Blessed with oil money, but why is Malaysia in huge debt?

By Ng Kee Seng. Published by The Ant Daily on 14 January 2014.

Can any oil producing country in the world make all her citizens millionaires via prudent management and savings?

Norway achieved that on Jan 8, 44 years after striking oil in the North Sea in 1969. But it only set up its oil sovereign wealth fund (SWF) in 1990, meaning it took the Norwegians only 23 years to be millionaires.

According to a Reuters report, everyone in Norway became a theoretical crown millionaire on Jan 8 in a milestone for the world’s biggest sovereign wealth fund that has ballooned thanks to high oil and gas prices.

The fund owns about one per cent of the world’s stocks, as well as bonds and real estate from London to Boston, making the Nordic nation an exception when others are struggling under a mountain of debts.

A preliminary counter on the website of the central bank, which manages the fund, rose to 5.11 trillion crowns (US$828.66 billion or RM2.7 trillion), fractionally more than a million times Norway’s most recent official population estimate of 5,096,300.

It was the first time it reached the equivalent of a million crowns each, central bank spokesman Thomas Sevang said.

Not that Norwegians will be able to access or spend the money, squirreled away for a rainy day for them and future generations. Norway has resisted the temptation to splurge all the windfall since its oil strike.

Finance Minister Siv Jensen told Reuters the fund, called the Government Pension Fund Global, had helped iron out big, unpredictable swings in oil and gas prices. Norway is the world's number seven oil exporter.

“Many countries have found that temporary large revenues from natural resource exploitation produce relatively short-lived booms that are followed by difficult adjustments,” she said in an email.

The fund, equivalent to 183 per cent of 2013 gross domestic product, is expected to peak at 220 per cent around 2030.

“The fund is a success in the sense that parliament has managed to put aside money for the future. There are many examples of countries that have not managed that,” said Oeystein Doerum, chief economist at DNB Markets.

Note the key word: Parliament. In Malaysia, only the prime minister has access to national oil producer Petronas’ funds and accounts.

Malaysia is the 27th largest oil producer in the world, rolling out 693,700 barrels/day. Only 114 countries were listed as at 2009 and 2010. Norway rolls out 2,350,000 bbl/day.

What’s the financial position of Malaysia? A federal debt of up to RM800 billion! (as revealed by then Deputy International Trade and Industry Minister Datuk Seri Mukhriz Mahathir at end of 2012).

And do we have such an oil SWF to save for rainy days for the rakyat and country? None.

According to a written reply in Parliament by Prime Minister Datuk Seri Najib Razak, Petronas had contributed RM3 billion to the National Trust Fund (or Kwan, the acronym for Kumpulan Wang Amanah Negara) as at June 2011.

He also said the money had been invested in various financial instruments and that Kwan’s fund currently stood at RM5.43 billion.

Just a measly RM5.43 billion compared with Norway’s RM2.7 trillion!

The administration and management of the trust is handled by Bank Negara with a panel under Kwan monitoring the collection of funds. And, digest this moronic joke: Najib said Kwan was set up to ensure that revenue from dwindling natural resources would benefit future generations.

After 39 years (Petronas was founded in 1974), all we have today is a federal debt of at least RM800 billion, and the international reserves of Bank Negara Malaysia stood at RM441.7 billion (equivalent to US$134.9 billion) as at Dec 31, 2013.

Now, it is clear why the Umno-led Barisan Nasional government is cutting down on subsidies. Its federal debt is so high that it cannot continue to borrow to serve the rakyat as before or Malaysia will go bust like Greece.

It’s time for Malaysians to take stock of the federal government’s lack of transparency and accountability in its financial management of the country’s wealth.

It’s utter nonsense and a disgrace for the 24-year-old Kwan to have a paltry savings of RM5.43 billion, unless Najib now wants to claim that the figure was erroneous and blame it on a scapegoat who prepared the written reply in Parliament.

What can RM5.43 billion (US$1.9 billion) do to help Malaysians and Malaysia during rainy days, like when our oil wells run dry?

Why is there no oil-based SWF for Malaysia?

Petronas is today a global player in oil and gas exploration.

Why is the government just satisfied with an annual RM100 million contribution to Kwan since 1988?

Where has Petronas’ hundreds of billions of ringgit in revenue over the past 38 years gone to?

Did Petronas’ oil and gas exploration presence in 32 countries outside Malaysia also contribute or help facilitate the bulk of the RM1.08 trillion in capital flight in the last decade?

Why avoid establishing an oil-based SWF for the people and country? Is it because financial transparency and accountability would be a pain?

Crude oil and natural gas are Malaysia’s two most abundant resources but their sustainability is being questioned with the country projected to become a net oil importer in a few years.

Now, let’s take a more detailed look on why other oil producing countries are doing better in terms of oil-based or non-commodity-based SWF management:

Kuwait (10th at 2,494,000 bbl/day), Libya (17th at 1,790,000 bbl/day), Kazakhstan (18th at 1,540,000 bbl/day), Algeria (15th at 2,125,000 bbl/day), South Korea (64th at 48,180 bbl/day) and Singapore (82nd at 10,910 bbl/day).

Malaysia’s non-commodity Khazanah Nasional, founded in 1993, is ranked 23rd with US$34 billion (RM110 billion) in assets and a Linaburg-Maduell Transparency Index (LM-TI) of 5.

The world’s largest SWF, Norway’s Pension Fund Global, was in 2009 registered with assets worth US$664.3 billion (RM2 trillion) with a perfect 10 LM-TI.

UAE-Abu Dhabi’s oil-based Abu Dhabi Investment Authority, established in 1976, is ranked second with US$627 billion (RM2 trillion) and a 5 LM-TI.

At third spot, China’s non-commodity SAFE Investment Company, which was founded in 1997, now manages assets worth US$567.9 billion (RM1.8 trillion), with a 4 LM-TI.

That’s the top three SWFs in the world. Now, let’s focus on our neighbours.

Singapore’s non-commodity Government of Singapore Investment Corporation, which was set up in 1981, is ranked 8th with assets at US$247.5 billion (RM802 billion) and a 6 LM-TI.

Following at 9th rank is another Singapore non-commodity SWF, Temasek Holdings, which was established in 1974. It has US$157.5 billion (RM510 billion) in assets and a perfect 10 LM-TI.

Even countries like Kuwait, which was severely damaged by Iraq’s bombing and brief occupation, Libya, Kazakhstan, Algeria and South Korea, which were far poorer than Malaysia in the 60s, 70s and 80s, are all managing their country’s wealth better than Malaysia.

Malaysia’s economic and financial standing is baffling, don’t you think so?

Link:

http://www.theantdaily.com/news/2014/01/14/blessed-oil-money-why-malaysia-huge-debt

Ng Kee Seng believes that God helps those who help themselves. In a healthy democracy, every Malaysian has a role in politics and nation-building.

The Son Najib Is Unlike The Father Tun Razak At All

"Remembering my father, Tun Razak" by Nazir Razak . Published by The Malaysian Insider on 14 January 2014.

Anything spent on it would have to come from public funds, and there was no way he was going to allow the state coffers to be depleted on something as frivolous as a swimming pool.

"What will the people think?" he thundered...

As the custodian of the nation's coffers, his frugality was legendary. "You had to account for every cent, or he would be on your back," one former minister told me.Well, I knew that already. Not just from the swimming pool episode, but many anecdotes.

My elder brothers often talk about one of the rare opportunities they had to accompany him on an official trip to Switzerland. He made sure he paid their expenses himself, he was so careful with the cost of the trip to the government that he moved his whole entourage to a cheaper hotel than originally booked, and they dined over and over again at the cheapest restaurant in the vicinity of the hotel.

And then there was his final trip to Europe in October 1975 for medical treatment. He must have known that it could well be his last trip, yet he did not allow my mother to accompany him to save his own money; probably concerned about her financial situation after his passing. She only managed to join him weeks later on the insistence of the cabinet and with a specially approved government budget for her travel.

His integrity was another trait that came up often in conversations. He was guided by what now seems a somewhat quaint and old-fashioned concept of public service; that a public servant is first and foremost a servant of the people whose trust must never be betrayed...

Many were later astonished to learn he had been suffering from leukaemia, given that when in office, he was constantly on the move, attending to official duties, immersing himself in the minutiae of policy and, of course, his famous surprise visits to constituencies around the country that allowed him to hear directly from the people about what was happening on the ground.

Of course, few people forget to recount Tun Razak's dedication to rural development. He was "People First", long before the sound bite.

But above all, what they unanimously emphasised was Tun Razak's commitment to national unity – towards building a nation where every single one of its citizens could find a place under the Malaysian sun. That vision was encapsulated in the two initiatives that my father spearheaded in the wake of the May 13, 1969 tragedy – the formulation of the Rukunegara in 1970 and the New Economic Policy in 1971. The Rukunegara reconciled indigenous cultural traditions and heritage with the demands of a modern, secular state.

The NEP's goal, as outlined in the policy announcement, was the promotion of national unity to be undertaken via a massive experiment in socio-economic engineering through the twin thrusts of eradication of poverty irrespective of race and economic restructuring to eliminate identification of economic function with ethnicity.

The debate on the NEP rages on today. I myself have publicly remarked that something has gone awry in its implementation. The fixation on quotas and the seemingly easy route to unimaginable wealth for a select few have created an intra-ethnic divide in class and status, while fuelling inter-ethnic tensions. Both these developments serve to undermine, if not completely negate, the overarching goal of Tun Razak's NEP, strengthening national unity.

What went wrong? Some have argued that the fault was affirmative action itself.  For me, it was because its implementation was skewed by the focus on the tactical approach rather than the commitment to the strategic goal. The NEP has certainly helped eradicate poverty and reduced economic imbalances by spawning a Malay middle class.

However, in terms of the larger vision, the best that can be said about the NEP is that it initially helped blunt the edges of racial conflict in the aftermath of May 13. Thanks in part to the NEP, Malaysia did not follow Sri Lanka, which became embroiled in decades of strife between the immigrant Tamils and the indigenous Sinhalese.

That is no small achievement. But the NEP promise of strengthening national unity has not been realised. In fact, there are signs that inter-ethnic and intra-ethnic tensions are once again approaching worrying levels. What can be done? There is a Malay proverb: "Sesat di Hujung Jalan, Balik ke-Pangkal Jalan." Loosely translated, it means "When one has lost one's way, one should return to the beginning."

And "the beginning" here, in my view, is the values, commitment, vision and inclusiveness demonstrated and embodied by Tun Razak. I have mentioned earlier the remarks about his integrity, commitment to the concept of public service and his vision of a progressive, prosperous and united Malaysia. But let me close here by emphasising two other highlights of his legacy.

One, he was a true democrat. Two years after running the country as head of the National Operations Council, he disbanded the committee and restored democratic rule. He held virtually dictatorial power as the NOC chief, but his worldview and values rested on a foundation of democratic rule, not dictatorship. His decision-making style exemplified this as well: he brought in all who needed to be involved and engaged in a consultative discussion before any major decision was adopted. He never excluded those with contrarian views, he encouraged multiplicity of opinions in order to have the best chance of making a right final decision.

Two, while he was committed to helping improve the material quality of life for the majority Bumiputeras to avert another "May 13", he viewed this as a national prerogative rather than a racial one. That, to me, explains his determination to involve Malaysia's best and brightest in this quest, regardless of their racial or ethnic origin.

Just check out those who served him and his administration back then. They were and are, Malaysians all, united in their determination to rebuild this nation from the ashes of May 13. That was Tun Razak's legacy to Malaysia. We can best honour it by returning to "Pangkal Jalan".

Read more here:

http://www.themalaysianinsider.com/malaysia/article/remembering-my-father-tun-razak

"Malaysia’s Najib Faces Party, Public Protest" 

published by The Asia Sentinel on 13 January 2014.

Malaysian Prime Minister Najib Tun Razak enters 2014 beset by growing hostility from both the public and within his own political party, the United Malays National Organization, characterized by a deluge of New Year messages across cyberspace celebrating the “year of barang naik,” Malay language for rising prices of items.

That is a play on the initials BN, for Barisan Nasional, the national ruling coalition. It has become an opposition battle cry to the point where Najib mentioned it himself in a recent speech

Najib is making an astute move now, after national and intraparty elections have been completed, taking on the necessary but unappetizing task of dismantling decades of subsidies that have driven government debt close to the statutory limit of 55 percent of gross domestic product. In the wake of both sets of elections, he is temporarily invulnerable to both opposition and intraparty assaults.

However, electricity tariffs have risen by 15 percent, sugar subsidies have been cut. Last September, Petronas, the national energy company, cut fuel subsidies in a move that it said would save the government RMB1 billion annually. Public anger at the cutting of the subsidies is substantial and growing.

In addition, many in the party rank and file are still furious over widespread spending to keep the current leadership in place in the September intraparty elections.

That has brought the prime minister under unprecedented attack from bloggers aligned with the wing of the party controlled by former Prime Minister Mahathir Mohamad, who are delivering an extraordinary onslaught on his lifestyle and that of his wife, even going so far as an unprecedented call for attention to corruption within UMNO itself. The attacks had been expected from the time Najib blocked Mahathir’s son, Mukhriz, from becoming one of the party’s three vice presidents in the September polls.

Najib has sought to deflect criticism, saying the price hikes have been caused by factors such as the global economy and extreme weather that cut into the fish catch and drove up the price of vegetables. The government has also sought to spread the pain by cutting government ministers’ allowances by 10 percent, banning civil servants from business class flights, restricting expenses on official government functions. However, that hasn't mollified voters, who staged public protests over New Year’s.

Najib also enraged voters by leaving for most of the holidays, going to Las Vegas and other watering holes with his wife, Rosmah Mansor, whose free-spending ways have alienated large swaths of the conservative Malay Muslim community. He is being called “Mr Nowhere” because of his absences from the country.

“A putsch is in the air, definitely, as the frustration with Najib's free spending and extravagant lifestyle increases,” a Malay businessman told Asia Sentinel. “Najib is in the weakest position any prime minister in Malaysia has ever seen.”

Calls have been rising to have Mohamad come back to the government administrative center of Putra Jaya as an “adviser” to right the ship, something that appears highly unlikely. Mahathir himself made light of the idea.

In the meantime, bloggers who have been described as aligned with Mahathir have been raising their game, making broadly based attacks on Najib and even other UMNO officials, calling attention to what appears to be corruption in the award of highway contracts.

Kadir Jasin, a former New Straits Times editor and close longtime Mahathir ally, wrote recently that “To many UMNO leaders, the measure of the party’s success is big cars, big houses and expensive watches whose names they can’t even mention.”  In particular, Rosmah has been criticized repeatedly for her taste in vastly expensive watches.

Kadir also called attention to “people with no formal appointments and duties (who) are known to use government on pretext of serving the country,” an apparent reference to Rosmah’s November commandeering of an official government jet to fly to Qatar to attend an international forum.

“Do they know that even the Queen (of England) uses trains and charters planes when travelling overseas? They should because many like the PM studied in the UK. Air transport for the British Royal Family and the government of the UK is provided, depending on circumstances and availability, by a variety of military and civilian operators. But most often they fly using scheduled commercial flights, normally the British Airways.”

“We are complaining about the wrong things he is doing in accommodating the wishes of his wife,” Kadir wrote. “We are asking the government to be accountable. The PM should answer these allegations. The way he bragged about his wife in public, he was in fact saying that his wife has more influence than him with foreign leaders.”

“Outsyedthebox” suggested that Najib, who had never finished his economics degree, actually “imbibed from the “Proton school of management” (the money-losing national car) “where it is a good thing to buy something high and sell it low.  Or buy something high and then sell it even higher to people who have few options.: 

“Mahathir’s and (former Finance Minister Daim Zainuddin’s) hands are all over the place but the point is that Najib and his wife are providing all the ammo,” a source said. “Without the ammo, Mahathir would be hard pressed to rally his troops against Najib.”

Everything “down to the price of ice has increased in a manner of two weeks,” said another UMNO loyalist. “Everything in Malaysia shot up in one month without notice. The government keeps the ringgit so weak against the US dollar, the cost of living keeps bouncing, salary increases are nothing. Crime is up, corruption is up. People are getting really upset.”

During the waning days of the premiership of Abdullah Ahmad Badawi, as the rank and file sought to push him out, “similar contempt was restricted to some segments of UMNO and the ruling elite,” a source told Asia Sentinel. “With Mahathir, it was disgust and contempt from intellectuals and rights groups. But with Najib – it's across the board and it extends to his wife and friends.”

Link: http://www.asiasentinel.com/politics/malaysias-najib-faces-party-public-protest/

Lavish Ministerial Spendings as Malaysians Tighten Belts

Published by Malta Independent on 5 January 2014.

Amid austerity measures, some Malaysian bloggers are questioning whether Prime Minister Najib Abdul Razak is now jetting across the country in a new luxury aircraft.

In blog postings by, among others, Big Dog and RockyBru, they pointed to an Airbus ACJ320 with tail number 9H-AWK using the call number, “Perdana 2” or “NR2” – which incidentally are similar to Najib’s initials.

The aircraft is registered in Malta and leased from aviation group Comlux.

According to aviation news website Aviation Week, Jet Premier One (M) Sdn Bhd, the company which manages flights for VVIPs in Malaysia, including Najib, had indeed leased the Airbus ACJ320 from Comlux, Malaysiakini reported.

The lease was supposed to be a temporary replacement for the regular aircraft Najib uses, an Airbus ACJ319, being refurbished by Comlux Aviation Services.

The Airbus ACJ319 with tail number 9M-NAA operated under the call name “NR1” or “Perdana 1” and is the official aircraft for the prime minister, similar to that of the US president’s Air Force One.

It first came under the spotlight in 2011 when Najib flew on the Airbus ACJ319 to Perth, Australia, apparently on holiday.

In a press release by Comlux May last year, the company had announced it had won a contract to rework the VIP area of the Airbus ACJ319 as well as handle scheduled maintenance works for six years.

The company did not specify the value of the project.

In the interim, Comlux leased an Airbus ACJ320 with tail number 9H-AWK to Jet Premier One.

It took over the call name of “NR1” and “Perdana 1” and was spotted taking off from Kuala Lumpur International Airport on 6 October to Denpasar International Airport, Bali, according to flight enthusiast site Jet Photos .

Najib left for Bali on 6 December for the Asia Pacific Economic Conference Summit.

The aircraft comes with a lounge, a private room equipped with personal bathroom and has WiFi and phone access while in the air.

Comlux did not reveal how much the plane was leased for but according to the company’s brochure, the approximate operating cost for its Airbus ACJ320 flight is $8,350.31 (RM27,501.75) per hour.

In another press statement in October last year, Comlux announced that it has completed refurbishing the “head of state of Malaysia aircraft” Airbus ACJ319 after working on it since its arrival at its US base in June that year.

Despite the return of the plane, the lease for the Airbus ACJ320 appears to be still active and has been spotted jetting around in Malaysia.

The Airbus ACJ320 changed its call name to “NR2” or “Perdana 2” while the ACJ319 took back its call name “NR1” or “Perdana 1”.

According to air traffic tracker website Flight Radar 24, the Airbus ACJ320 with tail number 9H-AWK last took off from KLIA under the call name “NR2” on 31 December.

The site also recorded the Airbus ACJ319 with tail number 9M-NAA taking off from KLIA on 26 December under the call name “NR1”.

In a parliamentary reply on 7 November last year, Minister in the Prime Minister’s Department Shahidan Kassim revealed that the government spent RM14.95 million for fuel and RM160.08 million in maintenance for VVIP flights in 2012.

The government aircraft include a Falcon, Global Express, Boeing Business Jet, Blackhawk, two Augustas and a Fokker F28.

However, that reply did not mention either the Airbus AC319 or Airbus ACJ320. Malaysiakini has contacted the Prime Minister’s Department and is awaiting reply.

Link: http://www.independent.com.mt/articles/2014-01-05/news/malaysian-pm-jetting-around-in-new-luxury-aircraft-registered-in-malta-3604283392/

Several ministers are still living up the good life although Putrajaya is trimming its budget after asking Malaysians to tighten their belts and be thrifty in the face of rising living costs and subsidy cuts this year.

Home Minister Datuk Seri Dr Ahmad Zahid Hamidi hosted a “lavish” birthday bash at a five-star hotel in Kuala Lumpur yesterday which his guests claimed was a New Year’s party.

Another minister had thrown a two-day wedding celebration for his child at another five-star hotel in Kuala Lumpur last month, graced by royalty and VIPs who were entertained by a top Indonesian songstress.

Several pro-Umno bloggers have also questioned the Prime Minister's Department over the need for two VIP jets after it was revealed that Putrajaya spent some RM180 million to maintain and operate government jets for official trips in 2012.

But yesterday's luncheon came after Putrajaya announced 11 measures to trim public spending, involving cuts to entertainment and transport allowances for ministers and top civil servants apart from freezing office renovation requests.

Receiving a tip-off about the luncheon, The Malaysian Insider visited the top hotel where guests and the birthday boy followed the party theme and were dressed in red.

Ahmad Zahid’s guests feasted on a buffet spread in the hotel’s grand ballroom while he mingled with them, including several civil servants who were invited through an email sighted by The Malaysian Insider.

The Umno vice-president smiled and shook hands with well-wishers after the party, while luxury cars with chauffeurs were lined up in front of the hotel, causing traffic to halt as Porsche Cayennes and Toyota Alphards parked by the roadside.

The Malaysian Insider tried to speak to Ahmad Zahid but was stopped by his bodyguards and told to leave or be escorted out.

It is not known who picked up the tab for Ahmad Zahid’s party, nor the reason for the red theme, but his guests were dressed in their finest with designer handbags and totes in their hands.

A guest told The Malaysian Insider that the party had celebrated two birthdays, Ahmad Zahid's and his grandchild which fell on the same day but also insisted that it was a New Year’s party as emblazoned on the stage backdrop.

Invitations were also sent out via email on Friday to selected employees from the Home Ministry. The email, titled “Celebration of home minister’s birthday”, also included a note to extend the invitation to cabinet and Umno Supreme Council members.

The lavish birthday party and opulent wedding of a minister's daughter and even Penang Chief Minister Lim Guan Eng's new government limousine come at a time when most Malaysians are grumbling about price hikes for electricity, food, fuel and even schooling costs.

Prices of fuel, sugar and electricity tariffs rose after Putrajaya cut back on its subsidies while public transport fares would be increased this year. The goods and services tax would also be introduced in 2015.

Government spending ballooned with this year’s budget up to RM264.2 billion from last year’s RM251.6 billion amid concerns that Putrajaya was not cutting back on expenses despite asking the public to do so.

A number of Malaysians had also poured scorn over Prime Minister Datuk Seri Najib Razak's announcement on December 30 that Putrajaya would implement 11 austerity measures to cut spending in 2014.

Najib's economic czar, Minister in the Prime Minister’s Department Datuk Seri Abdul Wahid Omar had even advised consumers to spend wisely and look for alternatives.

The former banker said that Malaysians have to be thrifty and live within their means.

"I go to the market every week. I know that the prices of basic necessities are high, but consumers have a choice in what they spend their money on," he was quoted as saying in a news report.

Link: http://www.themalaysianinsider.com/malaysia/article/lavish-ministerial-parties-as-putrajaya-malaysians-tighten-belts

Malaysians Seen Curbing Spending as Living Costs Surge: Economy

By Chong Pooi Koon. Published by Bloomberg News on 7 January 2014.

Millions of middle-class Malaysians are grappling with the biggest increase in state controlled electricity and gasoline costs since 2008, threatening consumer spending growth and reasserting the country’s reliance on exports this year.

Since winning a May election, Prime Minister Najib Razak has unleashed a series of price increases to cut subsidies and improve state finances, crimping scope for companies to boost wages while spurring inflation. The moves, from a 14 percent jump in sugar costs in October to an 11 percent increase for gasoline in September and an average 15 percent to 16.9 percent climb for electricity this month, could slow private consumption growth by 0.9 percentage point in 2014, according to Alliance Financial Group Bhd. and Malaysian Rating Corp.

“Definitely it’s difficult,” Ng Wei Keong, a project engineer with two children aged 5 and 3, said in an interview at a December protest against another strain on his living cost -- an increase in the annual property assessment rate in Kuala Lumpur. “My kids will be without toys, no more vacation, no new cars and we must be very wise on spending money.”

Malaysia’s middle class, forged during the economic boom of the early 1990s, is bearing the brunt of the fiscal trimming as they grapple with a cocktail of record-high property prices, elevated household borrowings, and slower pay increases than lower-income earners. Rebounding exports are set to counter the spending squeeze, giving Najib scope to put consumers through the immediate pain of surging living costs as he shifts the economy toward market-based prices for commodities and energy.

‘Some Pain’

“There will be some pain in moving towards market-based pricing of the currently subsidized-costs of essential food items, fuel and energy,” said Suhaimi Ilias, chief economist at Maybank Investment Bank, part of the country’s largest lender. “Over the long term the economy will gain from a generally more efficient economy.”

Underscoring the threat to the domestic demand that held up growth in the past two years as exports faltered, consumer confidence in the third quarter fell to the weakest since 2009, according to a Malaysian Institute of Economic Research measure. An index of consumer stocks barely rose in the second half of 2013, gaining 0.02 percent compared with the benchmark’s 5.2 percent climb.

The “headwinds to domestic demand in the near term” would make Malaysia’s economic growth increasingly dependent on an export recovery, Citigroup Inc. said in a November report. The banking group predicts a 5 percent expansion in 2014, at the lower end of the government’s forecast range, as it anticipates more fuel price increases that will cut discretionary incomes by a net 2 billion ringgit ($608 million), or 0.2 percentage point of nominal gross domestic product.

Sandwich Class

Those in the middle-income group, who make as little as 3,000 ringgit a month, don’t benefit as much as other segments from planned government handouts or income tax cuts, said Wan Saiful Wan Jan, chief executive officer at the Institute for Democracy and Economic Affairs, a Kuala Lumpur-based think tank.

Malaysian families who earn 3,000 ringgit to 4,999 ringgit a month made up 27.8 percent of households in the population of about 30 million, according to government data for 2012, up from 4 percent in 1989. About 39 percent of households fall below that bracket, while the remainder of the middle class and the highest income groups -- those earning 5,000 ringgit and above - - account for 33.6 percent.

Inflation Pressure

“The bottom 40 percent is helped by the various welfare programs, while the top 5 percent will benefit from the trend to reduce income tax and they are generally better off in a liberalizing economy,” Wan Saiful said in an interview. “For the middle income group, nothing has been done to help them but there are so many things that they can’t afford anymore.”

Inflation in Southeast Asia’s No. 3 economy may accelerate to 2.9 percent this year and a seven-year high of 3.3 percent in 2015, when Najib plans to introduce a new consumption tax, according to Bloomberg surveys. In contrast, the Malaysian Employers Federation estimates lower salary increases and bonuses in 2014 in the private sector as business costs rise.

“The faster inflation rate amid slower income rise erodes purchasing power, which will impact the consumer spending part of GDP,” said Maybank’s Suhaimi. He predicts the central bank will keep interest rates unchanged even as inflation reaches 3.5 percent in 2014, to avoid further deflating consumer sentiment. “The risk to growth is pretty much coming from consumers.”

Pay Increases

Executives will get a 5.63 percent average increase in salaries, down from 6.31 percent in 2013, and non-executives will get a 5.65 percent raise from 6.7 last year, according to an MEF survey of 257 companies. Lower-paid workers will fare better -- in addition to benefiting from a minimum wage, non-executives will get a bigger bonus this year while executives will get a smaller payout.

Government data show that the most well educated people in the workforce got the smallest wage increase in the two years through 2012.

“What we earn cannot cope with the rising cost of living,” said Selena Tay, a freelance writer in her 40s who lives with and supports her elderly parents. She plans to cut out purchases of clothes, shoes, bags to save money for food. “The government is strangling us. We are now scared to read the daily newspaper because every day, the price of something is going up.”

Political Gamble

Najib is making a political gamble as he starts to dismantle decades of subsidies to address fiscal risks identified by Fitch Ratings, which cut Malaysia’s credit outlook in July. Within months of the May election that returned his ruling Barisan Nasional coalition to power without winning the popular vote for the first time, he scrapped the sugar subsidy and unveiled plans for a goods and services tax at the risk of further alienating the urban voters who turned against him.

The next election is due by about mid-2018. Najib’s predecessor Abdullah Ahmad Badawi, who introduced even bigger increases in electricity and fuel prices after the 2008 general election, stepped down to make way for Najib mid-term in early 2009.

Forty-nine percent of respondents in a survey released in December say the country is heading in the wrong direction, with rising living costs and unfavorable economic conditions cited as the main reasons, according to the Merdeka Center for Opinion Research.

Some Malaysians have already taken to public protests against the price increases. In December, hundreds gathered in front of the city council office in Kuala Lumpur to rally against an increase in property taxes. On New Year’s Eve, about 4,000 people joined an illegal protest in the capital to demand lower living costs, disrupting a countdown concert, Bernama reported.

“My biggest worry is, financial difficulty will lead to ethnic tension,” said Wan Saiful. “You go to a Malay area in Kuala Lumpur, Kampung Baru or Sentul, you already get the sentiment that they are accusing the Chinese of taking away all their economic wealth. If you go to poorer Chinese area in Cheras, Balakong, the sentiment you’ll get is the ethnic Chinese will say of course they are poor, because the ethnic Malays are the ones being helped by the government.”

To contact the reporter on this story: Chong Pooi Koon in Kuala Lumpur at pchong17@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

Link: http://www.bloomberg.com/news/2014-01-07/malaysians-seen-curbing-spending-as-living-costs-surge-economy.html