persistent fiscal deficits! That’s the best description of the Federal Government’s fiscal position which had been governed by Barisan Nasional (BN) over past few decades except a brief period of federal budget surplus from 1993 to 1997 when Anwar Ibrahim was the Finance Minister. This year’s much-delayed Auditor-General’s Report again revealed wasteful spending by government departments as well as weaknesses of governance which have contributed to the Federal Government’s embedded deficit and debt problems. The report’s specific remark on rising trend of public debt which is approaching alarming level is a serious issue. Due attention shall be given to the questionable debt management capability by the BN Government.
Fiscal deficit is not always bad. However, persistent fiscal deficits even when economy is growing – meaning there’s a serious lack of fiscal discipline – would weaken a government’s position to meet its debt obligation later on, especially in time of recession. And when this happens, that means the future generation will be burdened with ballooning public debt.
Mathematically, drafting a national budget very much depends on a country’s economic growth projection over next year and thus its nominal value of Gross Domestic Product (GDP). A robust growth will mean higher GDP and higher revenue as tax and other revenues go up. That will provide a smaller value of budget deficit forecast and of course a smaller percentage of public debt.
However, when economic growth projection is over-optimistic or when economy is slowing down, that will mean smaller-than-anticipated tax and other revenues, hence, the actual nominal value of GDP is smaller, driving the shortfall higher. That will provide a bigger value of budget deficit and thus a higher percentage of public debt.
The world economy is on a downward spiral. As one of the most open economies and very dependent on international trade, various growth projection of Malaysia for next year is significantly lower despite Prime Minister Najib Razak’s over-optimistic growth forecast of 5.0 to 6.0 percent and budget deficit forecast of 4.7 percent for 2012 in his proposed RM232.833 billion Budget 2012 tabled on the 7th of October, 2012.
Most research houses have lowered their 2012 growth projections for Malaysia despite Najib’s optimism in his 2012 Budget proposals, which critics have said is primed for the imminent 13th General Election. Against this background, the Malaysian Institute of Economic Research (MIER) downgrades 2011 GDP growth rate to 4.6 percent year-on-year. For 2012, MIER revises the GDP growth forecast to 5.0 percent.[1] According to the RHB Research Institute, Malaysia’s economic growth could slow to just 3.6 percent next year from a projected 4.3 percent this year due to the increasing risk of a double dip global recession.
Given the projections and path we are currently on, that means even higher deficits than we have now. Worse than the worst, if we go into a recession, we will see record-level deficits and public debts. By that time, as the government’s debt obligations are mathematically impossible to resolve, the rakyat will then wake up one morning to the reality that they are a lot poorer than they thought.
According to the 2010 Auditor-General’s Report released on 24 October 2011, Malaysia’s public debt rose by 12.3 percent or RM44.72 billion to RM407.11 billion last year compared to RM362.39 billion in 2009. The Auditor-General said in the report that the government owed 53.1 percent of GDP, slightly down from 53.3 per cent last year. That’s the second consecutive year the Federal Government debt to GDP ratio surpassing the 50 percent level.
By referring to the following chart provided in the 2010 Auditor-General’s Report, public debt from domestic sources rose by RM41.76 billion to RM390.36 billion while external debt rose to RM16.75 billion, up RM2.96 billion.
It is in this context that I shall try to argue that, fiscal discipline and prudent debt management of the government of the day should be taken seriously as the most basic and important elements of good governance. In the following chart, Federal Government deficits figure compiled by a local research institute as well as a political think tank Political Studies for Change (KPRU – Kajian Politik untuk Perubahan) has shown that, there’s a serious lack of fiscal discipline in the Federal Government under the administration of then Finance Minister Mahathir Mohamad, later Abdullah Ahmad Badawi and now Najib Razak.
It is worth noting that the country has been in deficit for 14 consecutive years, and this is set to continue in 2012. This trend started in 1998 in the aftermath of the Asian financial crisis, which coincided with the sacking of Anwar, the Finance Minister and Deputy Prime Minister at that time.
In fact, ever since Anwar was appointed Deputy Prime Minister in 1993, the country’s budget had been in surplus every year until his sacking. After being appointed Finance Minister in 1991, Anwar turned the budget deficit into surplus in two years’ time, which was no mean feat as the country’s account had been in deficit for more than 20 years before his helming of the treasury[2].
A brief period of surplus was recorded and they were 0.2 percent in year 1993, 2.3 percent in year 1994, 0.8 percent in year 1995, 0.7 percent in year 1996 and 2.4 percent in year 1997. In contrast, current government under the administration of Najib has run on budget-deficits with increasing Federal Government debts.
When one takes a deeper look into the numbers, one has to say that Anwar’s record as Finance Minister is indeed impressive. Total Federal Government debt actually decreased from 1992 until 1996 after more than 20 years of consecutive increases[8]. The total Federal Government debt level had also been kept between RM89 billion to RM100 billion from 1991 to 1997.
In the Anwar era, besides a 4.6 percent increase in Federal Government debt in his first year as Finance Minister, and a 0.3 percent surge and 14.7 percent surge in 1997 and 1998 respectively when the country was badly hit by the economic crisis, the debt level had been decreasing at a stable rate of 1 to 3 percent every year. In contrast, total Federal Government debt had been increasing rapidly at a rate of more than 10 percent every year since Najib became Finance Minister in 2008.
To make things worse, the BN Government has a tendency to approve supplementary budgets in dealing with over-spending one after another, quite often without valid ground. The basic principle to table a supplementary supply bill is when unexpected expenditure takes place especially when a country is in a crisis like the earthquake and nuclear disaster in Japan.
However, having been criticized for over-spending and persistent budget deficits, the BN Government has manipulated the supplementary budget as a political tool to hide escalating deficit and debt figures during annual announcement of the National Budget rather than as an avenue in dealing with unexpected spending. For example, in the latest Supplementary Supply (2011) Bill 2011 tabled in June this year, the Najib administration had been criticized for manipulating RM1 billion of allocation for emolument of Health Ministry as emolument shouldn’t fall under unexpected spending. That’s also one main reason why initial forecast of deficit figure announced during annual budget session used to be lower than the actual one.
The following tables compiled by KPRU have shown that, the BN Government has tabled two supplementary supply bills outside the 2009 National Budget, another two supplementary supply bills outside the 2012 National Budget and up until today, one supplementary supply bill outside the 2011 National Budget. Although the 2012 National Budget has just been tabled, past records show that the BN Government could table another supplementary supply bill outside the 2011 National Budget during current parliament session or in year 2002.
KPRU STATISTIC: ACTUAL ALLOCATION FOR YEAR 2011 NATIONAL SPENDING (UP-TO-DATE)
Allocation (RM million) | 2011 National Budget | 1st Supplementary Supply Bill | 2011 Overall Budget |
Operating Expenditure | 162,805 | 13,187 | 175,992 |
Development Expenditure | 51,182 | n.a. | 51,182 |
Total | 213,987 | 13,187 | 227,174 |
Source: Supply Bill and Supplementary Supply Bill.
KPRU STATISTIC: ACTUAL ALLOCATION FOR YEAR 2010 NATIONAL SPENDING
Allocation (RM million) | 2010 National Budget | 1st Supplementary Supply Bill | 2nd Supplementary Supply Bill | 2010 Overall Budget |
Operating Expenditure | 138,279 | 9,265 | 13,271 | 160,815 |
Development Expenditure | 53,220 | 2,812 | 1,947 | 57,979 |
Total | 191,499 | 12,077 | 15,218 | 218,794 |
Source: Supply Bill and Supplementary Supply Bill.
KPRU STATISTIC: ACTUAL ALLOCATION FOR YEAR 2009 NATIONAL SPENDING
Allocation (RM million) | 2009 National Budget | 1st Supplementary Supply Bill | 2nd Supplementary Supply Bill | 2009 Overall Budget |
Operating Expenditure | 154,170 | 5,000 | 8,972 | 168,142 |
Development Expenditure | 53,729 | 5,000 | 2,388 | 61,117 |
Total | 207,899 | 10,000 | 11,360 | 229,259 |
Source: Supply Bill and Supplementary Supply Bill.
On the 7th of October, 2011, in a politically staged event of utmost importance to his own survival as well as UMNO-BN, Najib gave a positive prognosis of the Malaysian economy by proudly claiming a projected 5.0 to 5.5 percent growth rate for 2011, and then unrealistically projecting a 5.0 to 6.0 percent growth rate for 2012. On top of that, Najib also touted a reduction of the federal fiscal deficit to 4.7 percent of the GDP in 2012 from 5.4 percent in 2011[9].
Missing from his speech was any mention of our national, external, or total Federal Government debt. In fact, the last time any of this was mentioned in a budget speech was two years ago in 2009, when Najib conceded that the rate of our national debt was getting higher and higher[10]. 2009 was also the year in which the total Federal Government debt recorded a marked increase to 53.3 percent of the GDP from 41.3 percent the year before. The Federal Government debt to GDP ratio had maintained at rate of around 53 percent to 54 percent since then, with the 2011 figure projected at 53.8 percent[11].
According to Bank Negara Malaysia’s latest report, as of 30 June 2011, Federal Government debt stood at RM437 billion, with domestic debt amounting to RM421 billion and foreign debt at RM16 billion. According to the 2010 Federal Government Financial Statements prepared by the Accountant General of Malaysia, for the year 2010, total Federal Government debt increased by 12 percent to RM407.101 billion as against RM362.386 billion in 2009. Borrowings increased by RM45.062 billion or 13 percent to RM399.711 billion from RM354.649 billion in 2009.
Reacting to the latest debt figures, Parliamentary Opposition Leader Dato’ Seri Anwar Ibrahim warned that Malaysia was on course to breach the public debt limit due to the Federal Government’s failure to resuscitate the country’s under-performing economy[12].
Based on the Government Funding Act 1983 and Loan (Local) Act 1959, currently, the ceiling under both Acts is not more than 55 percent of total GDP. In addition, external loans are obtained with limits of borrowing based on the External Loans Act 1963. Currently, the ceiling under the Act is RM35 billion.
Viewing the situation from another perspective, we turn to the work of Carmen Reinhart and Ken Rogoff entitled ‘This Time Is Different: Eight Centuries of Financial Folly’. They studied the factors contributing to 29 past sovereign defaults and found that default or debt restructuring occurred, on average, when external debt reached 73 percent of Gross National Product (GNP).
Based on the above chart compiled by KPRU, total Federal Government debt was RM99.073 billion in 1991, the year Anwar became Finance Minister. It dropped to RM97.005 billion in 1992, RM95.898 billion in 1993, RM93.078 billion in 1994, RM91.369 billion in 1995, and RM89.681 billion in 1996, before it rose minimally to RM89.920 billion in 1997, and more significantly to RM103.121 billion in 1998.
Total Federal Government debt was RM306.437 billion in 2008 when Najib took over as Finance Minister. It rose to RM362.387 billion in 2009 and RM407.101 billion in 2010. It was projected to hit RM455.745 billion in 2011. According to Bank Negara Malaysia’s latest report, as of 30 June 2011, Federal Government debt already hit RM437 billion.
Based on the above chart compiled by KPRU, the reasonably well managed debt levels during Anwar’s time as Finance Minister can be attributed to sound management of the domestic debt. Anwar had managed to keep the domestic debt level below RM80 billion until 1997 until it hit RM88.197 billion in 1998.
In the seven-year period from 1991 to 1998, domestic debt rose by a total of RM14.542 billion or 19.7 percent, with the bulk of it coming from the period of 1997 to 1998. From 2008 to 2011, in a short span of three years, domestic debt rose by a total of RM152.346 billion or 53.2 percent. This shows that the domestic debt level rose sharply since Najib took over as Finance Minister until now.
In fact, Najib’s debt management seems to be worse than his predecessor, Abdullah Ahmad Badawi’s. Based on the above chart compiled by KPRU, the total Federal Government debt grew 5.6 percent and 5.9 percent in 2005 and 2006 respectively, and they were the smallest since an 8.7 percent increase was recorded in 1999.
Based on the above chart compiled by KPRU, the period in which Anwar was at the helm of the Treasury also saw a remarkable decrease in the Federal Government debt to GDP ratio, from 73.3 percent in 1991 to 31.9 percent in 1997. In contrast, Najib’s helm of the same office was marked by an increase of more than 10% in the Federal Government debt to GDP ratio from 2008 to 2009.
The numbers do show that Anwar is a more prudent and effective manager of the economy as compared to Najib. Najib can point to the weakness of the global economy time and time again, but the increase in spending, and more specifically, extravagant spending in the wrong areas and money-corrupted governance seems to be the reason for our continuing high debt level.
How much public money has been lost through corruption? How much of it has been used to subsidise big corporations instead of the people? How much of it has been used to pay for ‘commission’ for big business deals involving the government? We may never know how much, but we do know that it is one hell of an amount.
A corrupt governments’ moral or legal right to bind future generations of citizens to repay foreign creditors is questionable. The problem is that this is the beginning of a string of crises and not the end. It's time that a government practicing good governance vis-à-vis debt management is being put in place so as to safeguard a better tomorrow for future generation of Malaysia.
William Leong Jee Keen is the MP for Selayang and the PKR treasurer-general and;
Political Studies for Change (KPRU), a political think tank
For three long years since the financial crisis began, American politics has been dominated by the politics of projection, displacement and denial-three basic subconscious ego defence mechanisms that are tremendously powerful in defending the indefensible. On the personal level, such defence mechanisms- analysed by Anna Freud in her 1937 book, The Ego and the Mechanisms of Defence -protect the ego from conflicts that seemingly threaten its destruction, or at the very least weaken its foundations. They are, in a sense, helpful and adaptive at an early stage, since ego survival is a precondition for everything else. But they can take on a life of their own, “protecting” the ego from things that must be dealt with in order to grow as it should. The same is true when these mechanisms function socially, “defending” large groups of people-even whole civilisations-against facing up to their most important challenges, and preventing them from resolving conflicts that threaten to destroy them.
Such has been the establishment's response to the financial crash of 2008 and its ongoing repercussions until now. In one short month, Occupy Wall Street has begun to change all that. While Occupy Wall Street is purportedly raucous, incoherent, and lacking in clarity, it has done more than anything else in the past three years to begin stripping away the dangerously irrational nonsense protected by and embodied in those three social defence mechanisms. In the wake of its global coming out day on October 15, it is a good idea to take stock of this remarkable accomplishment.
Defence mechanisms
First, we need to consider what happened, and how those in power have tried to make it go away. What happened, in short, was the biggest financial crisis since the Great Depression. Financial crises are built into the very nature of financial systems, as shown by the historical record compiled by Carmen Reinhart and Kenneth Rogoff in This Time It's Different: Eight Centuries of Financial Folly, and as explained by the late Hyman Minsky's financial instability hypothesis. This historical fact has long been denied by free market ideologues, and their faith has grown particularly strong since the dissolution of the Soviet Union. That is why, in part, the US has destroyed almost all of its regulatory structures that could have and should have limited the scope of this most recent crisis, if not prevented it entirely.
Denial is, conceptually, the most basic of defence mechanisms-the refusal to accept external reality, and/or one's own reactions to reality. And that is what I've just described-a breath-takingly broad example of denial. When people try to pretend that tens of millions are out of work because there is something wrong with each of them, individually, rather than with the economy as a whole, this too is an example of massive denial.
All of the most basic defence mechanisms involve denial in some way or another. They can be thought of as denial plus some further means of handling the threat that is being denied. Both displacement and projection involve blame-shifting as a strategy of threat-management, but the have differing dynamics.
Projection is less about denying external reality than denying how one responds. The negative responses being denied are projected onto another. Glenn Beck, for example, projects his own racism onto Barack Obama, claiming without a shred of evidence that Obama harbours a "deep seated hatred of white people" - against people such as his mother and maternal grandparents, one can only assume. Colloquially, it's often referred to as "the pot calling the kettle black".
Protesters arrested in anti-Wall Street rally |
Displacement also involves blame-shifting, but in a different way: it is the external source of anxiety that is shifted from the more threatening object that constitutes a real threat to a substitute object that's safer to blame, even punish. A man's boss yells at him at work; he comes home and kicks the family dog. That is displacement.
Of course the two can work in tandem. If the man kicks the dog “because it was going to bite me”, that's both displacement and projection. Similarly, if Wall Street crashes the economy, and some state passes draconian anti-immigration laws, that, too, is both displacement and projection. The same is true if budgets are slashed because of a depressed economy, and then teacher's unions are blamed for the budget gap. Displacement is most likely to occur as a direct result of overwhelming economic and political power. Those with real power don't just tend to get their way, they tend to get their way as if it were their incontestable right.
This has been the primary dynamic since the financial crisis began in September 2008: the Wall Street banks that crashed the economy have not only been made whole, they've recovered much faster and better than anyone else, flourishing now as if nothing had happened. The losses they created have been absorbed by the public sector, by other private industrial sectors, and by households who've lost more than a trillion dollars in household wealth, as housing values have collapsed, leaving tens of millions with underwater loans.
So long as this situation persists, the potential for projection skyrockets. Displacing blame from Wall Street onto other, less powerful targets creates a powerful incentive to project, just like the man yelled at by his boss, who wants to kick his dog to relieve his frustrations. Ordinarily, he would not kick his dog, but under such duress, projecting his own dark thoughts onto his dog gives him permission to strike out. And so he compounds displacement with projection, and lashes out for temporary relief that is doomed to leave him unsatisfied, if not ashamed of what he has done. Such is the unhappy situation that more and more Americans find themselves in-along with hundreds of millions more around the world.
This is what Occupy Wall Street offers the chance to end: stop the displacement by placing the blame where it belongs, and the pressures driving projection will plummet. Beyond that lies the possibility of taking on denial more generally, and developing an understanding, free from these defence mechanisms, about how to create a better, fairer sort of future. Of course those who deserve that blame will not like this one bit. They will scream bloody murder-or, rather, make sure that others scream for them. But, as has been pointed out repeatedly, the top one percent got along just fine in the 1950s with 91 per cent marginal tax rates and nine percent of the national income, when America's middle class was thriving and filled with optimism. That is not hair-shirt territory, by any means.
'Occupy' vs the Tea Party
As Occupy Wall Street has grown, there have been a growing number of comparisons between it and the Tea Party. Francis Fox Pivens, offered one of the briefest, no-nonsense accounts, contrasting them as inclusionary vs exclusionary, forward-looking vs. backward-looking, and "mainly young, racially diverse, happily counter-cultural" vs "almost all white... better-off and older". She also wrote that “The Tea Party, under one name or another, has actually been part of American politics for a long time. It is a movement that yearns for the restoration of an imaginary past....”
It also instinctively identifies itself as made up of “real Americans”- which in turn helps to account for dramatic difference between how conservative elites praised the Tea Party effusively, only to heap scorn on Occupy Wall Street. This conservatives double standard toward people's democracy was anything but surprising. If there is one thing conservatives believe in, it's double standards. The defence of social hierarchies is their core value, which virtually demands very different treatment for those who support vs. those who challenge the powers that be. Decades of research in political psychology-particularly right wing authoritarianism and social dominance orientation-support this conclusion, and a new book by Corey Robin, The Reactionary Mind: Conservatism from Edmund Burke to Sarah Palin, offers a detailed critique of how this orientation has expressed itself through the complexities of actual history.
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- Democratic feudalism: Giving real, not imaginary, power to members of the lower orders to wield over people beneath them. This can happen in factories (supervisors), families (husbands/fathers), and fields (overseers, slave catchers, etc). It can also happen in certain forms of nationalism and imperialism.
- Upside-down populism: Get the lower orders to identify with the higher orders, not through deception but through an emphasis on the one experience they share: loss.
- Outsider politics: Because the conservative defence of privilege occurs in the wake of a democratic challenge, it must develop a new ruling class and "a new old regime", in which the truly excellent - not the lazy inheritors of privilege but the very best men - rule. These men often hail from outside the traditional precincts of power, proving their mettle in one of three places: at the barricades of the counter-revolution, on the battlefield, and in the marketplace.
What is more, underlying all three forms that Robin describes are another bundle of defence mechanisms that help ordinary people identify with those above them, thus defusing the experience of being taken advantage by them. The three most significant are:
- Identification or introjection, the obverse of projection. It involves identifying with someone else, rather than denying anything in common, taking on their personality characteristics as one's own. In Anna Freud's original analysis, it was specifically "identification with the aggressor". Closely related is:
- Idealisation, the unconscious perception of another as having more positive qualities than they actually possess. Idealisation and identification can work together, creating ideal images of higher class people to model oneself on, rather than resent, regardless of how they actually treat one.
- Fantasy completes the triad; this defence mechanism helps compensate for the fact that such ideal images do not correspond with reality.
Stepping back from this description, we can clearly see that Occupy Wall Street involves shedding or stripping away defence mechanisms that serve to hide uncomfortable truths, while the Tea Party, as a form of right wing populism, activates a greater number of defence mechanisms, making those truths increasingly obscure, and difficult to comprehend.
In short, the outward similarities of these two groups mask a difference as profound as any that can be found in American history. Will we go back to an imaginary past in which we are hopelessly confused and mislead by a welter of different defence mechanisms hiding painful truths from ourselves? Or will we go forward into a future we knowingly shape together for the mutual benefit of all? Those are the two visions before us, which the weeks and months ahead should make increasingly clear to one and all
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