KUALA LUMPUR: Opposition lawmaker Tony Pua claims that Prime Minister Datuk Seri Najib Razak was not entirely truthful when he told Parliament on Tuesday that the government had only guaranteed RM5.8 billion of 1Malaysia Development Bhd’s (1MDB) loans.
Pua said Najib’s statement, which was in response to a question from Bagan MP Lim Guan Eng on 1MDB’s debt, did not reflect the “letters of support” that the Ministry of Finance had issued for other loans undertaken by 1MDB.
Pua was referring to the expose by The Edge weekly in its cover story this week (Oct 27-Nov 2), in which it was reported that the federal government had provided a “letter of support” for 1MDB Global Investments Ltd, a wholly-owned unit of 1MDB, to borrow US$3 billion in March 2013.
The weekly, quoting the letter, stated that “in the event 1MDB, as shareholder of the Issuer (1MDB Global Investments), fails to provide the required funds, Malaysia shall then step in to inject the necessary capital into the Issuer or make payments to ensure the Issuer’s obligations are fully met”.
The Edge weekly reported that the letter of support is valid until March 19, 2023.
“Without outrightly stating that the government of Malaysia is providing a ‘guarantee’ for the US$3 billion debt, the letter of support has effectively guaranteed the debt. The difference between a ‘guarantee’ and a letter of support where the government ‘ensures the Issuer’s obligations are fully met’ is purely a matter of semantics,” Pua told reporters in the Parliament lobby yesterday.
He said letters of support “don’t just appear anywhere” and that “they are hidden and we don’t know how many letters of support the government has issued and we don’t know [to] whom they have issued them”.
“All these debts are essentially unaccounted for in the federal government accounts. Technically, when we (opposition) debate the budget, there is no [provision] in the budget as to how the government is taking into account 1MDB’s expenditure,” said Pua.
He expressed concern that in the event if 1MDB is unable to pay, the government will have to pay 1MDB’s debt, and that “it will cause a huge debt increase for the federal government, increase our deficit, and affect the way we can spend our money”.
“Perhaps more subsidies will then need to be cut to finance the scandals in 1MDB,” said Pua.
Pua, who is MP for Petaling Jaya Utara, noted that this is not the first time “letters of support” have attracted controversies in the country, citing the multibillion ringgit Port Klang Free Zone scandal. The Transport Ministry had similarly issued letters of support to the project’s turnkey contractor, which in turn used them to raise money for the project.
“In this case, we know that out of some RM38 billion of 1MDB debt, RM15.4 billion is guaranteed. [But] we don’t know if the balance of the debt received any similar letter of support,” he said.
Such dubious letters of support are not registered anywhere in the government’s financial statements despite their grave, material and substantial implications, Pua said, adding that Malaysians and international analysts have no clue on how much the government is financially exposed via these shady letters.
“Such letters should surface so that we know how much we are liable for and [they] should appear in the federal government expenditure,” he said.
Pua said European countries, after having experienced a financial crisis in recent years, “have done away with the contingent liabilities being hidden away in the accounts — which are [now] fully reflected in the deficit and expenditure of the government” and that Malaysia should follow suit.
He said Najib, who is also Finance Minister, should put the minds of Malaysians at ease and refute the argument that such a letter of support is tantamount to a guarantee by categorically stating that in the event 1MDB is unable to fulfil its debt obligations, the federal government will not bail out the sovereign wealth fund or its subsidiaries.
This article first appeared in The Edge Financial Daily, on October 30, 2014.