The real problem with 1MDB

1MDB’s problems have been attributed to the use of the wrong business model. (Reuters pic)

By TK Chua

It is so funny. Arul Kanda is now saying the 1MDB problem is just a “business problem”, stressing that its funds had never disappeared. Earlier, Prime Minister Najib Razak said the problem in 1MDB was due to the use of a wrong “business model”.

How we look at a problem will eventually determine how we solve it.

I have some simple questions: If it is just a “business problem”, what is it? If the funds never disappeared, may I know what the US Department of Justice is holding? If the issue was a problem with the wrong “business model”, may I know from which business school we adopted this model?

I just don’t understand which business with unwavering state support and resources would give us so much headache to begin with. Similarly what business model would require us to do “restructuring” and “rationalisation” before the company accomplished anything?

To me, the problem in 1MDB is not unique: it is a moral hazard problem which Malaysia has encountered for a long time. The trouble is, the problem is getting bigger because those involved are getting “smarter” and “savvier”. This is especially so when public governance standards have remained undeveloped and feeble.

My take is, we shouldn’t be trying to do great things when the enabling conditions are not even present.

From the early days of our public enterprises, privatisation, PKFZ, Felda to the present day GLCs such as 1MDB, the problem is essentially the same – those responsible for managing our resources are not held accountable for the consequences of their actions.

They made deals, went into ventures, and took excessive risks without thinking because it was not their own money – a typical case of privatising profits and socialising liabilities or losses.

Loans were raised excessively because with state guarantees, no one, including the lenders, bears any risk. Everyone enjoys French wine and caviar except the taxpayers who must eventually pay the bills.

There is no inherent incentive to guard against malfeasance and risk in all public enterprises and GLCs because those involved are protected from the consequences of their unthinking actions.

The problem of moral hazard is real; the World Bank has done numerous studies on this. It is as certain as the sun rising the next morning that those entrusted with public money will misbehave when it is the other party (ie. the rakyat) that will bear the cost.

It does not matter whether it is a BN or PH government, if no proper governance standards are instituted and enforced to ensure accountability and compliance.

TK Chua is an FMT reader.

The views expressed are those of the writer and do not necessarily reflect that of FMT.