By TK Chua

One of the contentious issues presently being tossed around is the matter of foreign-funded projects in Malaysia.

Should the opposition review or even call off some of these projects if it comes into power?

This is a tough question, especially when there are far-reaching foreign and trade relations involved, what more if these lenders are countries which are economically strong, militarily powerful and strategically important to us.

I raised this issue a long time ago: is the foreign funding of our projects a loan or investment?

Foreign direct investments (FDI) are usually less risky than foreign loans extended to us.

If we have taken foreign loans, we must make sure the projects are viable and that we have the ability to repay. We borrow money; we must make sure that it is used productively. However, if it is FDI, foreigners are responsible for the viability and profitability of the project. They invest, they must do the math.

The trouble starts when we are not clear on our objectives. We take loans but treat them like FDIs or even like income. We are preoccupied with “growth” and generating economic activities but have largely forgotten the viability and repayment aspects.

Foreigners are happy to lend because these loans are mostly guaranteed by the government, regardless of viability. They will get paid even if the projects are white elephants.

I must say, many of the bonds issued by our GLCS are also falling under the same category. Investors are happy to buy the bonds knowing that these are guaranteed by the government even though the money raised could be squandered or abused.

While it is dicey to cancel the loans already taken, I think the opposition has the right to warn foreigners to be careful when lending their money.

Lending should be based on viability and repayment ability, not on state guarantees. In other words, they should lend with their eyes wide open. They can’t expect the government to bail them out when the projects they are financing fail to generate the required income.

Technically, foreign loans should be matched by “natural hedge” – ie. we take foreign loans if we are able to earn foreign exchange. Can the ECRL earn enough foreign exchange for us to pay off the loan from China?

I think we should leave aside the Chinese or China in our arguments. We should just focus on viability and ability to repay when raising money from abroad.

TK Chua is an FMT reader.

The views expressed are those of the author and do not necessarily reflect the views of FMT.