Cover Story: ‘We’ve got to be stingy’

This article first appeared in The Edge Malaysia Weekly, on June 4, 2018 - June 10, 2018.
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IN a one-hour conversation with The Edge, Lim Guan Eng shares his thoughts and experiences two weeks after assuming the hot seat of finance minister. The following is an excerpt from the interview.


The Edge: It is good to be finance minister (FM) when the government has a lot of surplus, you can be generous, but now, you’re FM at this juncture where you have to cut back.

Lim Guan Eng: You’ve got to be stingy.


So, you’re not going to be a very popular FM …

I don’t think I was put in this position to be popular. It’s because this is a very unpopular position that I am here. Otherwise, I don’t think I’d be here.

I think this is also the reason why PH won GE14 ... the 1MDB scandal and the spillover effects of GST. They (BN) took the people for granted and they assumed that corruption doesn’t matter. I think these were the three key ingredients that caused BN to lose.

The sheer arrogance of being in power for 60 years.


You have pored over lots of numbers the last few weeks. Can you summarise for us, as you went through those numbers, how you felt, what you thought?

First, it was shock and dismay. Then, it was followed by a determination that the people deserve full disclosure. I think we want to clean up our accounts and make sure there are no so-called inaccessible red files or so-called hidden files. We want our accounts to be an open book. Finally, at the end of the day, as far as the accounts are concerned, [we want it to be] what you see is what you get.

We think this is what the capital markets and the people of Malaysia deserve — a government that tells them the truth. We always say you must speak truth to power but power must also speak truth to the people. So, it may be very uncomfortable for some people, but I think that at the end of the day, as it has always been said, the truth will set you free. I don’t think we need to spend our time trying to mislead, lie, deceive or cover up.


Do you think all the red files have been opened?

Yes. They have shared all the information both with the AG (Auditor-General) and [me].

On my first working day, the AG begged to see me [and finally] that night, I met her at 10pm and she told me the bad news. Basically, [she said] we can’t consolidate the accounts because we don’t have access to all the files.


How long has this been going on?

Long enough. I think since the (1MDB) scandal exploded. Pak Lah (Tun Abdullah Ahmad Badawi) is a straight guy, he wouldn’t hide anything. He would just leave it to the professionals. But 1MDB is a different ball game completely. I think there was a deliberate effort to shield the public from this information.

Only those who had access or control over the files knew, which even excludes the auditor-general. Just imagine that ... how serious the transgressions ...


Can you give us a couple of examples of these red files?

1MDB. SRC International.


Most of the red files surround these two entities?

Yes. Of course, there are other red files that I will probably disclose next week.


FELDA and others?

I’ll disclose it next week.


How many people actually had access to the red files?

Only the key people. They were directed by the KSP (MOF secretary-general) Tan Sri Mohd Irwan (Serigar Abdullah). They were not to be shared with any department.

Only the KSP and (one) timbalan KSP. The other timbalan KSP was also not aware. So the person directly in charge of the (red files), he got all the written authorisation, so you cannot blame him. He was instructed to carry out his duties. So the person who instructed was, of course, Tan Sri Mohd Irwan (who has been relieved of his duties).


What is the sensitive information in these red files — 1MDB, SRC — that they didn’t want people to know?

The fact that the government was paying debts on behalf of 1MDB. Before that, they denied. They just gave a bare-faced denial that the government was paying off 1MDB’s debts when actually, the government was making all the payments.

Arul Kanda (Kandasamy) from 1MDB claims that they are sustainable and they have actually got a lot of money from the disposal of assets, that the accounts are in good hands, and have done a turnaround but actually, the company is insolvent and the assets are basically non-existent.


What about the ECRL agreement? Is it considered a red file as well?

The ECRL, yes, in a way, is considered a red file because we (MoF) did not have a copy of the contract until we asked for it. Then, finally, they gave us a copy of the contract . The same company that was involved in ECRL also didn’t have the contract. The Treasury ‘s solicitor did not have the contract. I think [only]the KSP would have the contract, but not others.


On the ECRL, the prime minister said it is a strange contract. Can you elaborate more, especially on the fact that the loan is not drawn down in Malaysia and is instead drawn down overseas?

I would not want to expand on ECRL in detail because the government’s position is that we want to renegotiate. So I don’t want to expand on that.

I just want to say that it’s not just ECRL but many other contracts. The structure of the payments and the drawdown was unusual. Payments are not made based on work done. I’m not talking about just ECRL, I’m saying that generally, that is how many of these projects are structured.

A few of them have been structured in such a way that the payments were made based on timing milestones. That means, every six months, they would have to make a certain payment, regardless of whether work is done or not. That is what is happening. We were shocked to discover that.


Can you cite a few examples?

I just want to talk on general terms [but] the amount is very substantial.


Does it include projects like MRT?

Like I said, I don’t want to go into details. I should be disclosing that in greater detail next week. The PM said I should let the people know.

We want to collect the information and see what we can do in order to get a better deal, if possible, taking into account the money that we have paid and at the same time also, of course, to assess again the projects, in particular, the viability, the feasibility and of course our [financial] exposure.

Many of these contracts, when you have these guarantees, you know they have no capacity to pay and at the end of the day, it will be the government paying. These are actually recognised debts ... like the PPPs (public-private partnerships) that come in.

Many people question why the debts of PPPs should be considered federal government debt. But, you know the other side has no capacity to pay — just like 1MDB — you give a letter of comfort and say, “Oh, we won’t recognise it (as debt) because you use cash basis to recognise debt”.

But now, we are moving to the accrual accounting method which will be a more accurate reflection of your financial position.

But when you know the other party is basically bankrupt, just like 1MDB, they are insolvent, they have no assets. In this situation, I think you should recognise it as a debt because you’re going to pay for it, like 1MDB ... RM38 billion [to be paid] till 2039.

It’s shocking. That is why the PM is correct to take the lead to be transparent. Call a spade a spade, and admit that yes, our debt is actually more than RM1 trillion. So I think we need to face it and we have to start paring it down. When we start paring down the debts, I believe we can (eventually) generate investor confidence.

Malaysia has a lot still going for it. Our fundamentals are strong, we have a growing, youthful population and I think there is a yearning for change, for a government that speaks the truth to them.

I think that’s what people seek. Of course, there are some quarters who are uncomfortable with this but I think that is the right way forward.


Debt financing and debt retirement are two different things. We have debt financing of RM31 billion a year but the debt will still remain unless you retire them.

I cannot give you a consolidated picture because we are still doing the consolidation. We’ve engage PwC, they are doing the accrual accounting. We want the consolidated accounts.

I want to talk about how these debts escalated and why Najib’s figures are different from Tun M’s. For example, HSR, they (BN government) said RM72 billion, but it doesn’t include interest cost. If you include interest cost, it could be easily over RM110 billion and that’s a bit conservative ... I believe it could be higher!

So that is where we need to pare it down, we really need to do that, or else, we are mortgaging the future of our children and this is the responsibility that we cannot gamble.


But PTPTN (students loans) and civil service housing loans, they are not included in the debt.

I understand what you are saying but they are different. If you include this, they will say that you are trying to inflate the figures because they are still paying off the loans. If I want to include this (as debt), I have to include everything under the sun, those which are still repaying but maybe not in full.

Give us some time to get the full consolidated figures first. While we want to be transparent, we also want to be accurate.


Has PWC indicated how long it will take?

No, we want them to do a thorough job.


While waiting for the figures, I suppose the investing community as well as the public would like to know the government’s plan to pare down the debt?

That is why we want to (review) these PPP projects, whether we can renegotiate ... we can either scale it down, dispose of them, if possible. I think this is something that we need to do ... a stock take, and it’s very extensive because it’s nationwide. There’s a lot of cleaning up to do, not a fun job. There was a lot of mucking around.


At the same time, the government will also need to continue and issue bonds regularly to raise money.

As I said, there is a lot of fat that we can cut. When you run a corrupt administration, you find a lot of leakages everywhere. When you tighten the screws, you’ll be quite surprised how much savings you can extract when the system is put back in order.

By doing that, the economy will grow. The economy is still growing, we expect the growth rates to still be maintained and once we tighten up the cost centres, these are essential savings. In any corporate restructuring and turnaround, you go for the cost centres first. These are the savings that would enhance the value of the company.


One of the cost centres is the debt

servicing charges — RM31 billion a year based on last year’s budget. This amount is going to be much bigger now. So, how would that affect the government budget?

When you start recognising these debts , you would then do the necessary negotiation with the other party. So we will see where they can take a haircut. For those that we can’t ... we have to pay.


Public consumption is a key sector of the economy. Even before the change in government, it was projected that public investment would be -3% this year. So with the government now cutting back, obviously public investment and consumption will drop. What impact will this have on the economy?

Sometimes, I think there is a lot of crowding out. We should have a genuine PPP, we should not have a PPP which is actually a rip-off. In Penang, we went into PPP to build a hockey stadium. The whole cost is RM7 million to RM8 million. We came out with RM3.5 million and the private sector came up with the difference and we gave them a nominal rental rate for 30 years. That way, you know what is your cost and for the next 30 years, you have a public facility for people.

But in the federal government’s case, no. They do the same thing we do at the state level but for the 30 years of the lease, you (government) have to pay them every month because they helped to build the stadium. Then you have to pay maintenance charges, and asset replacement cost. So that all adds up.

The real PPP is to just come up with some initial capex cost and they have to put in their share and that’s that. They have to pay for the remaining 30 years. But instead of them paying, the government is paying.

That’s why you think that the public investment is reduced, but it is hidden. Because over the next 20 to 30 years, (the government) still has to come up with the funds.

Can you classify these as genuine investments ?. This is only a scam to siphon off money, deceive the public.


So. these are the things you are talking about when you say “renegotiating terms”?

Yes. For example, RM63 billion worth of PPP may have been spent for capex. But after the remaining payments, the maintenance charges, asset replacement charges, (the final costs) come up to around RM201.4 billion. So it’s more than three times! And these (PPP) companies, if you guarantee them, you have to make the payments. There is no two ways about it [because they can’t pay].

If we do that stock take again, I think that is where we can cut down. That’s where we are compelled to relook/revisit the mega infrastructure projects like HSR and MRT3. ECRL is not officially stated to be scrapped, we just want to renegotiate and review the terms.


What about the allegations that the cost of ECRL was inflated by about RM20 billion?

Definitely inflated but I can’t give you the number.


How do we resolve it?

We want to do a review and hope we can have discussions. When I say it’s inflated, I don’t blame the other party. I’m just saying that from our initial observations, it appears much higher from our estimates.

I think like in any other business, contractors want to maximise profits but I think it is our duty as the government of the day to look after the nation’s interests. We feel that this is inflated but the other side will say no. So let’s negotiate.


Some segments of the Chinese media in China have already started to criticise Malaysia because we want to review or change the terms or stop some of these China-related projects. It is a sensitive thing, right?

It is definitely sensitive. But our duty is to look after the nation’s interests. So, we don’t expect them to be happy about it. It’s natural. It’s something that is expected. I’m sure the PM will be handling this, to discuss with the respective parties and to come up with an amicable settlement.


To renegotiate the PPP projects, aren’t these contracts already signed? How viable is this option?

Let’s just look at it first. We can see how these contracts were drafted, whether they were drafted in a way that is fair to the government. Not all these PPPs are with foreign contractors, [most] are with local parties. We believe that they will not want to have a legal dispute with the federal government and will want to find a settlement that they can live with.

Then all these extraordinary profits will be very much reduced and we can work out some sort of settlement.


Do you think that this renegotiation of contracts and also renegotiation with toll concessionaires paint a picture that the new government is not so friendly to businesses?

On one hand, you asked us to do [something] and on the other hand [when we do], we are [said to be] not friendly. What do you want us to do then? Like I said, somehow [if] we do, also wrong, don’t do, also wrong.

Where the toll concessions are concerned, we will wait until the financial situation improves. We must have fiscal discipline. We want the fiscal situation to improve first before we discuss with the toll concession companies because the situation is much worse than what we expected. So that [buying the toll concessions] is not on the table at the moment.


Nothing has started at Bandar Malaysia, but a lot has been done at TRX. People are wondering what’s going to happen at TRX? In fact, it’s well known that without MoF’s involvement in TRX, a lot of banks were not prepared to finance the various parts of the project. What’s the status of TRX? Have you taken a look at it? Because MoF has bought into Signature Tower …

We will honor the contracts made, so we have to see the tower built.

There is an Indonesian partner there. I think it’s better to get the building completed and owned by us than to let it be abandoned. There’s the other thinking also as to whether we should cut losses.

At the end of the day, this government is subject to the law. What we can do is like I said ... we want to renegotiate to get a better deal. So that’s what we are aiming for. While we want to see the project being completed, we also want to see a better deal. That is basically the government’s position.


The tower — MoF has 49% and Mulia Group has 51% ?

Yes, but there is also a clause that whatever money forked out has to be returned after a certain time period. If they can’t do that, the whole building belongs to MoF.


This confirms that all these while, it was MOF that was financing the project and the Indonesians didn’t put up much money?

They did put some money, but they needed an injection of funds from MoF.


The money they put up did not reflect their 51% ownership?



Which is why MoF has a clause …



Which again, wasn’t the picture that was painted in the past …

Yes. The true picture was not told.


The construction works are ongoing?

Yes. We want to honour the contractual agreement to provide capital injection. We want certain guarantees, safeguards and most important of all, [make sure] that the project will be completed. That is also critical.

We are caught between a rock and a hard place. Which do you choose? On one hand, if you cut your losses now, you lose everything. But if you go ahead — provided it can be completed, it looks like it can be completed — at least you have an asset there that has been obtained at below construction cost.


Can you disclose how much money MoF has put into Signature Tower?

No. I know how much we have put in and the terms but I cannot disclose it at this moment. They (Mulia Group) did put in money, a substantial sum, but there was a need for capital injection from MoF to keep the project going.


Without HSR, what is going to happen to Bandar Malaysia?

HSR is something we can revisit in the future, as stated by the PM. If the financial architecture is done right, it doesn’t need to cost much. Even now, Singapore is saying that given the economic climate, what the Malaysian government is doing is necessary, but I think the crux of the matter is that the cost is too high.

If you work out the financial architecture, I think we can get it so much cheaper. With  the Bandar Malaysia land and all that … you know … but I don’t want to reveal too much. I will just say that it is something we are looking at, even HSR. Not now, but sometime in the future, it’s possible.


Singapore’s compensation of RM500 million for HSR ... are you hopeful they will be generous and agree to something much lower?

That’s the initial estimate but we are still looking at the final estimate. I don’t want to speculate on that. It’s handled by the PM, don’t want to pre-empt him. Definitely, we are doing all the necessary discovery of documents and all the necessary briefings and we will definitely brief you once we get his instructions.


Besides the Tabung Harapan Fund, are there any other ways you’re looking at to pare down debts?

The Tabung Harapan Fund will not be enough to pare down debts. It’s an expression of solidarity and patriotism that we are all in this together. They (BN) got us in this financial scam and we are all in this together to get Malaysia back into shape. It doesn’t matter how much we collect at the end of the day, what is important is that everybody comes together.

Doesn’t mean that if you donate RM1, you are inferior to the person who donates RM1 million. We thank each one equally.


Some businessmen are not sure whether they should contribute. They are worried that if they contribute, people will accuse them of trying to curry favour with the new government.

It is a group effort. I don’t think anyone will criticise those who donate. I’ve not seen any comments criticising those who donate. What I have seen are comments criticising the government for setting up this fund.

It is not about the amount collected, it is a way for Malaysians to express their love for the country and contempt for what has been done before. You must praise Malaysians for the gargantuan effort of replacing a 60-year-old ruling party. This doesn’t happen every day.

I think Malaysians deserve praise and after carrying out this stupendous effort, they want to do more to show their love for the country. We should be encouraging them.


Will the new government look at tax as one way to raise revenue? Can you give any assurance that there will be no tax hikes in the coming budget?

At the moment, not likely. But this is not something I want to guarantee. It’s up to the PM.


People are concerned about taxes. Widening the tax base and raising taxes are the easiest ways for the government to raise revenue, given the situation.

I’m not going to make any commitment that I cannot keep. But as far as this year is concerned, we have no intention of doing so. But let me have the full consolidation of the federal government accounts first.


One of the promises in the PH manifesto is to make the tax structure more competitive ...

As I said, we have to look at the manifesto in totality. Cannot just pick one and do. Let’s just wait till the financial situation has improved.


What do you mean by ‘financial situation has improved’? Is there a threshold?

No, don’t catch me with all these thresholds and benchmarks ...

Budget will be in November. We need two weeks more than usual.


Tun Mahathir said he talks less in Cabinet meetings compared to previously. How has it been?

He does allow everyone to speak. While he may have his views, he allows himself to be convinced otherwise. It’s a healthy give-and-take situation. When decisions can be achieved by consensus, that makes for a healthy team. When we have to vote on it, majority rules.


So from being on the opposing side, working together as an Opposition, and now working together in government ...

We’ve come a long way. Don’t forget when I worked with Tun M, I was criticised severely by many of my supporters. They said, ‘What kind of son are you? You forgot he arrested your father twice. He put your father in prison twice.’

To which I replied, “Not only did he put my father in prison twice, he put me in prison twice too.”

But are you going to allow your personal considerations to supersede and take priority over national interest?

Sometimes, you have got to put that aside [for national interest]. If there was no change in government, the federal government debt could go to RM2 trillion.


Are you able to engage very frankly with Tun M?

Yes, of course. He has his views and we have our views. But he’s still the PM. But if every member of the Cabinet feels strongly, he can be prevailed upon to accept it (the majority view).


DAP and PKR have come a long way. How is the relationship now? There is talk of a strain in the relationship in the last few weeks.

If you talk about strain, it’s all about differences in opinion. But as I said, our relationship rests on the fact that we are very supportive of Anwar, especially that he has been released from prison and he will take over from Tun M.


There is a view that DAP is closer to Pribumi than PKR now you are in government.

In government, we are close with all our partners. The PM is Tun M and he has extensive powers under the federal constitution. You have to work with the PM. If you don’t, how are you going to get your views or policies through?

So I think that is the natural outcome. So when Anwar is the PM, similarly also.


The concern is whether the Pakatan Harapan coalition can hold together as a government. You don’t think it is a concern?

Of course, that is a main concern for many people. That is justifiable. But if you look at the sense of togetherness, Anwar attended the (PH presidential council) press conference and he deferred to Tun M as the PM as he was conducting the press conference. Even though there were some reporters who wanted to ask Anwar questions, he refused and directed them to Tun M.

That togetherness shows the strength of the PH government. And the fact that we continue to have PH council meetings apart from Cabinet meetings means that all is going well. Of course, people may ask. They have every right to. But time will show that we are moving forward.

After all, we only had our second Cabinet meeting. Give us some time to work it out. Just as I’ve only been the FM for less than two weeks.


Was there an agreement before the election for you to be the FM?

I’m already FM, let us not look backward but forward.


Were you surprised when you were told?

I’ll be very frank, there are many who still don’t believe it. This is a new Malaysia where we all work for the country. I think it is important to look at ourselves, who we are and what we can contribute to the country. We have to always put our country’s interests first.


On the stock market, what would you like to say to the investing public?

If I could predict how the stock market will swing, I would do much better than being a FM. I think we try our best to keep the economic engine chugging along. The stock market is always determined by global sentiments and international trends as much as local factors.

I’m not going to claim credit if the stock market goes up or assume blame when it goes down. The point is that you have to have a long-term view.

The PM, when I told him what we were going to do, told us to go ahead. He is not concerned that it will spook the market, he is more concerned about the long-term financial health of the country. That is important because at the end of the day, it is fundamentals that matter.

[The fall in the stock market] was an expected reaction with a new government. They are still trying to feel comfortable with us. That’s natural and expected.

Until we get our books in order, I think this is the right approach to take. Telling it as it is, having an open book and at least letting the public and investing public know that you have no hidden items, no red files you have to worry about.

We are trying to heal our nation’s finances so that we can provide a better future for our children.


In the next one to two years, with the country going through economic reforms, will all these be at the expense of economic growth?

No. I don’t think so. I think we should allow the private sector to take the lead. When I was in Penang, I always said this — the business of government is to get out of business, wherever possible, unless it’s for social purposes or to establish a public good.

But wherever you can, when the private sector is already making profits from it, you shouldn’t be in it. In Penang, we did a policy of divestment. The business of government is not to get into business. Let the businesses and professionals run it.

And this is an approach by Tun M.

So, let us focus on our core duties of regulation, ensuring you have not just a favourable investment climate, but you have certainty, transparency and clarity and accountability and getting the right person for the right job. Competency is everything at the end of the day. If you can establish that, [have] good governance, ensure you have stable economic conditions, I’m sure the rest will take care of itself.

That’s what we did with Penang, and look at how it has grown. But of course, running Malaysia is a different ball game all together. But I think the basic principles still apply. How do you translate that at a huge national scale? That is the real challenge.

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