An open letter to all Malaysians #kltu #jbtu

NOTE : THIS IS NOT AN OPEN LETTER FROM MAT SABU, WE JUST THINK THAT HE IS CUTE.

Dear Malaysian,

I know we're all enjoying the superb sentiment on the big transition, especially on the new appointment of Finance Minister - a big move. But as a responsible citizen, we still need to judge thing correctly (especially for public media), for that, I want to take the chance to share the big question in a down-to-earth way - 𝐈𝐬 𝐌𝐚𝐥𝐚𝐲𝐬𝐢𝐚 𝐫𝐞𝐚𝐥𝐥𝐲 𝐫𝐮𝐧𝐧𝐢𝐧𝐠 𝐢𝐧𝐭𝐨 𝐚 𝐧𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐝𝐞𝐛𝐭 𝐜𝐫𝐢𝐬𝐢𝐬?

Let's get some stats, which use the similar size of well-run economies as a comparison:

Malaysia:

- National debt: 162b USD

- Government Debt-to-GDP ratio: 50.9%

Singapore:

- National debt: 357b USD

- Government Debt-to-GDP ratio: 111%

Finland:

- National debt: 169b USD

- Government Debt-to-GDP ratio: 61.4%

Short answer: we're not even remotely close to a broken economy, let alone calling a national debt crisis. Please stop spreading the incorrect fact.

Malaysia has been running on a healthy GDP growth and debt ratio since 1998 financial crisis. In fact, we used to be running in more than 80% government debt-to-GDP ratio in the 90's.

And Economy 101, a big national debt doesn't represent a poor country, in fact, in most of the time, it's the opposite. A country is like a corporate or human, it needs leverage to grow. Imagine yourself, when you get the housing loan, credit card to fund your life, you're basically increasing your debt-to-net asset ratio, in Malaysia, a person normally runs into 20-30 times debt to our personal assets (think about housing & car loan), corporate runs in 5-20 times. Malaysia as a developing country, it relies a lot on the credit system to leverage and to fund businesses and to build infrastructure. That's also the reason why in most of the advanced economies, they're running in a staggering high debt ratio.

Additionally, a national debt consists of different components - mainly, they're public and private sector debt, internal and external debt. And thus lots of the national debt numbers are actually contributed by us - yes, all of us. When we leverage ourselves to take a loan, we borrow from the bank. Bank runs their credit and settlement with Central Bank and our National Treasury funds the banking system and private sector operation through various external debt mechanism - the credit market - the bonds and notes. Check this out from Bank of Negara if you're interested to see the breakdown: http://www.bnm.gov.my/index.php?ch=statistic_nsdp&uc=2

In short, what Malaysia economy should have now is not trying trimming down our national debt, but to optimize the usage of that money, funds the real projects, push the money into the right agenda for a long-term growth. So in fact, we should continue to grow on to maintain the good health of the Malaysia credit market and at the same time, borrow more for the suitable expansion as a developing economy.

In a PKR campaign video, Finance Minister CM Lim Guan Eng proposes to the public that in order to fund the cut of GST and at the same time increase the BR1M, he got two solutions:

(1) Claim back the money that went missing on 1MDB

(2) Runs an effective government spending to get additional surplus out from the operation

No doubt, I'm totally happy to see (2) lives in action. But I don't think (1) make sense. Firstly, cutting the GST means an immediate cut to our operating income, however, the potential claimed-back monies are not necessarily quick enough to fill up the hole. Secondly, the monies that went into 1MDB ultimately belong to the bond owners - our external debt investors. Despite 1MDB is labeled as a sovereign fund, it still aims to be responsible to drive strategic development projects, the fund itself is not technically movable to other purposes - and thus it's not a government treasury bond alternative, let alone a GST alternative.

In my humble opinion, we're seeing a high volatility in our credit market and the loss of global investor confidence in the last few days, I think we should put some immediate action to claim things down.

In short term, I think:

- Restructure but not completely cut for GST. Cutting of GST will make people a short-term happiness, but it doesn't bring a net-positive to the overall economy. We can relieve public burden by lowering down the public fraction and then move the tax policy toward those unfavourable private sectors - e.g. the over-heating manufacturing, property development under BN administration - in short, uses the tax policy to drive growth behaviour (can even foster innovation) and at the same time increasing government revenue.

- 1MDB being as a very sensitive issue that could potentially crash our national credit market (especially we're currently seeing a crazy yield across our national bonds). I think the wise way will be to dis-engage the existing operation of the fund from the investigation - which means the investigation should focus on the missing money and the mis-running of the projects - not the feasibility of the project itself as it will cause a direct impact on the investor confidence and the drying up of our credit market - we definitely want to avoid that.

In the long run, we need to:

- We should review but not totally deny the potential collaboration with China One-Belt-One-Road initiative. We should argue for a better deal in term of the collaboration mode, financial terms and labour distribution. Especially how those projects could bring highly-skilled jobs and knowledge transfer to our community.

- Create a full transparency of the government spending planning to the public. Tell the real story of how those important strategic projects and infrastructure growth could lead to the growth of national income by creating new jobs and transform the economy to a highly skilled service-based economy. I think the China recent example like the Guangdong Bay Area initiative - really provides a good sample that we can refer to.

- Keep an aggressive agenda of growing our economy, including but not limited to

(a) Foster the growth of Malaysia financial market by opening up with more relaxed and innovative regulation that allows the runs of private asset management firm, develop mature derivative and commodity market and uplifting our payment system. The Bursa-SGX link is a total feasible solution that could bring a big liquidity to our system.

(b) Continue to invite and expand the national balance sheet to fund professional service industry - technology, engineering, asset management, energy. To do that which means better and effective budgeting on education and corporate sectors. E.g. Tax incentive on innovative businesses and funding on startup, student entrepreneurship.

(c) Give relaxation to the Ringgit NDF status to provide a platform for Ringgit to be one of the potential global trade currency candidates and give the Ringgit a more flexible choice as an asset management industry candidate.

Those are a couple of humble suggestions, obviously, a more comprehensive breakdown of the practical implementation is needed. More work to do. I'm trying to kick-start a new Open Gov initiative. Hit me up if you're interested :)

Additional Food for thought from 3 years ago: https://www.quora.com/Could-Malaysia-be-an-economic-superpower-of-Asia