EPF’s 6.7 per cent dividend for 1997 most shocking and unacceptable as it is the lowest in 19 years and even worse than during the deep recession of the eighties


Media Statement
by Lim Kit Siang

(Petaling Jaya, Thursday): The 6.7 per cent dividend for Employees’ Provident Fund (EPF) for 1997, a full one per cent lower than the previous year, is most shocking and unacceptable as it is the lowest dividend in 19 years and even worse than during the deep recession of the eighties.

The nine million EPF contributors must be even more surprised by the reaction of trade union leaders who though expressed disappointment with the low dividend but are happy that "at least there is transparency…in that EPF is giving a true picture of what it is going through".

I totally disagree with such views for public dissatisfaction with the lowest EPF dividend in 19 years has been compounded by the lack of accountability and transparency as to EPF investment policies to explain as to why the EPF had been so badly hit by the economic downturn, when it is not yet as bad as the economic recession of the eighties when there was negative GDP growth of -1.0 per cent in 1985, 1.2 per cent in 1986 and 5.3 per cent in 1987 as compared to the government’s forecast of 8 per cent growth for 1997.

Furthermore, the economic downturn was only for the second half of last year which, in any event, had not altered the government’s forecast for the year’s economic growth.

In the second 1998 budget on 5th December 1997, the Finance Minister, Datuk Seri Anwar Ibrahim had revised downwards Malaysia’s economic growth forecast for this year from 7% to 4-5%, although the International Monetary Fund’s forecast for Malaysia’s growth this year is 2.5% with private economists giving even lower estimates. At this rate, are the nine million EPF contributors heading for the lowest dividend in the history of EPF for this year?

EPF executive chairman Tan Sri Sallehuddin Mohamed said yesterday that the 1997 dividend was decided based on the net income after providing for the diminution in asset value.

Outlining the fund's financial performance for 1997 in a statement, he said despite the turmoil in the financial markets, the EPF posted a gross income of RM8,784.45 million for the year under review, up 6.7 percent from RM8,231.59 million in 1996.

Sallehuddin’s explanation however must be seen in the context of the increase of the total annual contributions from EPF members by 15.58 percent to RM14,909.65 million from RM12,899.36 million in 1996, resulting in the total EPF assets of RM129.38 billion as at Dec 31 1997.

Sallehuddin said the capital market turmoil had adversely affected income from equity which resulted in a drop in income from RM1,188.77 million to RM994.27 million.

The EPF executive chairman owe to the nine million EPF contributors the fullest accounting and transparency with regard to EPF’s equity investments on two major fronts:

Firstly, the full details of the EPF equity investments which caused the EPF income from equity to drop from RM1.188.77 million to RM994.27 million - whether all these equities were acquired before the stockmarket turmoil in July or otherwise.

Secondly, the losses suffered by EPF as a result of the EPF’s forays into the Kuala Lumpur stockmarket during the financial turmoils in the second half of 1997, and in particular, the role of and consequences to EPF in the RM60 billion government scheme to prop up certain stock prices from early September last year.

The nine million EPF contributors for instance are entitled to know why EPF bought 65.91 million shares in the United Engineers Malaysia (UEM) between Sept. 30 and Oct. 31 last year, just before the outrageous RM2.34 billion acquisition of 32.6 per cent or 722.9 million Renong shares by UEM, which created a stockmarket earthquake whose tremors are still being felt today.

The EPF contributors are also entitled to know the position with regard to a local mass media report that EPF had lost RM4 billion in the Kuala Lumpur Stock Exchange last year, with full disclosures of the stocks concerned, the prices and dates they were bought and why.

Sallehuddin said that while in 1996 the EPF required RM998.1 million of income to pay for every one percent rate of dividend, it will need RM1,153.5 million for 1997.

The question is whether despite the turmoils in the capital market, EPF could have managed its investments more successfully with a prudent investment policy whose topmost commandment is to safeguard the interests of the nine million EPF contributors and not to rescue any troubled companies or individuals, so as to ensure that last year’s 7.7 per cent dividend could at least be maintained?

If the dividend declared for Amanah Saham Bumiputera for 1997 could be 11.5 per cent, is it asking too much that the EPF’s dividend should not plummet to 6.7% but should at least maintain last year’s level?

The EPF management should be aware of widespread and increasing disquiet among the nine million EPF contributors about the lack of accountability and transparency of EPF investment policies, as EPF has given the impression that it is the most convenient target to be used to rescue troubled companies or projects, whether it be the Bakun hydro-electric dam project, the UEM or even Sime Darby.

Yesterday, Sime Darby reported a group pre-tax loss of RM1.81 billion for the half year ended Dec. 31, 1997, a day after Bank Negara announced that Sime Bank had incurred an astounding pre-tax loss of RM1.57 billion in the six months to Dec 31 last year and that it needs a fresh capital injection of RM1.2 billion.

Can the EPF Executive Chairman and EPF Investment Panel explain why in December last year, EPF bought an additional 3.5 million shares in Sime Darby so as to hold 131.72 million shares in Sime Darby, and why it had continued to increase its stake in Sime Darby this year?

At present, the EPF executive chairman and EPF Investment Panel behave as if the nine million EPF contributors do not have any right to demand accountability, transparency and responsibility from them.

There is a need for the EPF management to develop a culture of accountability, transparency and responsibility with regard to the RM130 billion funds belonging to the nine million EPF contributors and to develop a mechanism whereby EPF contributors in various parts of the country can have channels where such accountability, transparency and responsibility could be exercised.

(5/3/98)


*Lim Kit Siang - Malaysian Parliamentary Opposition Leader, Democratic Action Party Secretary-General & Member of Parliament for Tanjong