Prudence and wisdom

Imagine 2 persons  who are middle income earners. Let us assume that both earn about the same pay. Both are staying in their own houses passed down from their parents.

One of them, let me called him A,  is prudent. He maintains a simple lifestyle, employs only a maid, does not spend on luxurious goods, and saves up most of his income. With his savings, he bought another house with a bank loan, and rents out that house, using the rent to pay the instalments for the bank loan. Whatever he saves goes to help paying the mortgage too.  In a few years time, he sold the property and use the proceeds earned to buy 2 separate properties, again with bank loans, again renting them out, again using the rentals to pay for the instalments.

In time, he will be a proud  owner of many properties, and with most properties paid off, he is now considered a very rich man.

The other person, let’s call him B,  started off with the same income. He is even more  fortunate, for one day, when he as digging in the garden of his ancestral home, he found a big box of gold bunions.

Instead of using his fortune to invest like A above, he employs a driver, 3 maids, 3 gardeners, a cook, 2 cleaners, a nanny, 2 guards. Most of these staff are redunctant, and most spend the days chatting instead of doing work.

Using his bunions as collateral, he borrows from various banks and has many credit cards. Because his lifestyle is so luxurious, his income cannot sustain him, and what sustains his lifestyle is the borrowings. One day, when he finds his income unable to pay the interest of the loans, he has no choice but to  mortgage his own house for more funds just to service the previous loans. That is actually the point of no return. Once his income cannot service his loan, and he has to use fresh loan to cover the interest of his existing loans, he has already cross the line to bankruptcy.

The above is actually happening everyday. Even among the younger generations, many have become bankrupt because of borrowings that they are unable to service.

Borrowings can be good if it helps to increase income. Borrowings are bad if it is merely use for operational costs, like keeping a huge staff that is many times above what is needed for the same productivity. The examples of A and B are clear illustrations.

Extrapolate the above to nations, and we will understand why some nations which have big borrowings but still manage to get richer and richer, and others which are collapsing under the huge borrowings that they have accumulated over the years.

Our country too has debts which is now about 53% of our GDP. If these debts are used to generate income that can be more than the   interest, then we should be able to reduce the borrowings in future, and at the same time, progress  faster than if we just use our own funds..

However, if the borrowings are used to service operational costs, a big part of which goes to pay  remuneration of our civil service and servicing interest payments, then we must start thinking of more prudent ways of managing our spending.

We have not reached the point of no return yet. But at 53% of our GDP and with sluggish economy growth of around 3-4% next year (this is my estimate, but it can go lower in view of the uncertainty in the West), we must start planning to reduce our debts. We can easily start  that by reining in our wastage and leakage; we can actually see how our funds are wasted looking at Auditor General’s report. A few years ago, an international renown financial house estimated our leakage and wastage to be around 100 billions. It must be more now.

It is like a patient who is having a bacterial infection of his toes. Bacterial infection of such kind can be cured easily if treatment is given early. Once the infection goes up from the toe and involves the whole foot, it can still be managed but it will take a longer time to recover. But if the infection is left alone at the stage of foot involvement, it can easily infect the blood stream and septicemia may set in. If there is septicemia, and if the bacteria is of a virulent type, then I can only pray for the patient , for at that stage, a point of no return may have been reached, and treatment may not be effective.

The Chinese has a proverb advising that “we must be prepared for the rainy days”. I think that is the wisdom which will do any nation good.


13 Comments (+add yours?)

  1. Crush
    Nov 03, 2011 @ 13:08:21

    We can talk till the cows come home. Nothing will change until we change the govt. Vote PR in , if the same corruption and leakages continues, vote them out. But first let them try.


  2. Ellese
    Nov 03, 2011 @ 13:29:00


    It makes no difference. Pr also has a deficit budget so our debts keeps ballooning.

    What dr is saying is that spending for consumption is not good. If you look at the budget of both bn and pr we are moving more to handsout of a welfare state. These do not generate income albeit a populist policy.

    Our main problem is again extreme partisanship which blinded our principles. Thus for the budget no one actually push for surplus budget or limitation on populist handsout policy. This is very unfortunate.

    So even if pr rules we will still be saddled with Higher debts. Because of partisanship we suddenly say it’s ok. We need to get real.

    There are some engine of growth of our nation that we need to recognise appreciate and develop but because of blind partisanship we only get to superficial argument. it always depend on who you support.


  3. klm
    Nov 03, 2011 @ 13:29:39

    For the BN govt, there is no rainy day. It is always raining gold coins. That is why it is maintaining status quo.


  4. Richard Loh
    Nov 03, 2011 @ 14:56:15

    Ellese, what you said is partially true but can we continue and tolerate the way umno/bn governs? We need to take the risks and make the change. PR may not be 100% perfect but it will teach umno/bn a lesson and if PR perform worst then umno/bn we can always make the change on the 14th GE.


  5. Phua Kai Lit
    Nov 03, 2011 @ 15:51:07

    What I hear is that the Pahang state govt is already bankrupt.


  6. aiz
    Nov 03, 2011 @ 19:03:59

    There have been several injustices in our past as a nation. In addition, we have highly educated leaders who have demonstrated their nauseating sentiments and tantrums on religious and ethnic issues which can induce chaos. Also, we have leaders who thrive on cash-and-carry-projects and treasury looting.

    The people are resolved to break from the above. They want to embrace the new, selfless, incorruptible leaders. They are crying for redress from the scavengers and kleptomaniacs, their off-springs and associates.

    I am inclined to let the largely unknown political neophytes to have their chance to showcase their public administration skills in the new political environment of due process, fair competition, accountability, responsibility, and social justice, and to show the people of our nation that all hopes are not lost.

    And of course I agree with Dr Hsu that the unbridled borrowing for the sake of progress could possibly make us a debt-relieved nation instead of a developed nation by year 2020. Hence, the government of the day must exercise prudence and wisdom.


  7. klm
    Nov 03, 2011 @ 21:34:27

    Prof Phua. I was told that the Pahang state gov will still be in the red by 18B RM after selling all its assets including the SEDC. This is how bad it its there.


  8. Jong
    Nov 03, 2011 @ 23:11:12

    Pahang going bankrupt, how come? ….gambling debts again?


  9. anonimus
    Nov 04, 2011 @ 00:50:26

    around 11 minutes onward, there is a mentioned of Malaysia, related to water as in flooding and higher tide, similar to what Thailand is now experiencing right now, have a listen, it is very long but worth a listen…


  10. Phua Kai Lit
    Nov 04, 2011 @ 09:25:39

    Grand Theft Malaysia.

    Article by Dato Sak —>

    Saturday, 29 October 2011
    Why the fuss over the 2010 AG Report.

    Let us show you a few examples. Perhaps then readers will understand what all the fuss is over the AG Report.
    Bizarre overpricing- the National Youth Skills Institute (under the Youth and Sports Ministry) approved the purchase of a car jack that cost RM50 for RM5,700, a digital camera that cost RM2,990 was bought for RM8,254 and RM1,146 was paid for a set of technical pens with a market price of RM160;
    Negligence- the Police Air Wing purchased two helicopters worth RM117.75 million, which could not be used, as they did not meet specifications. Another RM15.4mil was spent to train pilots to fly these helicopters.
    Incompetence- Customs Department under-utilized its RM290mil information technology system but was planning to spend another RM451.30mil to develop a new one.
    These are the findings of the Auditor General’s report a few years ago. If the transgressions were not rectified, we know it means, things have not improved. If matters are left as they are, we can then more or less expect what’s coming. We can expect the same stories about negligence and incompetence because those responsible are laid back about the issues. We have all the reasons to believe that the report for 2011, next year, will reveal the same story about misappropriation of funds, bizarre overpricing, projects not completed. These are indicators of negligence, incompetence and regretfully said- of officious arrogance.
    The 2010 Auditor General’s Report is precisely that- voluminous and horrifying mentions about more or less the same findings contained in reports of preceding years. What does that say? It says loud and clear, the same transgressions committed were not rectified or even allowed to continue. It means the same wrongdoings are allowed to be perpetrated because the enabling circumstances and possibly the same perpetrators were allowed to persist. It further shows those responsible to ensure the transgressions are not repeated have been incompetent and negligent in carrying remedial actions.
    The same people who did all the transgressions are still in commanding positions; they will have the opportunity to improve upon their incompetence by doing more damage. The Chief Secretary’s village fool response by way of saying he is not worried and that the problem has been dealt with because he has sent circulars asking officials to exercise more discipline is a negligent expression and ensuing act of gross callousness. I am afraid, the public isn’t that forgiving.
    We don’t want circulars- we want those transgressors punished or even sacked. Ask them to publicly explain what happened to those overspendings? Let’s ask the chairman of Giatmara for example, where is the shop that sells the heavy duty blender for 4 times the market price. Let’s make it the 1 Malaysia shop for heavy duty blenders. Maybe even give them soft loan from EPF. Let us Mydin the shop.
    Yet we want to extend the services of such a fellow. Let’s elect Allred E Newman for Chief Secretary then. Then, we are assured the same transgressions repeated, will be met with the same incredulous response of what me worry!
    The answer is also, we don’t have to suffer the incompetence of those entrusted to manage public money. If they don’t manage properly and because it’s our money they are managing, they deserve to be publicly assailed. This isn’t about being perplexed as to why the opposition should bicker about the report. If you do, then we shall have to explain to you in as simple terms as possible.
    This is beyond opposition. This is about, the mismanagement of our money which deserves being treated as a cause of concern for possible fraud and deception.
    The short answer to the question then as to why the opposition gets irked by the audit report as do all right thinking Malaysians is the money being treated isn’t the property of the transgressors. That being so, the administration of the money and the application of the funds thereof, must be done with utmost care. It’s not your father’s money. That is the short answer.
    The long answer is, Malaysians are fed up of the deception and misappropriation of funds.
    For the year 2010, the government approved a budget of RM 149 billion for operating expenditure. This wasn’t enough and the government had to increase the opex to 151 billion. The report said 9 ministries over spent. Here is where all of us should be concerned. This is taxpayers money being spent on opex. The 2 billion could have been spent of capex capital expenditure which builds capacity to create more wealth.
    Now, Malaysians are equally outraged by the revelations of the 2010 Auditor-General Reports on the continuing financial scandals, hanky-panky and gross financial negligence in government. We are horrified to learn for example, the National Sports Institute acquired 23 horses totalling RM5.66 million without a Financial Ministry go-ahead with none of the horses competed in two recommended international championships; we have the case of the RM142 million RazakSAT malfunctioning barely a year after being commissioned; wait, we have more- The Malaysian Marine Parks Department spent a whopping RM56,350 for a pair of night vision Marine binoculars, 29 times more than its market value of RM1,940; and paid the same amount for another pair of night vision Bushnell binoculars, or 1,893 per cent more than its actual price of RM2,827.
    We are once again appalled at the incompetence of front line workers incapable of appreciating the importance of proper placement of decimal points and making accounting mistakes that resulted in wasteful overspending. These should not have happened if there are efficient and proper internal audit systems. As the result of a laid back attitude, we are told of stories where a pensioner received RM21, 433 a month instead of RM214.33 for 16 months!. The mistake was detected after more than a year. The officer who finally detected the mistake should be a given a merit order.
    We are also dismayed of hearing Giatmara Centre mistakenly paying RM170 per kg instead of RM1.70 per kg for sugar for a poverty eradication programme or RM25, 500 for 150 kg of sugar! This must be a special kind of sugar.
    What about the village-fool response that I mentioned above? In his response to the 2010 Auditor-General’s Reports, the Chief Secretary to the Government Tan Sri Sidek Hassan has repeated his annual reaction and call to all departments and agencies to take heed of the Auditor-General’s comments and views. Which goes to show, that what I said about the same mistakes being repeated did take place, otherwise, he wouldn’t have to repeat his annual reaction would he?
    No wonder then, there was this need to delay the submission of the 2010 Auditor-General’s Report to ensure that it would not completely overshadow Najib’s 2012 Budget. Otherwise, the Finance Minister’s charitable overtures would be overshadowed and overwhelmed by the over 1,300 pages of exposes of financial irregularities, hanky-panky as well as misappropriation of public funds in the first full year of PM Najib’s premiership.
    All right thinking Malaysians are waiting for the Finance Minister or the Chief Secretary to explain the delay in submitting the 2010 Auditor-General Reports until after the end of the parliamentary debate on the 2012 Budget. If the Report was enclosed alongside the budget documents, the AG Report would have been the foremost parliamentary issue.


  11. Phua Kai Lit
    Nov 04, 2011 @ 09:49:57

    Article on the Predatory State:

    “Look West” and learn from the Africans ?


  12. Ellese
    Nov 04, 2011 @ 21:08:37

    Though I can agree with phua on the need to make government accountable pursuant to AG report, it mesmerized me how he could spin on Pahang being a bankrupt. He has the AG report or can easily access it from the website. He could see that most state debts are water related due to historical n structural reason. He also know that if once the state accept a federal restructuring scheme of the water industry the debt will be extingusihed like what Penang did. Worse he knew or should have known the pahang deficit of 53 million of 2010 is much lower than the deficit of 91 m of Kelantan in 08. Kelantan has a much lower operating budget then. His remark that Pahang will be bankrupt was not justified. It’s the same spin bn did on Kelantan government. Why need to stoop low without justification? Worse Kim said that Pahang debt was 12 b. Isn’t this a lie when the state debt of 2010 is merely 2b. Phua who has the AG report would have known this fabrication or should have known but let it be.

    Please. Let’s be objective.


  13. Ellese
    Nov 05, 2011 @ 06:32:36

    Apol. Kim said debt of Pahang was 18b.!!!


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