LETTER | I highlighted in another pre-GE14 article that “reckless borrowing among government-linked companies remain opaque and quietly dangerous”. This is a serious concern that has to be shouldered by the new government to restore public confidence about the management of public resources.

The new finance minister’s move to announce the government’s financial commitment (i.e., debt, guarantees, public-private partnership lease payments) was a step in the right direction. From a professional scepticism lens, one may suspect this news is only the beginning of a series of hard work to unearth numerous hidden and suspicious transactions.

This is not be taken as a fight between ill-intentioned critics versus ‘sentiasa bersangka baik’ regime; this is a call to uphold integrity. If integrity is doubtful, then transparency is needed for governance.

How many of us realise the complexity of the interconnectedness amongst government-linked investment companies (GLICs), government-linked companies (GLCs) and their executives and directors? Their interconnectedness is already complex, and the transactions carried out between them are often opaque due to inadequate disclosures.

Of interest, the remuneration and benefits of these executives and directors are not necessarily known to the public – this was the concern I raised in my research back in 2014. Not all entities are subject to stringent disclosure requirements because not all of them are publicly listed.

If the new government needs public intervention to improve the governance of public resources management, then transparency is necessary. Public scrutiny is almost impossible in the present state of opacity of government-linked businesses.

According to Edmund Terence Gomez (2018) of the University of Malaya, “many Malaysians are unaware that the government operates enterprises classified as GLICs and that they have such a prominent role in the economy”. It is still unknown whether Malaysians are now sufficiently inspired to educate themselves about government-linked entities.

However, recently revealed transactions between two GLICs, the Ministry of Finance Incorporated (MoF Inc.) and Khazanah Nasional Berhad, involving the redemptions of Redeemable Cumulative Convertible Preference Shares (RCCPS) by the former have raised eyebrows.

While the substance of such transactions is debatable, the focus of this article is on the need for transparency.

Khazanah was incorporated under the Companies Act 1965 on 3 Sept 3, 1993, as a public limited company. It is owned by the MoF Inc., except for one share held by the Federal Land Commissioner. In the press release dated May 24, 2018, Khazanah confirmed that the company received a RM3 billion equity capital (or RCCPS for a complex term) from the MoF on March 7, 2011.

The RM3 billion represents about 36% of Khazanah’s RM8.4 billion share capital in 2011. The RCCPS was not disclosed as a separate item in Khazanah’s balance sheet for the year ended Dec 31, 2011, not even as a note.

In the absence of the requirement to disclose, it is not clear whether the remaining share capital reported on Khazanah’s balance sheet is of the same nature to the RCCPS.

Despite the injection of additional capital, Khazanah’s financial performance for the following financial year (2012) as measured by profit before taxation had deteriorated from RM5.3 billion previously to only RM2.1 billion.

Leverage (i.e. borrowings/total assets) had increased slightly from 55% (2011) to 56% (2012), while government-guaranteed bonds had increased from 25% to 34% of total borrowings from 2011 to 2012. The sad episode did not actually end there because Khazanah’s profitability reached a new high of only RM1.6 billion in 2016.

However, one may find that the company’s full report of over 100 pages contains more positive vibes and comforting pictures than an informative account of their revenue and expenses.

From the perspective of an academic who has spent years on research about executive remuneration, it would be interesting to know whether the remuneration and benefits of the directors and managers of Khazanah were affected by the company’s performance. Unfortunately, such information is not available, hence public scrutiny is unlikely.

None of the expenses was indeed disclosed. This means the spending side (e.g., details of operating expenses) of Khazanah is hidden from the public view.

During the current period of austerity, when the ministers themselves are taking 10% pay cut, we have to ensure that the executives and directors of government-linked entities are not overpaid, especially in the case of non-performing or mediocre performance.

For example, I do not see the rationale of paying lucrative remuneration to GLC executives if all they can deliver is another version of ‘day market’ or ‘pasar malam’ events, or to host popularity-like contests that produce celebrities of questionable qualities.

GLCs’ executives have to work harder and think beyond norms to justify their pay. They should shoulder the social responsibility to nurture the right mentality for the society.

The nation needs Competency, Accountability, Transparency – CAT, not ‘fat cats’. There are many cases of questionable public spending that are still hidden from our reach, not to mention the activities of agencies that were allocated with a budget to spend without proper measurement of performance and accountability to the public.

To whom it may concern, the jolly good parties of sitting comfortably on peoples’ money are over. For now, the public has to be better informed on how the nation’s resources are managed. Enhanced disclosures by government-linked entities or agencies is a good starting point to increase transparency and to keep the integrity of managers and directors in check.

In addition, the network of government-linked entities has to be rationalised so that excesses can be trimmed. Complexity and opacity provide greater chances for unhealthy arbitrage, rent-seeking, and inefficient use of public resources.

I hope the new government will continue working harder to improve the governance of government-business affairs.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.