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Saturday July 25, 2009

A great trade-off

WHEN the Terengganu Investment Authority (TIA) was set up with its much-touted air-tight governance structure, no one doubted that the biggest test to its paper-perfect concept would be in its execution. What we weren’t prepared for was how soon that test would come. Rhetoric, meet reality.

For as long as the RM5bil was “pretend” money which had yet to be raised, everything was fine. Sadly, however, as soon as the coffers were filled up with RM5bil, raised through a government-guaranteed bond issued in late May, it is believed to have sparked a disconnect between the state and federal governments. Then, a couple of other states were also eager to set up a similar entity and as expected, had approached the Government to provide a guarantee for the funds it hoped to raise.

With that, it is isn’t hard to understand how TIA had morphed into 1Malaysia Development Fund – a federal-based Sovereign Wealth Fund with a wider developmental agenda covering all states and this – there is no doubt (hence no wrangling) over who the money ultimately belongs to. With that, TIA, wholly owned by the Menteri Besar of Terengganu (MB Inc) is now 1MDB, wholly owned by the Ministry of Finance, Inc, reporting directly to the Prime Minister.

TIA had raised much hope and anticipation in promising to be a structure that would put the people of the state above politics and self-interest. Now, for the people of Terengganu, one of the poorest states in the country despite the fact that it is oil-rich, the elephant has returned to the room – how will the state’s oil royalties flow down to them, increase economic activity and be utilised for the long-term economic and social sustainability of the state, all of which formed the very premise for the establishment of TIA? Will it form a new investment arm to meet these objectives?

And what about the utilisation of the oil royalty which has long been shrouded in secrecy – would there be more accountability and clarity? Without a doubt, these are the issues the Menteri Besar of Terengganu Datuk Ahmad Said will need to tackle urgently in line with discharging his responsibility to the people and to silence the sceptics. Let’s also not forget that the climate is somewhat more unforgiving today.

As for the setting up of 1MDB, not many are scrambling to get their bearings, least of all the bondholders. Let’s face it – the papers were government-guaranteed and the ownership has transferred from state to federal, which is hardly worry-worthy from an investor’s perspective.

Similarly, 1MDB will be governed by a check and balance system comprising the board of directors, board of advisers and a senior management team. It is believed that Felda Holdings group managing director Datuk Mohd Bakke Salleh will be appointed chairman of the board of directors which will comprise Tan Sri Azlan Zainol (the Employees Provident Fund CEO), Datuk Ismee Ismail (Lembaga Tabung Haji group managing director/CEO), Tan Sri Lodin Wok Kamaruddin (Lembaga Tabung Angkatan Tentera CEO) and Shahrol Halmi, who it is believed will also be CEO.

The establishment of 1MDB, however, does throw up some other questions. How different is it from Khazanah Nasional Bhd? Khazanah describes itself as a “trustee of the nation’s commercial assets” with the main objective of contributing to the nation’s long-term economic interests. On the other hand, 1MDB aims to “drive sustainable, long-term economic development for Malaysia by forging strategic global partnerships and promoting foreign direct investment (FDI).” Same difference, you say?

If there is more than one “sovereign” vehicle in the country eyeing multiple opportunities, could it dilute the “fire power” of any one of these entities in the event there is an overlap? The one striking difference, however, is that 1MDB will be run on the concept of matching FDIs.

Ultimately, however, whether it’s state-owned or federal-owned, the benchmarks ought to be the same in terms of accountability and transparency. This begs the question – now that it is federal-owned, should we be less concerned?

·Business editor Anita Gabriel has always preferred the principle of underpromising and overdelivering

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