Armed Forces Pension Fund to Fund Armed Forces Procurement
Written by Marhalim on June 26, 2009 – 7:53 am -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 As usual the reporter miss the bigger story, and instead relied on outdated aspiration of Malaysian becoming a defence manufacturing hub as the lead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 Read the rest of this entry »
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