Tuesday, February 14, 2006

Design & Build Debacle

Problematic Projects Involve "Design-and-build" Concept - Shahrir

Public Accounts Committee Chairman Datuk Shahrir states that all projects implemented under the "design-and-build" concept had been problematic.

According to Shahrir that approach was conceivably chosen to overcome perceived inefficiencies of the check-and-balance, accountability and good governance approach in project implementation. He said that the wisdom then was that private initiative was far more efficient and giving the private contractor total control without any government oversight would see the projects completed much faster.

"Unfortunately, when things go wrong, there was no recourse to accountability," he said. Shahrir said his observation showed that what beset problem-hit projects like the privatisation of the Lumut naval dockyard and the construction of offshore patrol vessels for the Malaysian Navy, the MRR2 elevated highway, Matrade building and a hospital in Pandan, Johor, which appeared before PAC, was the belief that self-supervision would see speedier completion and delivery.

Was that the real objective when the government under Mahathir and Daim adopted the Turnkey concept, or was it a surreal reason?

The observed facts remain that Turnkey Design and Built concept was adopted to simplify and speed-up project awards which are mega in size.

First is the Vision 2020. Mahathir's dream is to make Malaysia, the new Japan in South East Asia. In order to push Malaysia to achieve a develop status by 2020, we needed a consistent minimum economic growth of 8% GDP for the next 25 years till 2020. From the government's collection of revenues from taxes and excise duties, it was be impossible to fund all those projects mega billion which will require the government to pump in hundreds of billions to generate domestic growth and development. To overcome that, the government had to get the private sector to raise the fundings for the projects and this way, it will reduce government borrowings.

Secondly, there was a fresh breed of corporate executives called the "New Entrepreneurs" groomed by Daim within Paremba and who had matured commercially to undertake bigger task to spearhead the UMNO-Daim-Mahathir Agenda. These new breed of professionals had enjoyed the political patronages and had the power and influence to get decisions made. They had the "godfather" on their side. In the name of NEP and Bumiputraship, it was a sure win situation and they sure had a fast-track generator of wealth and individual prosperity.

Thirdly, the worldwide entrepreneurs (particularly burgeoning in USA and Europe) are beginning ride the trend of the new "Billionaire Fashion parade". The rise of Bill Gates, Warren Buffet, Michael Milken and Jack Welch, Goldman Sach, Travellers & Citycorp,and the internet boom lead the pack of individuals and organization to a new era of economic explosion. The economy in USA beginning 1991 was riding an economic boom that lasted for more than a decade. This economic boom lead to the growth of massive billion dollar private sector borrowing and created readily availability of financial resources for private fundings, particularly from Junk Bonds. The merchant bankers had been successful in ballooning the US economy by way of mergers, acquisitions and "global acquisitions". These monies ultimately arrived at South East Asia with the rise of the Asian Tiger economies such as Korea, Taiwan, HongKong and Singapore. The second group of fast rising economies are Thailand, Malaysia, Phillipines and Indonesia. There were vast potential growth areas and with weak and kleptocratic governments who are prepared to "Kau Tim", the giant financiers with vast financial resources sees the opportunities to penetrate the system and "prostitute" them. Greed was the fundamental; craving was the decisive factors.

Mahathir was assisted by a coterie of jaggernauts who were more than persuasive. Thus gave rise to the "Billionaire Syndrome" in Malaysia and this in turn generated/created those mega billion projects. It was easy to get off-shore loans and bond fundings. Almost every public listed companies, big and small, jump into the bandwagon and ride the storm of economic activities. Mahathir was care-free as what he wanted was monies for development and to turn Malaysia into a new Japan in Asia. Mahathir had a Japanese economic advisor too.

What was envisage by Mahathir was pragmatic and possible. Malaysia, thus tango along the tide of globalization and liberalization. The problem was, during the fast growing phase, there was no monitoring and control system to tell the government the predictive negative outcome of decisions and actions. There wasn't enough "wisemen" who are honest to speak the bare truth and to highlight danger points. There were advisors who are "players within the same game", enjoying the milking and womenising.

Then, a new tidal wave came - the currency traders and hedge funds who saw another form of opportunites! The overheated economies of the Asian Tigers and Cubs are destined to be swallowed and trashed. It was known!

The end result - 1998 East Asian Economic Crisis and the collapse of the currencies against the USD. Malaysia was unprepared to face the hedge fund gamblers and risk-takers. The Pride and Ego of the system was too much for the body to digest. The governments were prepared to sign cheques that their body couldn't pay. It was like a cat that look himself in the mirror and saw himself a picture of a lion king. The cat believes he is a lion and fought the Manhattan leopards. The outcome: the cats were badly bruised, broken bones and broken teeth. Reality then prevailed and integrative and defensive actions within the economic zones save the situation from a total collapse.

It is now 8 years since the crisis. We are still licking our economic wounds and recuperating slowly. What next? Nothing, at this stage of hybernation and consolidation. It will take another 4 years of system adjustment and the rise of another maverick PM to see Malaysia driving another economic growth path. Pak Lah isn't good enough to play this game. He is a conservative and he lacks the muscles.

Who then can resuscitate the economic game-play? It's a million dollar guess. Another Mahathir and Daim will come along soon....

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