Is the EPF being looted?

On the 23^rd of June 2011, the EPF (KWSP) tabled its annual report to the parliament, declaring a 5.8% dividend and explained that 27% of its investments were in Malaysian Government Securities (MGS) and 32% were in loans and bonds to Govt agencies. A simple chart below summarises the report. At RM 440.52 billion, the EPF is one of the largest funds in the world and represents the life time savings of 12 million private sector employees.

The question is why is it that over 60% of EPF funds are in loans to the Govt and Govt bodies? Is the Malaysian Government a good borrower?

Let’s look at the BN Govt’s financial record….

Below is a summary of the Govt’s annual deficits. The 2012 budget will mark the 15^th year of budget deficit with no signal of financial prudence. And as you can see below, there have been supplementary budgets on top of the annual budgets every single year.

Govt debt as at Dec 2010 stands at 407 Billion ringgit. 60% of this or 240 Billion is owed to the EPF. This means the BN Govt of Malaysia has already spent 60% of all your savings in the EPF!

After running deficit budgets for 14 consecutive years, and funding those deficits by borrowing, Malaysian Govt Securities (MGS) are rated at CC(-)ve. At CC minus, what is the annual yield? Folks, it’s an unbelievable 3% and below!! Why? Because MGS are not auctioned!! There is a ready buyer for MGS and apart from the endless new PNB funds like the 1Malaysia bond, the main buyer of Malaysian debt papers is the EPF.

“Fair Value” rate for lower grade papers of single A and below is an annual yield of 5% and above. Greek Govt bonds for example are being traded at yields exceeding 21% per annum

The constitution of Malaysia caps Govt debt at 55% of GDP. As at 30^th June 2011, Govt debt stands at 433 billion, which is 53% of GDP. At 55% the Govt will be officially in crisis and the constitution will need to be changed to increase borrowing and possibly even require a bail out.

Recently the EU central bank agreed to extend financial aid to the Govt of Greece on the condition they adopt massive austerity measures and that the lenders take a haircut of 50% of all outstanding loans. After all, they continually lent to a borrower who showed absolutely NO commitment to cut expenses and begin to service their debts. Just imagine if the EPF is asked to take a 50% haircut of their debts from the Malaysian Govt!

Even worse than that ...

An even worse scenario was painted recently by Pakatan Rakyat when they reported that much of govt debt was unreported as it is largely hidden from public eye in the form of debt owing by Govt agencies.

As you can see above, the 433 billion owed by the Govt is represented by the red and Orange bars. On top of official figures, an additional 184 billion is owed by various Govt agencies.

Take a look here at another explanation,

So…. Is the EPF being looted?

I say yes it is. Let me explain how.

A summary on the 2012 budget is below,

Of the total 233 billion, total operating expenses is at 162 billion and over 64 billion is allocated for the civil service in pensions and wages. Of the massive 233 billion, only 51 billion is going to development, of which over 80% is to construction projects, designed to specifically benefit a few lucky fellows. And talking about lucky fellows, over 10 billion in subsidies paid for by us, are being paid directly to corporate bodies!

And how pray tell will they pay for all this? By borrowing of course! Do they even bother that it is we who will be paying for the debt servicing including interests? Najib even announced that employee’s contribution to the EPF will increase to 12% of salary. Which means even more will be tied up in the EPF in order to enable more borrowing! And if you earn less than RM 5,000, your contribution will increase to 13%.

Hard times but spending remains irresponsible

These are indeed hard times for us, the people. And the Govt has done fabulously well to recognise this by granting pay increments of 7 to 13% to all Govt employees while carefully avoiding the minimum wage issue for private sector employees.

The Govt currently collects about 4 billion from the GST already in place. A one time payment of RM 500 to civil sector employees will cost the Govt over 2.6 billion.

Civil service remuneration cost 20 billion in 2004. This year it will cost 64 billion.

So the bottom line conclusion, again and again is the same. They are looting the EPF to please their vote bank of 1.3 million civil servants.

Hard times indeed… And yet DRB Hicom is buying 237 armoured personnel carriers from Turkey for RM 1.7 billion and selling it to the ministry of defence for RM 7.55 billion. The Malaysian Govt is buying 6 Littoral Combatant Vessels to enhance our Navy. These are the most advanced naval vessels in the world, able to shoot aircraft, ships and submarines… The ONLY other country that has such ships is the US navy. They have 2. We are buying 6 at a cost of 10 billion ringgit. The MRT can be built for 19 billion. But Idris Jala recently indicated that MMC Gamuda may incur more that the originally estimated cost of 54 billion to build it.

The Govt can reduce its subsidies for rice and sugar by opening up the market for other players, but no, both commodities are controlled by the same Govt crony. Syed Mokhtar Al Bukhary is the owner of all the companies mentioned above. Since this person took over the exclusive supply of these commodities in 2008, prices have doubled. This is despite the Govt’s subsidy of 60 cents per kilo of rice and 20 cents per kilo of sugar.

The Govt can easily buy the LDP highway for 1.5 billion ringgit, but no, it’s probably better that they continue to collect toll from us and receive 1.5 billion in subsidy from the govt. Our IPPs buy gas at 10 ringgit cheaper than companies in Thailand and 15 ringgit cheaper than Singapore (Per CuM) but the Govt still needs to feed them billions in subsidy.

Nothing is done as evidenced by the AG's latest report

Year after year after year, the Auditor General’s annual report details all the financial mismanagement in Govt depts. But nothing is done. Take this year’s AGs report for example. The MACC went into high gear and opened 36 investigation files to investigate all the rubbish. And the cases are now closed. They found no element of corruption or deceit. Another thing the AG highlighted is the treasury’s contingency fund of 1.5 billion is now only 79 million ringgit. 1.4 billion is missing…..

The tolled highways were built at a cost of 26.4 billion and the operators have already raked in 37.7 billion and received another 2.1 billion in subsidies from the Govt. And they are planning to raise the rates again soon.

The Govt machinery of Barisan National is a system that benefits and enriches cronies with massively one sided contracts. It also ensures loyalty from a vote bank of 1.3 million civil servants who enjoy all kinds of benefits at the expense of the tax payer. The tax system is designed to exclude the majority of civil servants from actually paying any tax. And Govt debt is going through the roof. In 2004, the total Govt debt was 217. As at 30^th June 2011, it stands at 433 billion. Najib’s administration is milking us dry. And they are using our funds in the EPF to run all these excesses, to enrich themselves, and to bribe the civil service into loyalty.

We EPF investors are 12 million. Vote against corruption, vote against poverty, and vote against the looting of your EPF savings.

- Clolin Nathan is a Financial Analyst and reads Malaysia Chronicle