report has raised concerns over the operations of other state-owned firms and the role of key institutions.
How potential investors view Malaysia is clear from a recent survey of fund managers by Moody’s, which indicated that 1MDB’s debt – since pared down with the sale of its energy and property assets – remains a political risk factor.
Over the weekend, the Hansard transcripts of the hearings of the Parliamentary Public Accounts Committee (PAC) revealed that although Minister of Finance Incorporated (MoF Incorporated) was the sole shareholder of 1MDB, the ministry had no board representation and was bypassed by the 1MDB management.
But Article 117 of 1MDB’s memorandum and articles of association (M&A) gave Mr Najib the power to approve all matters including the composition of the board, investment decisions, or changes to the M&A.
Finance ministry executives told the PAC that they were in the dark about 1MDB’s operations; MoF Inc secretary-general Mohamad Isa Hussain disclosed that 1MDB’s M&A barred government officers from sitting on the board, and that corporate or funding matters had never been referred to the ministry or to MoF Inc.
PAC members were shocked that the government received not a single report, despite enormous government guarantees and letters of support going out to 1MDB; this funding had snowballed past RM20 billion (S$6.9 billion) by January this year. By then, its debts had shot to RM50 billion, against its assets of RM53 billion, said the PAC report.
The report laid the blame for the bulk of 1MDB’s misadventures on its former chief executive Shahrol Azral Ibrahim Halmi, and to a lesser degree, its directors.
Set up in 2009 under Mr Najib, who is also the finance minister and chair of 1MDB’s advisory panel, 1MDB has a record of transactions that have triggered probes around the world.
The director of a public-listed company, noting the failure in governance and looking ahead to this week’s investors’ conference, said: “There’s already so much criticism of Malaysia, and an investor would have to think carefully before making any investment decision.”
A director of a consumer-goods company said that although all six 1MDB directors have now offered to resign, they should also step down from their other board positions in public-listed or state-controlled firms.
PAC has made a few recommendations, including the scrapping of Article 117. Institute for Democracy and Economic Affairs Wan Saiful Wan Jan said the seemingly unfettered power accorded to Mr Najib under Article 117 aside, appointing him chairman of the advisory panel was questionable from a governance perspective.
Mr Wan proposed a comprehensive review of other federal- and state-owned corporate entities so that their debts can be properly ascertained.
In addition to allegations involving some of 1MDB’s transactions, Mr Najib is also embroiled over a deposit of RM42 million found in his personal bank accounts from the Finance ministry-controlled SRC International Sdn Bhd.
In the interests of transparency, corporate executives said the Auditor-General’s report on 1MDB – now classified under the Official Secrets Act – has to be declassified and the practice of allowing an individual to hold both the prime minister and finance portfolios, done away with.
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