Just as when Malaysians were enjoying a peaceful New Year’s day, the government announced the termination of the Malaysia-Singapore high-speed rail project (HSR).

The timing of the announcement may have been inspired by my call for being brutally honest in my Dec 31 ‘Five Covid-19 resets’ article, however unsavoury it is.

To me, it is not so much this news, nor this mega-project, but its implication in a wider context. The BN government touted the HSR project as a game-changer when launched in 2016. It was speedily implemented despite many questioning the rationale and humongous cost, and dire warnings to the government’s finances.

The Pakatan Harapan government after taking power in 2018 was forced to scale down the costs, as termination was not an option due to the prohibitive penalty.

Two years later, the Perikatan Nasional (PN) government continued the discussions, but then terminated this project yesterday citing implications for the nation’s coffers due to the Covid-19 pandemic, and disagreement over a reduction in costs.

It has gone one full cycle over four years, from nothing to nothing, but with a major financial loss to Malaysia, not to mention another blow to the confidence of foreign investors.

The Edge Markets estimated compensation of about RM300 million to Singapore alone. Projecting on a scale-basis, the sunk costs/compensation on the Malaysian side could reach up to RM700 million, making it about a billion ringgit of public money, burnt at the stroke of a pen.

The government could allay our concerns on actual costs by being transparent but will cite a non-disclosure clause, as always. Didn’t the contract contain the standard force-majeure clause against a hefty penalty? Wasn’t this a business venture where risks and returns are equitably shared or was Singapore doing us a favour on the HSR?

Klepto-economics

My primary concern is not just this project, but a string of projects that were terminated, redesigned and retendered. Unfortunately, there are many more to come. This happens not on an exceptional basis due to unforeseen circumstances but as a purposive business-as-usual standard practice in Malaysia.

It defies all economic thoughts or theories thus far; classical, neo-classical, contemporary. I will tentatively call this “klepto-economics” for want of a better term, and try to rationalise it using several cases of mega-projects, and public funds management.

Related to Singapore, there was a crooked bridge, where up to RM300 million was paid out as compensation upon termination. The biggest of all (thus far) was the 1MDB fiasco, where billions of Malaysian taxpayers’ money flowed out and sloshed around the world; but left the nation’s taxpayers in multiple more billions in debt to pay, and none of the investments contributing to the debt.

Then there were the two fuel pipeline projects with China where 88 percent of project funds totalling RM8.25 billion was paid, for only about 10 percent of work done. Recently the KVDT2 (Klang Valley Double Tracking Phase 2) project was terminated abruptly, even as the cost was trimmed by Harapan, with potentially hundreds of millions of dollars in compensation, and thousands of workers laid off, to boot.

Then just yesterday, it was reported that Pasarana allegedly terminated a mixed-used commercial development of RM1.2 billion, incurring RM80 million in compensation. Contractors of the Prasarana LRT3 project are clamouring for RM700 million overdue payment for work done, possibly leading to suspension, redesign or termination of the project.

It was rumoured that this drastic change in policy was due to a valid business decision – the appointment of a politician as chairperson of Prasarana. Many more politicians have been appointed to head GLCs. The standing joke is that contracts for projects are hastily and secretly signed, with generous termination penalty clauses, and every excuse is given to terminate the agreement soon thereafter, earning a fat payoff much higher than actual profits, without doing any work.

On public funds management, we had the case of GST refunds collected and were not paid out, but those funds were not traceable. Strangely the Public Accounts Committee came to the conclusion that there was no wrongdoing. The government refuses to reveal how the 1MDB funds recovered are to be spent citing non-disclosure clauses. We had about US$800 million of government pension funds parked in a Swiss bank but did not bother to recover it, or even inquire.

In this HSR case, where would the RM300/RM700 million come from? This could not have been budgeted for in the 2021 budget. Or was it purposely left out, since we now know the fate of the project was sealed in early December? Even if so, wouldn’t it require a special parliamentary debate and approval, as this is an unusual event. Is the executive authorized to spend public funds without parliament approval, especially for dubious expenditures?

As you can see, none of the above cases cited resembles anything close to standard economic, business or accounting theories, practices, rules and regulations.

The concept of equilibrium is the basis of any economic theory, such as supply and demand of goods, labour, trade, or money. If money flows out of a system (through these so-called mega-projects) without commensurate earnings, this will be balanced by the currency losing value or hyperinflation. Printing money entails the same result. Think of Zimbabwe and some of the South American countries.

In economics, there is the concept of velocity of money, the more the money circulates, the more the earnings or returns that accrue to the general public. But in klepto-economics, we have the velocity of mega-projects, the more mega-projects generated and terminated, the more the elites earn, at the expense of the rakyat.

Klepto-economics does not necessarily thrive in dictatorships or authoritarian governments. It can equally thrive in fully functional democracies, where leaders placed in positions of trust (kleptocrats) assume they are above the law and raid the nation’s coffers and wealth. Klepto-economists hoodwink the stakeholders by segregating them in terms of politics, race and religion. They are like pesky preachers, offering advice to all and sundry.

Economics works on the basis of limiting factors of production. Even nature has its limits. But in klepto-economics, the basic premise is that there will be a perpetual free flow of money. I think we are right on track to receive a Nobel Prize for Economics later this year.

What should we do?

In the case of Malaysia, the best option, of course, is for the ruling government to realise the folly of klepto-economics, and go back to good old basic economics. For example, in the case of the terminated HSR, the government should not contract a domestic HSR and then terminate a year later.

Doesn’t the argument of Covid-19 hold here? They should use a fraction of those funds to complete the double-tracking project to Johor Bahru in record time. The government should roll back all political appointments in private business ventures.

Already foreign and domestic investors are spooked by abrupt reversal of businesses for no apparent reason. Fitch Ratings cited political uncertainty for its downgrade for a good reason, but our klepto-economists are alarmed saying short-term financial statistics are still robust. Yes, our government is really short-sighted. They don’t care about the long-term effects.

Klepto-economists thrive when there is a weak opposition or none at all, to ensure check and balance. Harapan is in disarray now. They are now busy trading barbs among the leaders, to discredit each other. Please don’t repeat the budget fiasco by not even coming up with people-centric ideas condensed into an alternate budget. When issues like the HSR come up, don’t just issue disparate statements by different leaders. Show leadership, consult and brainstorm and call out the klepto-economists with sound arguments.

Finally, for the rakyat, we have to wise up. The time has come for us to heed Abraham Lincoln’s quote of “nobody should fool all of us, all the time”. As Malaysians, we should not let the politicians divide us by political ideology, race or religion; so that they can raid the nation’s wealth through klepto-economics, even as we are suffering. At the rate our wealth is being squandered, we may soon be a failed state.

The government sucks every sen of our hard-earned money. But we have no say, or even the courtesy of transparency when the klepto-economists squander billions right in front of our eyes.

Klepto-economists exist on both the political divide and once elected, they become political frogs rather than lawmakers. We should stop listening to them. We have to make our own assessment and make the right choice when the time comes. That power ultimately rests on each of us, as of now.

RAMAN LETCHUMANAN was director, Environment/Conservation, Ministry of Science, Technology and the Environment (1993-2000), head of Environment/Haze/Disaster Management, Asean Secretariat, Jakarta (2000-2014), and senior fellow at S Rajaratnam School of International Studies (RSIS), Nanyang Technological University, Singapore (2014-2016). He is a subscriber of Malaysiakini. Email: raman.asean@gmail.com.

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Source : Malaysiakini by Raman Letchumanan