ECRL — restoring trust in BRI?

Malaysia’s approach with megaprojects has been seen as a successful attempt to rebrand the Chinese-led initiative

By AZAM WAN HASHIM / Pic By AFP

The second Belt and Road Forum (BRF) for International Cooperation highlighted the need for an increased transparency and better risk assessments for Belt and Road Initiative (BRI) projects.

Although the first BRF held two years ago discussed on how to maximise economic benefits to countries, this second iteration stressed the need to revive the stained image of the BRI into a more sustainable “BRI 2.0” guided by cooperation and transparency.

In Malaysia, the revival of the East Coast Rail Link (ECRL) project announced two weeks prior to the forum had reignited a contentious debate on the role of China-backed projects. The projects have raised multiple concerns, including the benefit to local economy and the risk of the so called “debt trap”.

On the second day of the forum, International Monetary Fund MD Christine Lagarde said, “history has taught us that, if not managed carefully, infrastructure investments can lead to a problematic increase in debt.”

Lagarde emphasised the need to consider the lessons learned from countries like Sri Lanka to achieve a greater balance moving forward with a new BRI 2.0. She also mentioned that a framework to assess the sustainability of sovereign debt is a good step to evaluate BRI projects.

In Malaysia, what we see will hopefully prove to be an encouraging development with the China-funded ECRL. On April 15, Prime Minister (PM) Tun Dr Mahathir Mohamad announced the results of months-long renegotiation process on a project that he deemed as “unnecessary and expensive”.

The venture, originally costing RM65.5 billion and funded by loans from Export-Import Bank of China (China Eximbank), was signed by scandal-laden former PM Datuk Seri Mohd Najib Razak through an opaque process in 2016.

The full details of the deals have not yet been made public. Yet, the manner in which Malaysia approached the renegotiation of the ECRL project could set a precedent for the future of China’s BRI, particularly one that focuses on financial prudence, economic rationale and good governance, while also making the most of the significant opportunity that Chinese investment represents.

In his press statement on ECRL earlier this month, Dr Mahathir emphasised that “Pakatan Harapan had no objection to the ECRL project per se,” but rather on the way and speed that it was negotiated by the previous administration.

This echoes the fact that past negotiations between Malaysia and the People’s Republic of China were conducted behind closed doors and memoranda of understanding only unveiled ex post their signing.

Malaysia’s approach with megaprojects has been seen as a successful attempt to rebrand the Chinese-led initiative. On the transparency of publicly procured megaprojects, we can hope to see greater access to contracts such as ECRL as alluded to by the PM.

“Yes, we will reveal to the public, but we have to understand the sensitivities of the Chinese. We don’t want to say anything that might hurt their feelings. We have revealed a lot already,” he said in a Malaysian press conference at the end of his Beijing trip.

On this, the PM must abide by such a commitment. Increased transparency of negotiation and open access to signed contracts is paramount to allow taxpayers to examine and scrutinise the validity of public infrastructure projects.

In order to minimise leakages, it is also necessary to have comprehensive economic, social and environmental analyses, alongside a robust process of good governance to avoid rent-seeking behaviour from politically connected parties.

“It was the former PM who conducted the negotiations, there was no due diligence, no feasibility study,” Dr Mahathir told the press.

In so doing, the PM correctly highlights the problem and details of the negotiation that should be made public to prove that these issues have now been addressed.

The ECRL case is one example of Pakatan Harapan’s success in fulfilling their 100-day promise to review megaprojects awarded to foreign countries. It is also an encouraging step towards meeting their promise to increase transparency in public procurement.

However, although the government has acknowledged the issue of public procurement in the National Anti-Corruption Plan 2019-2023, Pakatan Harapan has yet to implement any concrete policies for their Promise 23: To ensure that government procurement produces the best value for taxpayer’s money.

Pakatan Harapan has been moderately successful at fulfilling Promise 29: To enhance the transparency and integrity of the budget and budgeting process, but have yet to release detailed debt burdens from large megaprojects.

It has been noted in the PM’s press statement on April 15 regarding ECRL that the financing arrangements with China Eximbank are still in the process of negotiation. The government should take this opportunity to bring further the lessons learned in Beijing by releasing the detailed terms of the loan to the public.

Malaysia’s achievement in reducing the risk of sovereign debt is commendable but can be further supported by policies that enhance transparency and public procurement. These measures are not only necessary to reassure the public that wrongdoings of the past are not repeated, but also increase the potential success of BRI projects in the future.

As it sets an example for other BRI partners, it is now important for Malaysia to lead in reshaping the perception of the BRI from one tainted with corruption and artifice to one characterised by transparency, good governance and sustainable economic growth.

  • Azam Wan Hashim is a research executive at the Institute for Democracy and Economic Affairs (IDEAS). The views expressed are of the writer and do not necessarily reflect the owners of the newspaper and editorial board.