Time is right for fresh GLC reforms, say analysts

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Source: FMT News

KUALA LUMPUR: A second wave of reforms is needed for government-linked companies (GLCs) and government-linked investment companies (GLICs), according to a report in The Edge.

This is to help enhance governance standards and to put in place adequate institutional measures to prevent the mismanagement of public resources.

The report quoted Lee Heng Guie, executive director of the Socio-Economic Research Centre (SERC), as saying, “The time has come for a second round of transformations, specifically aimed at improving the governance of GLCs. The management of public funds in carrying out nation-building objectives require greater public scrutiny.

“There is also a need to redefine the role of GLCs in the economy, with a view of ensuring that the limited public financial resources are efficiently managed and invested while not crowding out the private sector. The inefficient ones should be restructured or disposed of.”

In May 2004, the government launched a 10-year initiative called the GLC Transformation Programme, which, among others, revamped sovereign wealth fund Khazanah Nasional Bhd and set higher standards for the management of GLCs.

Describing that as a “defining moment”, political economist Prof Dr Edmund Terence Gomez told The Edge, “They professionalised the GLCs and GLICs and they also got rid of all the politicians on most of the GLCs, and definitely most of the GLICs.”

He said it was important to draw clear lines on what business areas the government should be in and where it should not.

What was essential, he said, was to let more GLCs be managed professionally, without competing political interests getting in the way of their commercial and social mandates.

The government’s involvement in business is not necessarily bad per se, but how that involvement materialises is a crucial consideration.

Gomez said a key factor was how the GLICs and GLCs saw themselves in their operations — whether they saw themselves as the government’s hand, which implied subservience to the government, or as a corporate enterprise pursuing their commercially driven mandates.

Gomez gave examples of how the state, through GLCs, could be positive or negative for the economy.

GLCs which have programmes that help to bridge the gap between big businesses and the small and medium enterprises, cultivating potential champions of tomorrow, are good for the economy.

However, forcing small businesses into doing things they do not want or are not in their interest, will create problems for the economy.

He gave as example the banking sector consolidation initiated by Bank Negara Malaysia in the aftermath of the Asian financial crisis of the late 1990s, which saw nearly 60 separate banks merge to form 10 anchor banks.

“Many of the smaller banks were family-owned enterprises and they were not willing [to merge],” he said, adding that this, in turn, contributed to a decline in private investment after the Asian financial crisis.

He was of the opinion that private businessmen were worried about the capacity of the state to expropriate their wealth through such policies.

“When you have a state that is so powerful that it can take over assets via public policies, how will investors react if they fear for their property rights? They will go abroad. They won’t invest here,” Gomez was quoted as saying by The Edge.