Malaysia’s bad habit of bailout | The Malaysian Insight

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TWO weeks ago, former Prime Minister Najib Razak launched a chorus of calls for the government to rescue Sapura Energy Bhd, which faces imminent collapse due to its huge debt load. As reasons for the bailout, he cited national interests and the loss of jobs for thousands of workers and suppliers.

Najib is now due to discuss the matter with the leader of the opposition coalition on a date yet to be determined.

But what sane government would risk funneling billions of taxpayers’ money into a private company?

The government has a dismal record with almost no success in rescuing business entities over the past 50 years.

Federal government bailouts for government-linked companies (GLCs) have cost taxpayers an estimated RM85 billion over the past 36 years, according to a study titled “Government Linked Companies: Impacts on the Malaysian Economy” by the Institute for democracy and economic affairs.

The first rescue plan recorded was that of Bank Bumiputra. It had to be rescued by Petronas, not once, but twice, at a cost of nearly RM3 billion, from the mid-1980s to the early 1990s.

The second known failed rescue was that of Perwaja Terengganu. The company became insolvent in 1988 and a new entity, Perwaja Steel, was formed in 1989 to rehabilitate the business. Bumiputra Bank and EPF each contributed RM860 million and RM130 million respectively to this effort. Perwaja Steel recorded its first book profit in 1991. By the end of 1995 it was back in the red, having racked up RM10 billion in debt and losses.

It was sold in 1997 to Maju Holdings and Kinsteel Bhd who formed Perwaja Holdings to acquire 100% of Perwaja Steel. Perwaja Holdings was later listed on the main board of Bursa in 2008. Six years later, in 2014, Perwaja Steel went into receivership. Perwaja Holdings was delisted from Bursa Malaysia in 2017. At the time of its delisting, Perwaja Holdings had outstanding debts of approximately RM2 billion, of which over RM400 million was owed to Tenaga Nasional Bhd and Petronas Gas Bhd and 200 million RM to the government.

Malaysia Airlines Bhd (MAB) continues to demand capital injections as the government debates whether to shut it down, sell it or find a partner. In total, the government injected RM17.4 billion into the struggling airline between 2001 and 2014 and the airline has yet to regain profitability.

Petronas had to buy the automaker Proton from the debt-ridden DRB-Hicom. DRB Hicom was eventually sold to Syed Mokhtar Albukhary, who then sold Proton to China’s Geely Holdings from China.

People had also wondered why state and public companies and institutions were being used to bail out the Renong conglomerate, once the darling of the Malaysian stock market. Questions have also been raised as to why Renong could not reduce its debt by divesting its interests in profitable businesses, especially those in non-core businesses? In Renong’s case, national interest was cited as the reason for the bailout.

Such rescues are now justified as an acceptable strategy.

Such bailouts are not only a financial burden on taxpayers, their greatest cost to the public is loss of trust in government. Unfortunately, the government does not seem to think it matters.

The preferential treatment given to so-called government-linked companies has social and financial costs.

The growing presence of GLCs is already crowding out private investment. When GLCs are dominant in an industry, investments by private companies are heavily impacted negatively.

Assuming that capital markets channel funds to their most profitable uses and that the companies that receive bailouts are companies for which other capital market participants are unwilling to provide capital, this implies that Bailouts of connected companies are even more useless than bailouts in generally better developed capital markets. to stimulate economic growth.

To the extent that bailouts of politically connected firms undermine the role of capital markets in allocating capital, they are likely to have a negative effect on economic growth.

It is an obvious conclusion from the capitalist model that government involvement in the ownership and management of a business is a recipe for failure.

Even the World Bank and the International Monetary Fund have vigorously urged the outright non-involvement of governments around the world in business beyond providing the legal and regulatory framework and environment to promote ownership. private.

The impact of all of this has damaged the perception of this country’s environment of integrity.

With the growing statistical evidence of the failure of almost every bailout ever organized by the government, is it necessary to have a company the size of Sapura Energy as a symbol of Bumiputera’s capital development, especially when it is clear that private enterprise does not represent the interests of the group? – April 7, 2022.

*FLK reads The Malaysian Insight.

* This is the opinion of the author or publication and does not necessarily represent the views of The Malaysian Insight.

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