KUALA LUMPUR: When writing the header of this entry, I noticed its irony. Hard earned money of soldiers, sailors and airmen will be used to pay for their weapons and other things. Money that is ensconced in their pension fund, Lembaga Tabung Angkatan Tentera (LTAT). That in a nut shell sum up the approach being formulated by the government as it grapples with the need to balance the shrinking economy and the ever increasing cost of national defence.
Lembaga Tabung Angkatan Tentera is the military equivalent of the Employees Provident Fund,
Defence Minister Datuk Ahmad Zahidi revealed the novel financing scheme during a press conference yesterday. Malaysian Defence did not have the time to be at the function, so we have to rely on Bernama, the national press agency. As usual the reporter miss the bigger story, and instead relied on outdated aspiration of Malaysian becoming a defence manufacturing hub as the lead
For further reading.
However, one might missed the most intriguing part of the minister’s PC if one did not scroll down further.
From same story:
“He said a special purpose vehicle (SPV) is to be created by Lembaga Tabung Angkatan Tentera (LTAT) to fulfill procurement needs.
“By having the SPV, we don’t have to use government money and burden the government spending for the procurement.
“Instead of using development expenditure fund, we would like to increase the procurement of our asset equipment by only using the budget for the operating expenditure.”
Operating expenditure for the ministry this year was RM10.65 billion and the development expenditure was RM2.35 billion.”
From the three paragraph, we can assume that LTAT will fork out the funds for procurement with the Government issuing Islamic-based financial instrument to pay the fund back. However as LTAT is only allowed to use 30 per cent of its funds for
trust based investment, one wonder how much money it can fork out for arms procurements. Based on a news report, the fund has assets worth RM7.2 billion and annual contribution of RM4.8 billion.
My estimate is that LTAT will only able to fork out some RM2 billion annually for the scheme. So the government still need to pay for other needs if the defence budget goes north.
So how will the contributors feel about funding their own guns from their pension fund? I guess that as long as LTAT pays out the same annual dividend (16 per cent in 2008) no one would complained although one should be cautious about the idea.
For one thing, LTAT is also involved in the defence industry, ie it is one of the shareholders of SME/Airod (M4 et al) and Boustead Heavy Engineering (NGPV project). As it is expected to fund the major arms procurements will it want to be an equity shareholder or the local agent earning huge commissions for future projects?
Furthermore, which interest will LTAT protect the most? Its investment or contributors or both? How will this effect its independence when reviewing procurement projects? Does this mean it will use this dual function to maneuver the ministry to fund projects even though it does not make sense strategically or financially ie the M4 and the NGPV project? Who will be in charge of monitoring all the deals?
A lot of questions of course, which Malaysian Defence intend to pursue vigorously, God Willing.
–Malaysian Defence
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Marhalim,
LTAT can actually make good money from this scheme. I imagine they will borrow money to buy the weapons and lease the weapons to the Armed Forces. The profit then will be in the form of spread between the cost of borrowing and income from the lease.
It will be the taxpayers who will bear the burden, as usual.
Marhalim: Yes they can make money since the govt do not want to lose all the postal votes but those questions needed to be answered first before they embark in this venture. The most important who will be overseeing the programme, the PAT and service chiefs should not be in the equation as they sit both in MINDEF and LTAT as does the high ranking civilians in MINDED and MOF. It might end up as a quick rich scheme for the insiders, with us paying the bill….
The return for the LTAT holder may not be that great, as chances are the SPV would issue Debt paper that will be backed by government to LTAT. At the current moment, you are only looking a 5-10 year rate of around 5% +.
This is as wrong as it gets. This is not the function of LTAT nor should it be. This is essentially working around parliamentary oversight and is yet more evidence of the rampant kleptocracy in MINDEF.
Dwifungsi comes to mind.
I agree with MeesterT on this. It’s nothing more than creative accounting to get around the sticker shock. The government still pays, most likely more actually, and with less oversight.
“By having the SPV, we don’t have to use government money and burden the government spending for the procurement.”
SiPadangTembak would like to apologize for the verbal dysfunction of his human muppet. As the actual Minister of Defense, YB SPT confirms that it is in fact the government that is responsible for funding the procurement of defense materials.
He believes that this is just another attempt to loot the coffers of LTAT for the benefit of a few cronies and that the statements made since the new muppets were sent are unfortunately symptomatic of the drivel being sent from PWTC.
Marhalim: And technically he is wrong, since the Government will be paying back LTAT the money used for the procurement via the financial instruments. It is just deferred payment and will not show up on the annual budget as defence budget but as payments……..
maybe we will return to the ancient days when soldiers have to buy their own equipments.