KUALA LUMPUR, June 3 — Malaysia must resolve 1Malaysia Development’s (1MDB) debt issue or risk a negative chain of events, including a possible downgrade to the country’s credit outlook or a plunge in value of the ringgit, Datuk Seri Ahmad Husni Hanadzlah warned today.
Explaining this, the second finance minister said if Putrajaya is forced to shoulder the 1MDB debt of RM42 billion on top of its development expenditure of RM52 billion for next year, it would cause the government to fail to meet its targeted Budget 2015 deficit of 3.2 per cent and revert to over 4 per cent instead, he said.
“What will happen? Our ratings will drop, when our ratings drop, our companies borrow from abroad, our currency value will drop like in 1998 then, when our ringgit at one point was over RM4, how to pay debts?
“In our context, the main thing is we must solve the issue of debt so the people do not have to worry,” he said in a live interview broadcasted by national television channel TV1.
During the 1997-1998 Asian financial crisis, the Malaysian currency dipped in value and at one point went over the RM4 mark in exchange rates against the US dollar.
In March, Putrajaya said it is accountable for a US$3 billion (RM11.1 billion) loan secured by a 1MDB subsidiary using a letter of support from the Malaysian government.
Last month, Moody’s Investors Services said government support of 1MDB could jeopardise Malaysia’s sovereign credit rating.
Today, Husni also insisted that the rationalisation of 1MDB’s assets is not meant to “save” it or the government, but is instead a “restructuring” exercise with the aim of paring down its debt.
He also said his key concern was Malaysians, citing the chain of negative effects that would happen if 1MDB’s debt had to be passed on to the government.
But Husni also stressed in the same interview that no money has yet been lost by 1MDB, pointing out that the banking sector would otherwise be the first to chase the firm for the money it borrowed in a bid to avoid a high level of non-performing loans.
“If the financial sector is quiet until now, that means the issue of money lost is not there,” he said.
When speaking on the passing of 1MDB accounts from audit firm KPMG to Deloitte, he said many firms will review if they should continue using an auditor’s services after three years.
Husni noted that 1MDB had decided to follow international standards in switching from a Big Four audit firm to the world’s top audit firm.
On the alleged involvement of billionaire businessman Low Taek Jho in 1MDB’s deals, Husni dismissed the claims, saying the issue does not even arise.
In March, Prime Minister Datuk Seri Najib Razak ordered the Auditor General and Public Accounts Committee to investigate 1MDB.
1MDB was incorporated in 2009, after the prime minister announced the decision to turn the Terengganu Investment Authority (TIA) state fund into a federal agency.
Since then, 1MDB has been dogged by negative publicity over its finances and debt, and most recently cash flow problems that saw it struggle to meet a RM2 billion loan payment.