Bad govt guarantees

IT IS commendable that Finance Minister Lim Guan Eng was quick to provide the breakdown for the RM1 trillion debt figure that was announced by the prime minister.
Leaving aside definitional issues – ie what category properly measures public debt – there is no doubt that in previous years the government has been accumulating real debt and what could potentially turn into debt.
In the months to come, one should expect the Ministry of Finance to come up with a more detailed picture of how government debt, contingent liabilities and unrewarding private-public partnership (PPP) projects got stacked up over the years.
Contingent liabilities are liabilities (read losses) that the government promises to shoulder should the designated projects fail.
A more thorough analysis and reporting system of contingent liabilities is necessary. This has not been the case previously. The government accounting framework should be more transparent on contingent liabilities and other "off-balance sheet" items. The same must be the case with private-public partnership projects.
MoF should investigate and report on the status of projects and companies that the previous administration guaranteed. It should provide information on the nature of projects, their risk profile, whether or not the projects and their risk were warranted and an assessment of the probability of default.
The 1MDB project (which has yet to be conclusively resolved in a court of law) has raised suspicion on the manner in which the government had carried out its projects. Who is to know how many such projects abound and have been victims of cronyism, mismanagement or sheer corruption.
The same factors could well have contributed to the sick PPP projects that the government has to shoulder. The massive debt due to PPP projects was surely the result of irresponsible government participation in business.
By extension, government procurement should also be opened up for scrutiny.
What is the commonality that links contingent liabilities, PPP projects and government procurement? They all revolve around the projects that the government gets involved in.
There should be transparency and accountability in the call for tender, the criteria for selection, the assessment of risk and the decision process.
The 1MDB saga makes it painfully clear that bad fiscal policy can have its roots in something as seemingly obvious as bad decisions knowingly made by a government in the choice of companies that it chooses to support. Inadequate institutional processes lead to bad investments at the micro-level, accumulating to fiscal distress at the macro-level.
Lim should unpack the past and exhibit it on the table.
But that is not enough. A new set of processes and procedures are necessary to ensure that past mistakes are not repeated.
The whole chain, from the decision to embark on a project, to the call for tenders, to selection criteria, right down to monitoring and reporting should be made as transparent as possible.
Cost benefit analyses should be carried out for projects and their results should be made publicly available. The impact of projects should also be studied.
Inefficiency and corruption have been hiding for too long under the skirts of narrow vested interests. This has led to poor outcomes as far as income inequality is concerned; it has also led to more influential members of a group depriving the less endowed members of their share of resources and opportunities.
The only guiding principles for the government should be merit, efficiency and satisfactory outcomes.
Dr Shankaran Nambiar is a senior research fellow at the Malaysian Institute of Economic Research. He is author of The Malaysian Economy and Malaysia in Troubled Times.