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Saturday, April 18, 2015

Lawyers who refused to return client RM4.9mil house sale struck off rolls

Singapore's Supreme Court.

Latest case is second instance of lawyers being disbarred in two weeks

SINGAPORE — Two senior lawyers were today (April 13) struck off the roll for taking advantage of a client who had transferred S$1.8 million to their wives for safekeeping.

Mr Manjit Singh Kirpal Singh and Mr Sree Govind Menon had claimed that the money paid by Ms Bernadette Rankine was a gift, and had refused to return the money when asked.

After Ms Rankine lodged a complaint with the Law Society, the duo fought proceedings against them, alleging bias by the disciplinary panel president and filing judicial reviews to challenge decisions of the Chief Justice.

Today, the Court of Three Judges – comprising Judge of Appeal Chao Hick Tin and Justices Judith Prakash and Tay Yong Kwang – ruled that the lawyers had been dishonest and ordered their disbarment. “In cases of proven dishonesty, a solicitor will invariably be struck off the roll, regardless of the solicitor’s mitigating circumstances,” the judges wrote.

Mr Singh was admitted to the Bar in 1977 and Mr Menon was admitted in 1998. Ms Rankine had approached Mr Singh for legal advice in 2009, when she wanted to sell her property in Joan Road to live off sale proceeds after breaking up with a Malaysian businessman. She feared her ex-beau would try to prevent the sale of the property, which he did by lodging a caveat against it.

In 2010, the lawyers helped in getting the caveat discharged and Ms Rankine netted S$6.9 million from the sale of the property. She received a S$5 million cheque from the lawyers’ firm and used another S$50,000 to pay her personal assistant. Mr Singh handed her a cheque worth S$1.8 million and the lawyers advised her to issue cheques of the same amount to their wives for safekeeping and future legal fees, which she did.

In Dec 2010, Ms Rankine complained to the Law Society after they refused to return the money. She withdrew the complaint in Nov 2012 after getting her money back, but the Law Society pursued its charges against the duo.

The Society found Ms Rankine’s characterisation of the S$1.8 million payment to be convincing and believable, and said the two lawyers had acted dishonourably and showed no remorse for reprehensible conduct.

The duo had embarked on an elaborate scheme to cheat Ms Rankine, while ensuring the payment could not be traced back to their firm’s account, argued the Law Society, represented by Mr P E Ashokan. Instead of directly transferring the S$1.8 million from the law firm’s account to that of his wife and Mr Menon’s wife, Mr Singh had used Ms Rankine as a conduit so that things would appear above-board, noted the Court of Three Judges.

The judges noted that Ms Rankine had already paid substantial legal fees to the duo and “a gift of this magnitude to a solicitor with whom the client had no previous dealings … simply defies belief”.

Mr Singh also faced a second charge for misusing a S$20,000 cashier’s order from Ms Rankine to pay for an unrelated matter, which the judges said “underlines his lack of...integrity and trustworthiness”.

This is the second time in two weeks that lawyers have been disbarred — veteran lawyer Pascal Netto was struck off the roll last week for professional misconduct that included unauthorised borrowing from a client’s firm.

By Neo Chai Chin chaichin@mediacorp.com.sg

Woman takes due to court over refusal to return RM4.9mil from house sale

TWO lawyers who refused to return S$1.8mil (RM4.9mil) to a client were struck off the rolls on April 13.

The client had transferred the money to their wives for what she thought was safekeeping.

Manjit Singh, a lawyer of 37 years, and Sree Govind Menon, a lawyer of 16, were partners in the firm, Manjit Govind & Partners.

In disbarring them, the Court of Three Judges, with power to censure, suspend or strike lawyers off the rolls for professional misconduct, noted that the pair had acted dishonestly.

javascript:void(0); In 2009, Singh was hired by Bernadette Rankine, then an art gallery owner, to handle the sale of her house in Joan Road, off Thomson Road, which was sold for S$12mil (RM32.5mil).

She had decided to sell the property and live off the proceeds after ending her 13-year relationship with Malaysian businessman Amin Shah.

But her former boyfriend lodged a caveat against the property to block the sale. In February 2010, the caveat was lifted and the net sales proceeds of S$6.9mil (RM18.7mil) held by the law firm were ordered to be released to her.

Singh gave her a cheque for S$5mil (RM13.6mil) as well as S$50,000 (RM135,000) for her assistant’s wages.

A few days later, he gave her a cheque for S$1.8mil, while she in turn issued two cheques, one for S$1.6mil (RM4.3mil) to Singh’s wife and the other for S$200,000 (RM544,000) to Menon’s wife.

Singh had advised her to place the money with their wives for safekeeping, saying that if her former boyfriend launched more legal action against her, her money would be frozen and she would not have the means to pay for lawyers.

Nine months later, she asked them to return the money. When they refused, she complained to the Law Society. They have since returned the full sum.

In April last year, a disciplinary tribunal found the pair guilty of misconduct – Singh for advising her to pay the money to the wives and then refusing to return it, and Menon for agreeing with the advice.

The pair contended that the money was a gift from Rankine but the tribunal found this “inherently absurd”.

Yesterday, the court agreed, saying it was unlikely that Rankine, who needed money for pending legal matters, would give away one quarter of her key asset to the wives of the two lawyers she had known for less than six months and to whom she had already paid fees. — The Straits Times / Asia News Network

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Tuesday, April 14, 2015

The Malaysian world's top performing IFCA Software stock surges 1,300% in Kuala Lumpur!

IFCA Property Development Management Solution is a fully integrated Business Management Solution designed specifically for the Property industry. With a culmination of more than 20 years experience, IFCA Property Development Software embraces comprehensive functions, features and adopts the latest ICT tools that are poised to help elevate your Business to a paradigm shift. IFCA Software™ provides a complete solution for property developers to best manage their project development from the initial phases until key collection and beyond. It has complete built-in functionalities to ensure proper recording of each sale and its subsequent billing and administration. The software is saliently focused on its scope of capabilities. It supports multi-company, multi-projects and multi property types. It tracks and measures the effectiveness of sales campaigns and sales staff performances. It also supports user-definable payment scheme and loan financing. Headquarters IFCA MSC Bhd Wisma IFCA, No 19, Jalan PJU 1/42A, Dataran Prima, 47301 Petaling Jaya, Selangor Darul Ehsan, Malaysia. marketing@ifca.com.my www.ifcasoftware.com 

Forget Silicon Valley, Tel Aviv and Bangalore.

To find the world’s top-performing software company, you have to go somewhere that few would think to look for winning investments in the technology industry -- Malaysia’s capital city of Kuala Lumpur. Better known as the home of state-owned energy giant Petroliam Nasional Bhd., it’s also where shares of IFCA MSC Bhd., a maker of cloud-based software for property companies, have jumped 14-fold over the past 12 months.


IFCA’s earnings are surging just as fast as its stock after the company took an 80 percent market share among Malaysian developers and began expanding into China, where early adopters of its sales tracking and payment processing software include billionaire Wang Jianlin’s Dalian Wanda Group Co. IFCA Chief Executive Officer Ken Yong Keang Cheun (pic above) predicts that the world’s second-largest economy will become the biggest market for his $198 million software firm by 2018.

“The growth in China is incredible,” Yong said in an interview at his office in Petaling Jaya, a suburb near Kuala Lumpur. He plans to double the number of IFCA offices in the country to 16 by the end of this year.

IFCA has about 100 clients in China, where the National Bureau of Statistics estimates there were more than 90,000 real estate companies as of 2013. The country last month announced measures to make buying and selling a home cheaper, giving a boost to developers as authorities seek to cushion a slump in the property market that has weighed on economic growth.

The stock rose as much as 1.5 percent before closing unchanged at 1.35 ringgit in Kuala Lumpur, near its April 9 record.

GST Boost

Wanda uses IFCA’s software for its cost systems, bidding and capital leases, Huang Chunlei, an assistant to the president of Dalian Wanda and deputy general manager of the company’s IT department, said via e-mail.

In Malaysia, 800 of the biggest 1,000 property developers are its customers, Yong said. The company’s software sales in the country surged 76 percent in 2014 as a new goods and services tax prompted companies to upgrade their software to comply with the change. Profit jumped 12-fold last year to 21.1 million ringgit ($5.8 million) and Yong said he’s “confident” earnings will climb to another record in 2015.

“The good thing about the software is that it is niche for property developers,” Chow Yuh Seng, general manager for IT at Mah Sing Group Bhd., Malaysia’s fifth-biggest developer by market value, said in an interview.

Shares of IFCA have surged 1,321 percent over the past 12 months, the most among software companies worldwide with a market value of at least $150 million, data compiled by Bloomberg show. That compares with an average gain of 46 percent for global peers.

Malaysia Tech

“There was a strong theme for IT and software-related development companies last year, and this year is a continuation,” said Danny Wong, chief executive officer of Kuala Lumpur-based Areca Capital Sdn., which owns shares in IFCA. “The shift to Internet and technology is the new way of doing things.”

IFCA isn’t the only Malaysian software company with booming sales. Grabtaxi Holdings Pte., a mobile application that assigns cabs to nearby commuters, has grown to become Southeast Asia’s largest taxi-booking mobile application, luring investments from Temasek Holdings Pte., Singapore’s state-owned investment company, and SoftBank Corp., the Japanese wireless carrier controlled by billionaire Masayoshi Son.

While Malaysia isn’t known as a hub for technology companies, the government has tried to support the industry since 1996, when it introduced the Multimedia Super Corridor, a special zone to attract technology investments and multinational companies.

Chasing Shares

The success of IFCA’s business may already be reflected in the share price, according to Ang Kok Heng, the chief investment officer of Phillip Capital Management Sdn., which manages $428 million, said by phone in Kuala Lumpur. Shares are valued at 30 times reported earnings, versus 17 times for the benchmark FTSE Bursa Malaysia KLCI Index, according to data compiled by Bloomberg.

“We normally don’t chase a stock,” Ang said.

IFCA plans to boost recurring income by introducing a software rental service that would make its offerings more affordable for customers via monthly subscriptions, Yong said. The firm also plans to set up a property listing website by year-end.

IFCA’s profit will probably jump at an annual rate of 228 percent over the next three years, according to Nigel Foo, a Kuala Lumpur-based analyst at CIMB Group Holdings Bhd., Malaysia’s second largest bank by assets.

“The property sector is a rich man’s industry with high risks, and it’s capital intensive,” Yong said. “People are willing to pay for solutions.”

By En Han Choong - Bloomberg

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Saturday, April 11, 2015

Building structural integrity & failure: problems, inspections, damages, defects, testing, diagnosis, repair

Structural integrity and failure is an aspect of engineering which deals with the ability of a structure to support a designed load (weight, force, etc...) without breaking, tearing apart, or collapsing, and includes the study of breakage that has previously occurred in order to prevent failures in future designs.

Structural integrity is the term used for the performance characteristic applied to a component, a single structure, or a structure consisting of different components. Structural integrity is the ability of an item to hold together under a load, including its own weight, resisting breakage or bending. It assures that the construction will perform its designed function, during reasonable use, for as long as the designed life of the structure. Items are constructed with structural integrity to ensure that catastrophic failure does not occur, which can result in injuries, severe damage, death, or monetary losses.

Structural failure refers to the loss of structural integrity, which is the loss of the load-carrying capacity of a component or member within a structure, or of the structure itself. Structural failure is initiated when the material is stressed beyond its strength limit, thus causing fracture or excessive deformations. In a well-designed system, a localized failure should not cause immediate or even progressive collapse of the entire structure. Ultimate failure strength is one of the limit states that must be accounted for in structural engineering and structural design.

These articles explain the inspection, detection, diagnosis, and repair of all types of structural defects on residential and light commercial buildings and will answer most homeowner concerns. We address brick and other masonry structures, wood frame structures, log homes, modular and factory built homes, even mobile homes.

Chimneys, crawl spaces, decks, building flood damage, foundation crack and movement damage, rot or insect damage, sink holes, and water entry are examples of topics for which InspectAPedia provides inspection, diagnosis, and repair advice. Our page top photo illustrates Story Land[26] a remarkably askew wood-framed structure that would have been quite challenging to frame.

Guide to Detecting & Evaluating Structural Defects: Inspection, Diagnosis, & Repair of Settlement, Improper Construction, Rot & Insect Damage to Buildings


Articles found in this section address just about all types of residential & light commercial building structural construction, inspection, diagnosis & repair topics such as foundation damage, leaning, buckling, bowing, and cracking, FRT plywood failures, chimney inspections & safety concerns, causes and cures for rot, mold, & termites in buildings, sinkholes at building sites, stair and rail fall & trip hazards, & also special inspection methods for mobile homes.

Most structural problems can be avoided by proper design and planning; but structural failures have been common for a long time, and sometimes are costly to handle properly.

The sketch at left( courtesy Carson Dunlop) names the major structural components of a typical wood frame house set on a masonry foundation.

Structural Defect Recognition, Repair, Prevention for Building Structures, & Building Structural Failures

This photo of the leaning tower of Pisa was sent to us by our friend Tom Smith who knows a crooked building when he sees one. Smith points out that the problems with the Tower have been known for generations and must have been apparent even during construction, as the upper level was constructed with an offset to try to re-balance the structure.
Modern reinforcement has permitted removal of cables that used to be tied to the tower of Pisa. As Bernie Campbalik says about old buildings, "Yep, we had guys like that back then too."
Metal chimney during installation (C) D Friedman
Pier construction, Northern Maine (C) D Friedman

 

Framing & Wood Beams / Timbers Damage Inspection, Diagnosis, Testing, Repair

Photograph of  severe roof structure damage from an unattended roof valley leak in a historic home.
Collapsing barn (C) Daniel Friedman

Rot, fungus, Termites, Carpenter Ants, Powder Post Beetles, & other Wood Destroying Organisms

Buckled siding at ground level indicates sill crushing (C) Daniel FriedmanOur photo (left) illustrates a combination of factors leading to a strong indication of serious structural damage at a home: aluminum siding at ground level (risk of insect attack) combined with buckled siding at the bottom course (a condition that only occurs long after original construction) point to crushed wooden sills under this structure, most often due to insect attack or rot or both.
  • INSECT INFESTATION / DAMAGE - complete guide to wood destroying insect inspection, diagnosis, evaluation, repair, and prevention at buildings
  • The Sick House/Sick Building Information Website Organized, un-biased, in-depth advice about mold, allergens, and other indoor contaminants: finding, testing, cleaning, clearance testing, and preventing mold, mildew, wood destroying (rot) molds (fungi). Explains how to assure that testing for toxic or allergenic molds is performed using valid field and lab methods. Advice and test procedures are provided for odors and odor source detection, toxic gas testing and gas source identification.
  • "House Eating Fungus" Meruliporia incrassata (also called "Poria" the house eating fungus) in the U.S. or Serpula lacrymans in Europe) can cause severe structural damage. Evidence of hidden "poria" may be found by expert inspection methods which include tracing sources and paths of probable Building leaks and moisture traps. Further, careful indoor particle sampling methods can often permit the presence of this mold to be identified in the laboratory.
  • WOOD DESTROYING INSECTS carpenter ants, powder post beetles, & other wood destroying organisms

Continue reading at BRICK FOUNDATIONS & WALLS or select a topic from the More Reading links shown below.

Suggested citation for this web page

STRUCTURAL INSPECTIONS & DEFECTS at InspectApedia.com - online encyclopedia of building & environmental inspection, testing, diagnosis, repair, & problem prevention advice.

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Structural Integrity and failure:
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The global centre of gravity shifting to Asia

“Danny Quah of the London School of Economics has calculated the world’s economic centre of gravity and reckons that, thanks to Asia’s rise, over the 70 years from 1980 to 2050 it will move eastwards from the mid-Atlantic all the way to somewhere between India and China. By 2015, the halfway point on this great journey, it will have reached the city of Bandar-e Mahshahr, in Iran, on the north-eastern tip of the Persian Gulf .”
 Danny Quah’s calculation of the world’s economic centre of gravity has been included in The Economist’s eye-catching statistical landmarks of 2015

Many see the rush to join the Asian Infrastructure Investment Bank as the beginning of a new international financial order and the decline of US dollar hegemony.

BRITAIN’S recent decision to join the Asian Infrastructure Investment Bank (AIIB) as a founder member has led to a kind of stampede by other allies of the United States in Europe such as Germany, France and Italy to follow suit.

So did two other important Asia-Pacific allies, Australia and South Korea. The only other major US ally in Asia which did not was Japan.

What is striking is that these allies went against the express wishes of the US which apparently saw the AIIB as a potential challenge to the domination of the international financial architecture by the US-controlled World Bank and the International Monetary Fund.

Particularly stunning is the British decision. According to senior fellow at the Department of Politics and International Studies at Britain’s Cambridge University Martin Jacques, in this year’s Boao Forum, this is the first time since Breton Woods in the 1940s, except for one occasion when Britain refused a US request to send troops to Vietnam, that Britain had ever said no to the US so publicly!

Jacques exaggerates somewhat as he should have begun with 1956 as the year when Britain abandoned an independent foreign policy, as a result of its misbegotten adventure in Suez, and became a faithful junior partner to the US.

Still, it is no less remarkable, even beginning with 1956, for it took about six decades before a clear British nay to the US came about.

Many saw the rush to join the AIIB as signifying the beginning of a new international financial order and the decline of US dollar hegemony, with China deemed to be the new or most influential nation.

Some, however, saw Chinese weakness rather than strength in this spectacle.

London’s Financial Times argued that resorting to a multi-lateral institution to exercise influence suggests weakness as China will be less able to get its own way, not to mention possible badgering from non-governmental organisations in future deliberations of the AIIB, than if it could do so by bilateral means.

It remains to be seen if a new financial order will eventuate. I will however make a few points about this development.

One is that it has shown in a dramatic way the global reach of Chinese economic strength, especially in the financial arena.

While it is true that China is already an economic force in other parts of the globe such as in the continents of Africa and South America, not to mention Asia and Australia, this is probably the first time that a major European nation has made an economic decision with obvious political implications favourable to the Chinese.

Someone defined a superpower as a nation or state that can project dominating power and influence in the globe, sometimes in one region or more, and that has the potential to attain global hegemony.

In this respect we can consider China an economic superpower.

Of relevance to our understanding of Chinese strength is the reason behind the British decision.

Britain in the past year or two has evinced a more positive attitude towards China.

According to an analysis in the Internet magazine, Counterpunch, the recent British economic recovery has been mainly based on financial flows to property and infrastructural projects in London and the south of England, and the prosperity of the City of London.

And the city of London is what keeps Britain from becoming a third-tier economy.

This is so important that David Cameron and the Conservatives could conceive of Britain leaving the European Union if the EU were to mess with the running of the City by imposing regulations.

A lot of the money recently has come from China and Britain is very keen to be involved in the offshore trading of the Chinese renminbi. Thus, there is every prospect of Britain getting more action from a China, with foreign reserves of around US$4tril (RM14.68tril), looking for more ways to use the renminbi.

Joining the AIIB in such a fashion, not only brings with it the prospect of possibly getting a leg up in future AIIB projects, but also gains Chinese goodwill. But it is important not to exaggerate Chinese strength. It is a superpower only in the economic arena, and not in other spheres such as the military and political.

Militarily, the US far exceeds China in the amount of money spent and in technological sophistication. Politically, what China can at present offer cannot match the global impact of values associated with the US such as democracy and human rights.

Even in the economic sphere, the Chinese Gross Domestic Product is only equal in size to the US in purchasing power terms, and not in dollar terms where the US GDP is more than one and the half times that of China.

In per capita terms, US GDP is at least four times more. And the US is still far more advanced in the sophistication of its financial market and industrial structures.

The significance of this AIIB development is not a demonstration of raw Chinese economic power.

It is unlikely to do away with the WB or the IMF.

It is really another symptom, this time in Europe and in the financial arena, of the global centre of gravity shifting to Asia.

By Dr. Lee Poh Ping

> Dr Lee Poh Ping is a Senior Research Fellow at the Institute of China Studies in the University of Malaya. The views expressed here are entirely the writer’s own.


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Sunday, April 5, 2015

The AIIB groundswell; Asian development to the fore

Washington's Lobbying Efforts Against China's 'World Bank' Fail As Italy, France Welcomed Aboard. The cheese really does stand alone. Every single U.S. ally with the exception of Japan have all hopped on board the Asian Infrastructure Investment Bank, or AIIB. Italy and France were approved on Thursday to become founding members, bringing the total membership base to 33 from the original 21.

The AIIB groundswell

Just in time for the deadline, an impressive coalition of countries have signed on for the newest development bank on the block

THE deadline of March 31 has passed, and 52 countries are now on the list of would-be founders of the Asian Infrastructure Investment Bank (AIIB).

The China-led bank was launched in October last year at the Great Hall of the People in Beijing, a year after Chinese President Xi Jinping proposed a bank to offer funds for development projects during his official visit to Indonesia.

The initiative would promote regional inter-connectivity and economic integration, he said when delivering a speech at the Indonesian Parliament.

In the past few days leading up to the deadline, news of more countries hurrying to join the AIIB made headlines, especially when a few of them announced the decision at the recently concluded Boao Forum in Hainan province, which Xi officiated.

The world was watching closely to see if the United States and Japan would sign up as founding members just before the deadline, but both have decided to opt out of the bank that is seen as a rival to the Western-dominated World Bank and International Monetary Fund.

Back in October last year, the bank had confirmation from 21 countries to participate as founding members – Malaysia was one of them – all of which are in the Asian continent.

The tipping point came when the United Kingdom announced its decision to join the AIIB in the middle of March, to the surprise of many.

More countries followed suit right after that, including France, Italy, Germany and Switzerland.

Martin Jacques, a senior fellow at the Department of Politics and International Studies at Britain’s Cambridge University, said the rise and growing awareness of the Chinese possibility in the context of a multilateral initiative pressed Britain to act the way it did, making AIIB not just an Asian institution but a global one.

“I think this is an extraordinary historical moment,” he said in a panel discussion during the Boao Forum.

“The new institutions (AIIB and the New Development Bank operated by Brazil, Russia, India, China and South Africa) do not necessarily conflict with the Bretton Woods institutions. They are very different.

“The developing countries now account for nearly 60% of global Gross Domestic Product and they represent 85% of the world population.

“The new institutions, unlike the Bretton Woods institutions, are being defined as relevant to the needs of this 85% of world population, most of whom are concentrated in this continent.”

Countries which have missed the March 31 deadline can still join as ordinary members, while those that have already submitted their application will find out if they are on the final list of founding members by April 15.

With an initial capital of US$50bil (RM184bil), AIIB is scheduled to be officially established at the end of the year, after the rules are finalised and signed in mid-2015.

New Zealand’s former Prime Minister Jenny Shipley said there is a need to define “infrastructure” to determine the types of projects that are qualified to obtain funding from the AIIB.

“If I could be provocative – if you were to put a diverse group of qualified women and men together and ask them the question, you’ll get a broader definition than if you just ask the question of classical male concept of buildings,” she said.

“We need to stand in the shoes of the people whose lives will be unleashed if we get this right. Just bringing in the classical morals of the same thing would not give us the breakthrough.”

Josette Sheeran, the president and Chief Executive Officer of the Asia Society, chipped in on this, citing Indian Prime Minister Narendra Modi’s agenda of building more toilets as an example.

“The reason young girls don’t go to school in India is that there is no toilet. That’s the kind of infrastructure that would really capture the mind of humanity and transform hope in the world,” she said.

Former Pakistan Prime Minister Shaukat Aziz was more concerned about the governance of the new banks, placing emphasis on professionalism, transparency and quality leadership.

“The people hired for AIIB must be professionals who know what infrastructure financing is all about,” he said.

“The quality of people will determine the ability of these banks to analyse risks to give money and to make credible loans which are payable back.”

Transparency, in the opinion of Deloitte global chairman Steve Almond, is also key to attract the private sector to come onboard.

“The regional or sub-regional projects are arguably the ones that bring the greatest impact to economic development. But because they go across the borders, they are also harder to manage and least likely to attract private sector capital,” he said.

“We need the mechanism to provide confidence to the private sector, and transparency governance is one of the compelling reasons to encourage them to come and join the projects.”

And what is the magic that would make good governance work?

Li Ruogum, former chairman and president of Export-Import Bank of China, believes in understanding.

“This newly established institution cannot just clone the older one, as we are working in a very different environment.

“We have to accumulate our experiences and need to have a mind of innovation. All should come together and understand each other, and try to achieve good governance.”

Check-in-China by Tho Xin Yi

 
Asian development to the fore

Chinese President Xi Jinping. - AFP  
Hungry for development: In 2013, President Xi Jinping proposed a new development bank, the Asian Infrastructure Investment Bank. One year later, 22 Asian countries had signed up, including 10 Asean countries - Blooberg

Asia’s need for better infrastructure and more development is too important to be held to ransom by outdated big power politics and petty posturing.

FOR many observers, the US “pivot” (later renamed “rebalancing”) to the Asia-Pacific was classic Obama: the rhetorical flourish was more dramatic than the policy substance.

In the second half of its first term, the Obama administration sought to assign two-thirds of its military assets to the Asia-Pacific theatre, up from the standard half from the even split between the Pacific and the Atlantic.

By the middle of its second term, officials were struggling to maintain a semblance of a policy largely left to coast under its steadily diminishing momentum. US foreign policy, and by extension US defence policy, appeared distracted by other concerns.

The State Department and the Pentagon seemed consumed at once by the Syrian debacle, Iraq’s instability, rising terrorism everywhere, civil war in Ukraine, Europe’s problems with Russia, Iran’s nuclear programme and an uppity Israel.

Then there were the ever-present ­budgetary constraints. Deploying another 16% of military assets to the Asia-Pacific, from half to two-thirds, seemed hardly noticeable or achievable.

Meanwhile, officials were anxious to insist that the rebalancing had nothing to do with the rise of China and its growing assertiveness in the region. It was, they said, part of efforts to preserve US strategic interests.

Whatever the choice of words, and however implicit China may be as motivation, rebalancing was fast becoming history. By March last year, a Pentagon official admitted it was going nowhere.

However, the Obama administration’s gift of verbalising policy intent made US intentions clear enough.

President Obama had famously said the US should be writing trade rules in the Asia-Pacific rather than let China do it.

Thus, the Trans-Pacific Partnership, a trade pact with controversial demands that swiftly became synonymous with US trade preferences. But China had not been idle either.

In 2013, President Xi Jinping proposed a new development bank, the Asian Infrastructure Investment Bank (AIIB). One year later, 22 Asian countries had signed up, including all 10 Asean countries.

In Asia, the world’s most promising continent for rapid economic growth, infrastructure needs for development are peaking. The IMF, World Bank and Asian Development Bank (ADB) can serve only a fraction of its needs: between 2010 and 2020 alone, some RM30tril is needed.

China set a deadline of March 31 this year for countries around the world to sign up as Prospective Founding Members (PFMs) before operations begin later in 2015. China would provide the biggest contribution to the authorised capital of US$100bil (RM363.49bil) and initial subscribed capital of US$50bil (RM181.75bil).

The US immediately saw this as a game-changer challenge to its dominance in global lending. For decades, it has controlled the World Bank, and through its European allies, the IMF and through its ally Japan, the ADB.

These institutions have been known to set tough conditions on debtor countries that may not serve domestic aspirations or national interests. A cash-rich China also felt it remained under-represented in these institutions even after becoming a leading global economy.

Washington had hoped, even expected, that its allies and friends would stay away from the AIIB as a rival institution. But like its pivot or rebalancing strategy, that hope steadily faded.

In Europe, Britain as the closest US ally was the first to sign up to the AIIB early last month. Soon, other major European economies like France, Germany and Italy followed, as did all the Scandinavian countries.

Washington then quietly pressured Japan, South Korea and Australia to stay away. But Seoul and Canberra signed up anyway. By then, the US had started to soften its stand, denying that it had ever pressured any country to stay away. It was only unsure if the AIIB would adhere to best practices in international lending.

Then, other US allies like Taiwan and Israel also signed up. The US was becoming increasingly isolated, with only Japan as the other major economy for company.

But not for long, perhaps. Last Monday, Japan’s ambassador to China, Masato Kitera, said in a Financial Times (FT) interview that Japan would join the AIIB as well, probably around June.

That came as a bombshell to the conservative Japanese government. It would seem too much of a betrayal of yet another US ally, the final one being the “unkindest cut of all”.

The next day, on the deadline for countries to sign up as PFMs for the AIIB, Tokyo denied that Ambassador Kitera ever said such a thing. Chief Cabinet Secretary Yoshihide Suga said Japan had no imme­diate plans to join the AIIB.

Besides being a US ally, Japan was also wary of the prospect of the AIIB undercutting the ADB.

Whatever the actual chances of Japan joining the AIIB, Tokyo would want to underplay it as much as possible.

Like the US, Japan said it was reluctant to sign up because of uncertainty over the AIIB’s standards. But countries such as Britain and Singapore that have joined said the best way to ensure high standards was to get on board and be part of the decision-making process.

To be part of that process, it was necessary to sign up early before the big decisions were made. The terms and conditions of lending and borrowing have still to be firmed up as dozens of countries including giants like India and Russia are already in.

The FT report also revealed that Japanese business leaders were pressuring their government to join the AIIB. Mitsubishi bosses, for example, had expressed confidence in Jin Liqun, a former senior ADB official who will head the AIIB.

On the deadline last Tuesday, China announced that 30 countries had been admitted as PFMs. More than a dozen others were in the queue.

Then a flood of criticisms and denuncia­tions of the stubborn US position came, mostly from within the US itself. Analysts and commentators, including in Forbes and The Economist, said the US administration had miscalculated badly in staying out, only damaging US long-term interests in East Asia and the Pacific.

Former US Secretary of State Madeleine Albright also condemned the US position, lamenting the way Washington had scored another own goal by rebuffing the AIIB. The US had placed itself behind the curve in changes in the Asia-Pacific rather than stay at the leading edge.

If and when Japan finally signs up, the US may have to be resigned to becoming a part of the AIIB. But as a latecomer, it may be limited to playing only a bit part such as an observer rather than sit at the main table.

China has long regretted the US fixation with what it calls a Cold War “them against us” bipolar mentality that frustrates progress on many fronts. For the countries of Asia hungry for more development, progress must not be held hostage to big power rivalry.

Ultimately, any rivalry between the US and China today is not over political ideology but economic ideology: the Washington Consensus of free trade rhetoric where the state and private industry are at odds with each other versus the emerging Beijing Consensus of close public-private partnerships that have worked so well for so much of Asia already.

US opposition to a proven formula for Asia is most unlikely to win friends and supporters anywhere, least of all in Asia.

By Bunn Nagara Behind the headlines

> Bunn Nagara is a Senior Fellow at the Institute of Strategic and International Studies (ISIS) Malaysia.

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27 Oct 2014
Chinese President Xi Jinping's (C-R) meeting with the members of the Asian Infrastructure Investment Bank (AIIB) in the Great Hall of the People in Beijing, China 24 October 2014. 21 Asian countries are the founding ...

Saturday, April 4, 2015

Not all debts are bad

Rising household indebtedness could be a signal of robust consumption pattern that is the driver of domestic economic growth.

Construction workers at work in Kuala Lumpur. About 46 of household debt is for the purpose of financing purchase of residential properties.

Rising household indebtedness could be a signal of robust consumption pattern that is the driver of domestic economic growth.

FEDERAL government debt, external debt, household debt, non-financial corporate debt – these debts amount to billions of ringgit each and there should be proper context and understanding of the different classifications of debts to be fully informed of the economic issues at stake.

At face value, debt is money owed that has to be repaid in principal and interest. To look at debt from a more constructive point of view, debt is also future consumption brought forward. Furthermore, the benefit derived from consuming at the expense of expected future income should equal or even outweigh its associated costs of financing.

The point is, there are good debts and there are bad debts. Debts raking in billions or outstanding loans growing at an increasing rate could potentially be alarming. However, it would be misleading to label huge debts as unsustainable and destabilising before making sense of the origins and the purposes of the money borrowed.

Debts continue to pile up

A recent research on global debt and leverage by the McKinsey Global Institute in February highlighted that global debt continues to grow post-global financial crisis. These debts – the sum of money owed by governments, households, corporates and financial sectors in the 47 countries under the research – have grown to US$57 trillion since 2007 and a significant portion of the growth came from the public sector.

Overall, the research pointed out that only five developing economies showed signs of deleveraging while most of other countries saw increased debt to GDP ratio during the period.

With hindsight, global growth recovery post-global financial crisis has been rather slow and a handful of governments had pursued expansionary fiscal programmes funded through debts.

Unfortunately, as the global pace of growth is still relatively tentative, high level of government indebtedness would take longer time to deleverage.

Meanwhile, the increase in household and corporate sector debts could signal deeper financial system penetration and also recovery in household and corporate balance sheets for private sector expenditure to grow again.

As of end-2014, Malaysia’s federal government debt amounted to RM583bil (54.5% of GDP); external debt totalled RM744.7bil (69.6% of GDP); household debt increased to RM940.4bil (87.9 % of GDP).

In the past four years, the compounded annual growth rate for government debt was 9.4%; 14.4% for external debt and 12.2% for household debt.

While these numbers seem alarming, the major concern over debts arises when they are unsustainable.

While there are concerns over the sustainability of our fiscal deficit over the long term, the Government has embarked on a fiscal consolidation effort in recent years. Because of this, government debt should be under control in line with its commitment to achieve a balanced budget by 2020.

The Government operates on a few crucial self-imposed budgetary rules and it caps the maximum limit of government debt to GDP ratio at 55%.

On external debt, Bank Negara has adopted the new debt definition in early 2014, keeping in line with the International Monetary Fund’s (IMF) new guidelines of widening its definition to better reflect the depth in financial markets and the real economy.

In essence, external debt refers to the debts owed by residents to non-residents, be it denominated in ringgit or foreign currencies.

Therefore, the public and private sector’s offshore borrowings, Malaysian Government Securities held by foreigners are included in the classification of the external debt.

Since the last quarter of 2013, the external debt growth has been on a downward trend, easing to 6.9% in the last quarter of 2014, down from the peak of 15.7% growth recorded in the last quarter of 2013.

Besides, the bulk of the growth in external debt since 2013 was primarily from offshore borrowings as it made up almost half of the total external debt.

Bank Negara, in its recent annual report, guided that private sector offshore borrowings are sound and sustainable, given that 70% of the corporate sector’s offshore loans were sourced from associated companies, parent companies and shareholders.

High household debts a concern

However, Malaysian household sector indebtedness undoubtedly tops the chart in the region.

According to McKinsey’s study, Malaysia’s household debt to income ratio is highest at 146% in 2014, way above the level of the United States (99%) and Indonesia (32%).

When we break down the household debt, 45.7% of it is for the purpose of financing purchase of residential properties. Hire purchase financing (16.6% of total household debt) and personal financing (15.7%) made up the remaining major components.

Even though Malaysia’s household financial asset to total household debt ratio is relatively high at 214% in 2014, the associated risks of high household indebtedness cannot be taken lightly.

The IMF, in its financial sector assessment on Malaysia in April 2014, cautioned that in the event of a sharp fall in housing property prices coupled with a recession in the economy, the burst of the housing asset bubble would have dire consequences on the real economy.

The Government and Bank Negara have in recent years attempted to rein in the growth in housing loans and also put a check on the property market through various macro-prudential tools.

For instance, the last Overnight Policy Rate hike in July 2014 by 25 basis points was primarily to mitigate the financial imbalances within the economy.

In January 2015, the growth of household outstanding loans from the banking institutions has slowed to 9.7%, down from the peak of 13.9% in November 2010.

Although it is a sign of improvement in domestic financial stability, a continued assessment of household loans would be a prudent measure.

Responsible use of leverage

Bad indebtedness is often described as how an overleveraged economy collapses on its own pile of toxic debts when triggered by an overlooked external event – the subprime mortgage crisis in the United States is a classic example.

On the other hand, good debts are those that are used to finance productive and sustainable purposes.

A government manoeuvering an economy out of recession could issue bonds to fund its fiscal stimulus programme while a company could maximise its true potential through the proper use of leverage.

In fact, given a youthful population and a stable work force in Malaysia, rising household indebtedness could be a signal of robust consumption pattern that is the driver of domestic economic growth.

Therefore, regulators and policy makers should not, in their fear of “indebtedness”, stifle the credit lines and the channels to expand present consumption for future capacity of growth.

Unfortunately, with a lack of hindsight, it can be difficult at times to ascertain if a debt is good or bad, A-tier quality or just a default waiting to happen.

In the end, it is not only the viability in repaying the loans but also the realised output and gains from entering a debt contract that should be examined to determine the sustainability in taking up debts.

In short, indebtedness is not necessarily bad. A responsible debtor should have a clear and comprehensive business or personal financial planning and ultimately transparency in dealing with all parties. After all, a good debt is a good customer for the other end.

My point By Mandkaran Mottain

Manokaran Mottain is the chief economist at Alliance Bank Malaysia Bhd.

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