With 1MDB in financial ‘coma’, it’s time to ‘milk’ Khazanah Nasional?

Every baby born in Malaysia is a debtor! For life?

 With 1MDB in financial ‘coma’, it’s time to ‘milk’ Khazanah Nasional?

According to a Jan 20, 2016, Bloomberg report titled “Shrinking Sovereign Wealth Funds Are Ducking Davos”, in the days of the commodity boom a few years ago, oil-rich nations and their petrodollar wealth were the darlings of the World Economic Forum.

A panel that included Kuwaiti, Saudi and Russian sovereign-wealth fund officials was one of the hottest tickets at Davos in January 2008, just before oil prices surged to US$150 a barrel.

It was a time when crude producers were accumulating billions of dollars in debt and equities, plus real estate, sports teams and other trophy assets. So influential were the fund managers that a group of bank chiefs told them behind closed doors at the Swiss resort to become more transparent, or risk antagonizing American legislators.

Now, with oil below US$30 a barrel, the situation has reversed. Instead of buying U.S. Treasuries, British department stores and French soccer teams, producing countries are selling, helping depress already-spooked markets. Only a handful of wealth-fund heads are scheduled to appear at the 2016 annual forum of the rich and powerful. And not one panel is devoted to the topic.

“They are selling, they are selling a lot," said Paolo Scaroni, deputy chairman at Rothschild & Sons and a former head of Italy’s largest oil company, ENI SpA. "The selloff will continue in 2016 because oil-rich countries need to finance" their spending.

Across the Middle East, central Asia, Africa and Latin America, governments are tapping the reserves accumulated during the good times. Petrodollars are pouring out of a myriad of vehicles: sovereign wealth funds, stabilization funds, development funds and the foreign-exchange reserves sitting in central banks.



To be sure, petrodollar-stocked government funds are still an influential force in global finance, accounting for about 5% to 10%t of global assets. Nor is the selling unexpected: Stabilization funds, for instance, are designed to grow during the boom years and help governments keep up spending during the lean times.

Yet the magnitude of the declines has surprised many who help commodity countries manage their wealth. Saudi Arabia, Qatar and Kuwait “are all withdrawing money,” said Alberto Gallo, head of macro credit research at Royal Bank of Scotland Plc. “Petrodollars are becoming petropennies.”

Gallo has a point: the gross flow of petrodollars into the global economy last year fell to as little as US$200 billion, down from nearly US$800 billion in 2012, according to the bank.

So, what has all that got to do with Malaysia? Petronas! Of course!

The Umno-led Barisan Nasional (BN) federal government, now led by 1Malaysia Development Berhad (1MDB) Prime Minister Najib Razak, has milked dry Petronas, so to speak.


With such a depressing global outlook in the oil and gas industry, Najib is unable to rely on Petronas for funds to keep his Putrajaya administration afloat.

What is really keeping Putrajaya afloat today is the rakyat (people) who are being “milked dry”, contributing some RM30 billion in Goods and Services Tax (GST) yearly.

In addition, there’s also the annual income tax for Putrajaya.

Nor are there funds in Petronas for Najib to use for both local and foreign investments. Petronas now even have to resort to borrowings to fund its investments and operating expenditure!

The Public Accounts Committee (PAC) in its report stated that 1MDB’s debts were at RM5 billion in 2009 before ballooning to RM42 billion end of 2014.

By January 2016, the debt rose to RM50 billion compared to assets of RM53 billion with 1MDB servicing RM3.3 billion in interest on debts between April 1, 2014 and March 31, 2015.

Currently, 1MDB (wholly owned by the Finance Ministry) is losing RM2.7 billion a year in servicing loan interests.

And the 1MDB debt will continue to grow as long as the Ringgit remains weak or, worse still, weaken further significantly in the short or long-term. 

And, what’s there left for BN’s Putrajaya to milk for funds?

One way is to up GST collections and make the people pay! But, this cannot be an option now. It’s not only political suicide for BN to do so, it will seriously harm domestic consumption and economy. And, let's not forget the socio-economic woes of the people.

With Petronas a dry option, there’s only one more source of wealth for BN’s Putrajaya to milk. Yes! You got it! Khazanah Nasional Bhd!

The Khazanah sovereign wealth fund is sitting pretty with about US$34 billion in assets.

And, so that brings us to the proposed RM650 million Taman Tugu upgrading project! Readers, you get the drift so far?

No News Is Bad News believes Khazanah’s investment will not stop at Taman Tugu. More investment projects are being lined up for Khazanah by Putrajaya? No?

Read this malaysiakini report:

"Rafizi: Khazanah risks its brand through Taman Tugu project
 

Pandan MP Rafizi Ramli reminded Khazanah National Bhd to tread carefully or risk being a public enemy for spearheading the Taman Tugu project.

He said as a sovereign fund, Khazanah must be transparent on the RM650 million project said to turn the area around the national monument into Kuala Lumpur's Central Park.

Otherwise, Rafizi said, Khazanah could be likened to embattled public investment firm 1MDB.

"They must be honest about who is running it, whose idea it is and why. They must defend the Khazanah brand, as this is our sovereign fund.

"Khazanah safeguards the people's interest, and reinvests in the rakyat. If 1MDB folds up and Khazanah's brand is affected by public anger thus marring its reputation, it will have poor repercussions on the sole investment fund we have," he said at a press conference in Kuala Lumpur today.

As such, Rafizi said he will assist Khazanah by running an opinion survey on the project.

"I will attend the briefing by Khazanah and the authorities after receiving public feedback on the issue. It will be something that could help Khazanah gauge the project's impact on its brand," he said.

The PKR vice-president is also calling on quantity surveyors and engineers to lend help evaluate the project cost.

Quantity surveyors and engineers can join the campaign at the pagebitly.com/qsrakyat or find more information via the social media hashtag#QS_Rakyat, he said.

Stakeholders can give their opinion on the project atbitly.com/surveytamantugu and follow the campaign through the social media hashtag #surveytamantugu.

Rafizi said both campaigns will run until this Friday.

"I encourage the rakyat to join the campaign if they are serious about public spending wastage," he said."

And, what’s the federal government’s debt today? Has it surpassed RM1 trillion?

Every baby born in Malaysia is a debtor! (Read these for context: http://victorlim2016.blogspot.my/2016/09/30-million-malaysians-and-every-new.html and http://victorlim2016.blogspot.my/2016/08/has-malaysias-federal-debt-surpassed.html)

So, readers, you still get the drift of this blog posting or are you lost?