Going bankrupt: One government, two views

Gan Pei Ling | The Nut Graph

“If the government continues at the rate of 12% [debt growth] per annum, Malaysia could go bankrupt in 2019 with total debts amounting to RM1,158 billion.”

MINISTER in the Prime Minister’s Department Datuk Seri Idris Jala, on the need for the government to cut subsidies on fuel, food, toll, health and education, as well as reduce its mounting debt to prevent Malaysia from becoming bankrupt, like Greece, by 2019. He said national debt is currently at 54% of Gross Domestic Product (GDP).
Idris, who is chief executive officer of the Performance Management and Delivery Unit (Pemandu), said Malaysia is one of the most subsidised countries in the world. He said in 2009, government subsidies amounted to RM74 billion, or RM12,900 per household, while the deficit increased to RM47 billion. (Source: Idris Jala: Malaysia must cut subsidies, debt by 2019 or risk bankruptcy, The Star, 27 May 2010)

“[Withdrawing subsidies should] be judiciously implemented; less it may cost a government. Idris may win the battle (cut subsidies) but will lose the war (general election). From the violent reaction, I suspect Idris will be more tactful and politically sensitive in future.
“[Idris] should have 100% confidence in the current government that it won’t allow the country to go bankrupt. It has an excellent track record in effectively and efficiently managing it for the last 53 years.”

Umno senator Datuk Akbar Ali, responding to Idris in a press statement. Akbar said Idris might not have given a comprehensive assessment of the situation. He also said the country’s economic structure was much stronger than it was in the 1980s, and that the country had adequate national savings. The government also has plans to increase revenue, such as through introducing the Goods and Services Tax (GST).
Another senator, Dr Awang Adek Hussein, who is also a deputy finance minister, said Malaysia would not go bankrupt in 2019 even if the subsidies continued. Other Umno politicians including Umno Youth chief Khairy Jamaluddin and former Domestic Trade and Consumer Affairs Minister Datuk Seri Shahrir Samad also dismissed Idris’s prediction as a mere “scare tactic” to convince the people that the government needed to slash subsidies. (Source: Malaysia: Subsidies or bankruptcy?, The Malay Mail, 2 June 2010)

“To be clear, I said we could go bankrupt IF, and I repeat the word IF, we continue with the same trend as in the past 10 years … All economists make assumptions and I did not say Malaysia will go bankrupt without qualifying it with certain assumptions … Unfortunately, some of the reports about Pemandu’s bankruptcy projections did not state these assumptions and therefore can be taken out of context.”

Idris, responding to the backlash from both Umno and the Pakatan Rakyat for his bankruptcy prediction. He said his statement had been taken out of context. The assumptions that he felt had not been considered were continued average GDP growth of 3% yearly; continued increase in deficit; and continued debt growth of 12% yearly. According to Idris, these factors have been trends for the past 10 years.
However, the Treasury said in a briefing for the Barisan Nasional Backbenchers Club on 8 June 2010 that the government only spent RM18.6 billion on subsidies in 2009, and not RM74 billion as Pemandu, or Idris, had claimed. (Source: No let-up in war against graft, The Star, 3 June 2010)

“[T]he Treasury is looking strictly from their angle and their own budgeting concern. But the Pemandu lab looked at the overall picture. So, both are right in their own contexts.”

Minister in Prime Minister’s Department Tan Sri Dr Koh Tsu Koon, defending the Pemandu findings. Koh is also Pemandu chairperson. He said the Treasury’s RM18.6 billion figure only refers to direct subsidies, while Pemandu’s RM74 billion includes all indirect subsidies and from all public sources. (Source: Tsu Koon defends Pemandu’s subsidy data, The Malaysian Insider, 9 June 2010)