Call on Cabinet to  set up a Royal Commission of Inquiry into RM187 billion EPF investments to restore confidence of 10 million EPF members and the labour movement in the EPF

(Penang,  Monday): It will be a grave error of judgement and  bad example of good governance for the government to dismiss the spiralling concerns of the 10.07 million Employees Provident Fund (EPF) contributors on the safety and quality of the RM187 billion EPF funds reflected by the vote of no confidence passed by 200 unions represented by the Malaysian Trades Union Congress (MTUC) working committee on the EPF Investment Panel for its failure to ensure fair returns on the contributors’ savings.  

The statement by the  Deputy Finance Minister, Datuk  Chan Kong Choy  that the EPF Investment panel members were appointed by the Finance Ministry based on their credibility and expertise in investment has failed completely to answer legitimate and long-standing queries raised by the MTUC, as for instance, why the EPF’s provision for dimunition in value of equity and doubtful loans had increased from RM753.65 million in 2000 to RM1.41 billion in 2001. 

In March last year,  after the EPF declared a 6% dividend for 2000, which was the lowest in 25 years, a DAP delegation met the EPF Chairman, Tan Sri Abdul Halim Ali, and made various  proposals for the restoration of public confidence in the EPF, such as:  

• a full and satisfactory explanation  for the  lowest EPF  dividend  in 25 years  to convince the 10  million EPF contributors that this was not because of imprudent equity investments or bad loan decisions;  
• need for a new EPF policy on accountability and transparency, as making public its shares  dealings in the stock market and beneficiaries of its loans; and  
• a mechanism for interaction between the 10  million EPF contributors and the  EPF Board,  Management and EPF Investment Panel.  

Although Halim undertook at the meeting to raise at the EPF Board the question of a new EPF policy on accountability and transparency, nothing has happened for over a year since the meeting and now EPF faces an even bigger crisis of confidence from the 10.7 million EPF members as a result of a further plunge to 5% dividend for 2001 - the lowest in 37 years.  

DAP calls on the Cabinet on Wednesday to respond to the widespread and deep-seated concerns and alarms of the 10.07 million EPF contributors about the safety, liquidity and yield of their EPF savings by setting up a Royal Commission of Inquiry into the RM187 billion EPF investment decisions to restore the  confidence of the  EPF members and the labour movement in the EPF.  

Over the years, the EPF Board had ignored calls that the EPF should adopt the  best practices of good corporate governance especially in terms of accountability and transparency, and it is most regrettable and deplorable that after half a century, the EPF is not prepared to establish a   mechanism whereby the EPF Board could be accountable to the over 10.07  million EPF members with regard to its investment policy and decisions. 

Last year, EPF invested RM39.77 billion or 21.28% its total investments of RM186.95 billion in loans and bonds, RM42.58 billion or 22.78% in equities and RM34.97 billion or 18.70% in money market instruments.  These are astronomical sums and the list of the beneficiaries of huge  EPF loans, the full details of the stocks and shares and money market instruments bought with EPF monies should be  made available to the  public in keeping with the highest standards of good corporate governance and the principles of accountability and transparency.   

The EPF has a history of dubious transactions where the EPF funds were  used as a ready cash-rich source to bail-out troubled companies when its  first and last agenda should be to promote the best interests of the EPF contributors.  

In the 1980s, the EPF was raided to fund dubious transactions resulting in the EPF-Makuwasa scandal, causing huge  losses to the EPF.   The EPF-Makuwasa scandal came about because the government wanted  to recoup the RM600 million losses suffered in a misguided attempt to corner the London tin-market through the Maminco operations in the early eighties, which backfired instead.    

In recent times, the EPF’s involvement in the  RM1.88 billion Time dotCom IPO fiasco last year and dubious and questionable loan facilities running into billions of ringgit to various mega-projects and companies, like the billion ringgit loans to Perwaja Terengganu Sdn. Bhd., the RM500 million loan in 1996  to Time Telecommunications Holdings Bhd (renamed  Time dotCom),  RM767 million in investments and loans to STAR LRT, , Bakun hydroelectric dam project, etc., have brought to the fore the question as to whether the safeguarding of the EPF members’ interest had been subordinated and even sacrificed to other considerations and agendas.   

The  EPF, which invested RM42.58 billion in equity last year and whose stock market investments are  expected to touch RM50 billion this year, is the biggest  "mover and shaker" in the Kuala Lumpur Stock Exchange.    But the EPF contributors are entitled to ask as to who really benefits from the EPF being the biggest “mover and shaker” in the stock market - whether the 10.07 million EPF contributors or the EPF fund managers. 

The Royal Commission of Inquiry into the EPF investments, which should be required to complete its findings within a year,  should have broad terms of reference, including to: 

•   review the whole concept and structure  of the EPF which has outgrown from its modest beginnings in 1951 to provide some retirement security to workers earning low wages to be  one of the world’s largest provident funds with  RM187  billion funds - as to whether there is a need to restructure the whole EPF in view of the gargantuan funds at its command.  
•  study and review the laws applicable to the EPF to make them more attuned to the needs and aspirations of the times as well as the interests of the EPF contributors, as making the EPF more responsible, accountable and transparent. 
•   examine and review the investment policy and decisions with regard to the EPF’s  stock market operations over the years.  
•  scrutinise and review the EPF investment policy and decisions with regard to loans, in particular to ascertain whether there had been  loans given to cronies or  crony companies as a result of imprudent judgements or  improper influence.  
•  monitor and review the EPF’s billion-ringgit involvement in housing development in the building of low and medium cost houses and computer-ownership loan schemes  to ensure that they are not at the expense and interests of the ten  million EPF contributors.

(22/4/2002)