Valuecap redux

If we were to use Valuecap as an indicia of transparency or opacity of any Malaysian body, public, quasi-public or, even, private body, the sad finding would be that in Malaysia, there is a clear prediliction towards being opaque.

It would seem that Malaysians are very averse towards transparency. One suspects that such aversion is not due to innate modesty. The feeling is that such aversion belies a less savoury purpose.

Malaysian public bodies and semi-public bodies appear to have a serious problem with coming to terms with any mistakes they or, their officers, make. The instinctive reaction to any allegation of mistake, mistep or any error, is to draw the blinds, pull down the shutters, slam the door shut, shroud the matter ... well, you get the picture or, not.

It is, therefore, with regret and, unfortunately no surprise, that I read the travails of the attempts by journalist Eric Ellis, who writes in the Asian Sentinel about his thwarted efforts to obtain more information on Valuecap. His piece is entitled, The Malaysian Mystery of Valuecap.

Valuecap's opacity, despite it's being a quasi-public entity, a GLC if you will, is troubling.

Should a GLC behave like a sendirian berhad? The stakeholders of a GLC includes the general Malaysian public. The nexus is even more direct in Valuecap's case since it involves EPF funds.

As I posited at the beginning of this post; if Valuecap is the indicator of whether Malaysian public or semi-public bodies have begun to imbibe the values (pun intended) of transparency and accountability, then, there is clearly a hell of a lot of work that still needs to be done.

The question posed by an irate spouse to her worse half when staring at their gutted home is apposite on the issue of transparency and accountability; "Where does renovation end and, demolition and completely new construction begin?"

Keeping with the building analogy; transparency and accountability is all about full-glass see-through wall panels.

pix from here.

It's not about closed doors and shuttered windows.

pix from here.

It certainly is not about peep-holes.

pix from here.

Simulating stimulus and Valuecap

This is a good snapshot of the Economic Stimulus Package tabled by Najib courtesy of The Malaysian Insider. I have put in bold the parts that caught my attention:

After speaking about the country's strong fundamentals for the last few weeks and inviting criticisms of being in denial, Najib went for the jugular today. He said that the country's growth for next year will slow to 3.5 per cent while the budget deficit will widen from 3.6 per cent of the Gross Domestic Product to 4.8 per cent of the GDP.

He also said that the government will pump RM7 billion more into the system next year and introduce additional steps to maintain the country's economic momentum. "The emphasis will be on encouraging domestic economic activity to spur economic growth, '' he said.

Among the slew of initiatives and projects announced by Najib were:

#' RM1.2 billion to be spent on building more low and medium cost housing, RM500 million on quarters for police and military personnel, some RM400 miillion on the double-tracking rail project and RM500 million will be set aside to improve public transportation in urban centres.

Besides allowing more Malaysians to own homes, upgrade the living conditions of uniformed personnel and improve transportation in the country, this infrastructure spending is aimed at keep the important construction industry humming. This sector puts money into the hands of hundreds of thousands of Malaysians, directly and indirectly. A strong construction sector impacts a wide range of industries, from cement factories to transportation companies to furniture shops.

To keep the construction costs down and spur growth in the industry, the government also said that it was abolishing the import duty for cement and long iron and steel products. But a robust building sector without demand is a recipe for a property overhang. To avert this problem, foreigners and foreign companies are now allowed to buy commercial properties valued at RM500,000 and above without needing approvals from the Foreign Investment Committee.

#' Allowing employees to reduce their EPF contributions from 11 per cent to 8 per cent for two years from January 2009. For someone earning RM2,000 a month, this puts an additional RM60 per month disposable income in the pocket. Assuming that only half of all EPF contributors choose to take up this offer, private sector spending will increase by RM2.,4 billion.

In addition, the government will allow those with existing housing loans to lengthen their period of repayment from 25 to 30 years. This will put more disposable income into the hands of civil servants, encouraging them to keep their wallets open. The government will also urge banks to make similar arrangements for those in the private sector with housing loans.

# Increasing the threshold for car loans for civil servants in the hope that they will be persuaded to get a car or upgrade.

# Extending shopping hours at hypermarkets until 11pm on week days and 1am on weekends. The move is aimed at getting Malaysians to spend more and push the consumption of local goods.

#' Doubling the social safety net for Malaysians, from 55,000 to 110,00. Najib took pains to stress that the additional RM7 billion which the government will spend next year is from savings from a tighter subsidy regime. But there is little doubt that the government is mindful that it will have to raise more revenue and from different sources if it is to carry on this expansionary approach beyond 2009.

That could explain why it has decided to maximise returns on its assets and develop prime land that it owns. This includes swathe of real estate in Sungai Buloh, Jalan Cochrane and in Ampang. Under this open tender
system, the private sector and government-linked companies can put forward proposals to develop this land.
Najib said that if this development concept takes off, government stands to gain handsomely.

Clearly the administration is also concerned about the slump in crude palm oil prices and its impact on the industry and country, the government today announced that it was abolishing the import duty of mineral fertilisers and taking steps to reduce the cost of fertilisers by 15 per cent.

This would come as a great relief to the palm oil industry as fertilisers make up nearly 60 per cent of the cost of production. Lower cost of production will especially benefit the 120,000 Felda smallholders. Traditionally their palm oil yield is lower than the industry standard and their cost of production is higher. In this environment of falling crude palm oil prices, many of these smallholders were staring at tougher times. The government's intervention may keep them in the black, and allow them to keep their wallets open.

Valuecap RM5 billion EPF loan still on

Unfortunately, Najib is bulldozing through the RM5 billion loan from EPF to Valuecap. This shows that there is hardly any checks and balances from within the EPF board of directors.

Does the EPF board have to blindly obey the Minister or, are they supposed to be independent under the Employees Provident Fund Act 1991?

Section 11 of the Act provides that the Minister (of Finance) may give to the Board directions of a general nature not inconsistent with the provisions of this Act as to the exercise of the functions and powers of the Board and the Board shall give effect to those directions.

So, going by Section 11 of the Act, whatever MOF1 says the Board must obey.

UPDATE Nov. 5: An extract from the Straits Times report:

Malaysia's economy has largely been shielded from the global turmoil, thanks to capital controls and reforms following the 1998 Asian crisis.

But economists note that it remains heavily dependent on exports and commodities.

Kenanga Investment Bank economist Wan Suhaimi Saidi told The Straits Times that the success of the measures outlined yesterday would depend on their speedy and transparent implementation.

'The government can say what they want but it all depends on the execution. At best we will start to see the effects only in the second half of 2009.'

Mr Abdul Jalil Rashid, head of equities at Aberdeen Asset Management's Malaysia unit, told Reuters: 'I am quite surprised that it's quite straight rather than more detailed. The market would have been happier if there had been more details on what's being done.'

Meanwhile, Mr Alvin Liew, economist at Standard Chartered, said the RM7 billion seemed 'affordable for the government' but added that the increase in the 2009 fiscal deficit was 'a bit of a concern'.

Valuecrap

I read with askance The Malaysian Insider reports entitled, Question marks over Valuecap debt and Sailing lessons in riding out global financial storm.

Having made the initial calls in posts entitled, Calendaritis and EPF to lend RM5b to fund Valuecap when the news first broke on Najib's maiden foray as MOF1, I've been content to passively read subsequent analyses.

But, The Malaysian Insider pieces are not mere reportage. They provide a deeper account of the troubled state of Valuecap's present financial health. As I said, read with with askance. Or, nausea.

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EPF to lend the RM5b to fund Valuecap

The Malaysian Insider reports, Finance Minister Datuk Seri Najib Razak said today the government will borrow RM5 billion from the Employees Provident Fund to fund government investment agency Valuecap Sdn Bhd.

"It's not part of the Consolidated Fund. It's a loan from EPF," said Najib.

The Deputy Prime Minister pointed out that the loan would not be part of the Budget 2009 allocations for spending announced last month.

Really, this is too much. While I'm certain that the so-called loan from EPF will be guaranteed in full by the Malaysian government (together with KLIBOR++ interest, I should hope), I cannot help asking again and again, Is this RM5 billion for main saham really necesary?

A few questions need to be answered by Najib:

1. Will the RM5 billion be used to buy ONLY shares of GLCs?

2. Is the move intended to prop up and window-dress the financial results of Khazanah Nasional?

3. Please explain the multiplier effect that this move will have on Bursa and/or the real economy.

4. How is the EPF loan secured?

5. What are the default clauses to be put into the EPF loan?

6. Will there be a formal loan document?

7. Will the loan document be made public, since ALL non-government employed Malaysians are stakeholders of EPF?

8. When will the loan be repaid?

9. Will there be any interest payable on the loan? If so, how is the interest calculated?

I'm sure there will be more questions by everyone else. For more on Valuecap, see my earlier post Calendaritis there are many informative links there.

UPDATE: Read also this report in The Edge Financial Daily. But do take the initial paragraphs containing the views of fund managers with a huge shovelful of salt since they have a vested interest in seeing more market activity. It is a RM5 billion question whether it is safe to enter the shark-infested cesspool of the stock markets, not just in KL but anywhere.

FURTHER UPDATE: MOF II, Nor Yakcop made a statement that EPF will make a profit from the RM5 billion that it is to lend to Valuecap. But have a look at the the view offered by blogger, MYOP 101, on the returns to Valuecap since 2003.

Calendaritis

In what was probably expected to be his most significant statement since assuming the post, the Minister of Finance I appears to have made very tepid comments on the state of play of the Malaysian economy.

Like his boss, the Prime Minister and, his nemesis, the Opposition Leader, the MOF I appears to have fallen victim to a new disease called calendaritis. This hitherto rare disease is said to exhibit a characteristic symptom in its victims. The symptom is a propensity for identifying future dates after initial deadlines are reached with nothing to show.

In an act that confirmed his being afflicted with this disease, MOF I is reported to have said that the details of the stabilisation plan will be announced on November 4 in his winding-up speech in Parliament for Budget 2009.

RM5 billion for Valuecap Sdn Bhd
While making generalisations on the state of the economy, MOF I was very specific on one matter. RM5 billion will be injected into Valuecap Sdn Bhd.

If you visit Khazanah Nasional Bhd's website here, you will, upon scrolling down, come upon this description of Valuecap Sdn Bhd:

Established in 2002, Valuecap is a fund management company which was created to invest specifically in the Malaysia equities market. Owned jointly by Khazanah, PNB and KWAP, Valuecap’s key mandate is to undertake investments in equities listed on Bursa Malaysia on a portfolio basis, based on superior fundamental investment research.

It is not as if Valuecap Sdn Bhd is a great White Knight in shining armour as the innocuous description above suggests. The venerable DAP Adviser, Lim Kit Siang is on record as having made this statement on Valuecap Sdn Bhd at the time of its inception in January 2003. There was also an interesting letter written to Malaysiakini on January 15, 2003 cautioning on the role and scope and mischief that could befall Valuecap Sdn Bhd.

I am sure that others will have plenty to say about the rationale for MOF I to be so specific about Valuecap Sdn Bhd receiving RM5 billion while remaining sagely nebulous about other key areas of the Malaysian economy, preferring to wait until November 4. Read additional information on Valuecap Sdn Bhd furnished by a commentator by clicking the link here.

Source of the RM5 billion?
By the way, where's the RM5 billion coming from? Petronas Bhd?

Focus on the real economy, please
MOF 1 should ignore the capital market. As Wall Street and ALL bourses have shown, the capital market is NOT the barometer of confidence. It has turned out to be the barometer of greed and fear. THEY are the ones talking up a recession. I suggest that MOF 1 save the RM5 billion and inject it into a more worthy vehicle like the EXIM Bank to support SME exporters, instead. Focus on the real economy, please.
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Meanwhile, I read with great pleasure that the Selangor State Government is tabling a BALANCED BUDGET of RM1.4 billion. Whatever detractors say about Tan Sri Khalid or the Selangor Pakatan government, this is the most complete answer to their criticism. At times like these we need less politicking and fuss over party elections. We need more economic management, please. As a Selangor voter, I am heartened to see that the state is being managed by a conscientious and competent economic manager. Read more here.