A good wager to make on Malaysia would be: if it would become a high income economy by 2020 or a basket case.

A report by Global Financial Integrity ranks Malaysia as the world’s no. 5 in illicit financial outflows, topping countries such as Nigeria, India and its neighbours such as Myanmar:

Top 10 countries with the highest measured cumulative illicit financial outflows between 2000 and 2008 were:

  1. China: $2.18 trillion
  2. Russia: $427 billion
  3. Mexico: $416 billon
  4. Saudi Arabia: $302 billion
  5. Malaysia: $291 billion
  6. United Arab Emirates: $276 billion
  7. Kuwait: $242 billion
  8. Venezuela: $157 billion
  9. Qatar: $138 billion
  10. Nigeria: $130 billion

Malaysiakini has further analysis of this report:

The report warned that the sharp increase of capital flight in Malaysia is “at a scale seen in few Asian countries”.

It said that it was difficult to point out the reasons behind this massive outflow of illicit capital – estimated at RM889 billion (US$291 billion) between 2000 and 2008 – without carrying out an in-depth study of Malaysia, which is outside the scope of the report.

“It is clear however that significant governance issues affecting both the public and private sectors have been playing a key role in the cross-border transfer of illicit capital from the country.

“For instance, there are reports in the Malaysian media that large state-owned enterprises such as Petronas could probably be driving illicit flows.”

The financial watchdog said that its research has indicated that political instability, rising income inequality and pervasive corruption are some of the structural and governance issues that could be driving illicit capital from many developing countries.

“In the case of Malaysia, the additional factor could well be the significant discrimination in labour markets which move people and unrecorded capital out of the country.

Despite attempts to “reign in corruption” by the government, corruption has actually worsened, as Lim Kit Siang points out:

In the first TI CPI in 1995, Malaysia was ranked No. 23 out of 41 countries or the 6th highest-ranked nation in the Asia-Pacific after New Zealand -1, Singapore – 3, Australia – 7, Hong Kong – 17 and Japan – 20, with a CPI score of 5.28.

Sixteen years later, after numerous anti-corruption campaigns, two major anti-corruption legislation and “transformation” of the former Anti-Corruption Agency (ACA) into Malaysian Anti-Corruption Commission (MACC) with massive infusion of public funds and increase of staffing, Malaysia has continued to remain in the lowest TI CPI ranking of No. 56 as last year but with the lowest CPI score of 4.4 – falling to No. 11 country placing in the Asia-Pacific.

Malaysians disgust with the current ruling coalition and its weak leadership has lead to a loss of confidence in the country as manifested by “brain drain“, drop in foreign direct investment and now this report of outflow of funds.

It is likely that the bets are on Malaysia becoming a basket case rather than a high income economy by 2020.

What do you think?

Update 1: Further analysis on this issue.

Asia Sentinel has a general analysis titled “Where the hot money flows?” while the Malaysian Insider has one on the DAP demanding the government explain the report, in “Explain RM888 billion illegal fund leak“