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How corporate con-artists “cook the books” and engage in fraud

Anil Netto
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It is not difficult to “cook the books”, as most accountants will be aware.

But what about the external auditors? They are supposed to be independent and professional, right? In theory. Far too often though, the partners of audit firms develop a cosy relationship with their clients, especially if the audit fee is substantial.

In this article for Aliran Monthly, I discuss some of the common tricks used by financial con-artists and dishonest management/staff in committing fraud or engaging in “creative accounting”. This is by no means an exhaustive expose – just a sample to give you an idea how vulnerable most firms are to fraud and dishonest accounting.

Devious accountants can also manipulate financial results by bringing forward or deferring the recording of expenses in the accounts. Thus, a firm’s management is able to show a higher or a lower profit figure to suit its circumstances. It may want to show a lower profit figure – to save taxes or to provide a cushion for future years. Or it may want to disclose a higher profit figure for the year – to match overly optimistic profit forecasts that were issued earlier to entice investors to buy shares in the firm. This kind of unethical accounting practice is often cynically referred to as “creative accounting” or window-dressing. Full article: EXPOSED – Dark secrets of the private sector

Transmile’s RM333m shocker: Cooking the books in Malaysia

Anil Netto
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So a special audit of Transmile Group has discovered that its revenue for 2005 and 2006 may have been overstated by over RM500 million ringgit. Gulp! Let me say that again s-l-o-w-l-y: over RM500 million.

And its pre-tax profit for 2006 of RM207 million may have been inflated by RM333 million – which means that its real bottom line should have been a pre-tax loss of RM126 million.

Uh-oh, someone has been very naughty here. Cooking the books, it would appear. A fine work of “creative accounting”, indeed.

And investment analysts have got egg on their face, expressing shock and horror at this turn of events. When news first emerged that something was amiss at Transmile after the firm failed to submit their audited account before the 30 April deadline, it seemed that the market consensus was that the bottom line was overstated by about RM50 million or so.

But I knew something was seriously wrong when I first heard that the external auditors had refused to sign the declaration stating that the accounts showed a true and fair view of the state of affairs of the firm. That refusal should have sent up a wave of red flags. It simply couldn’t have been merely because of a book-keeping error, which could have been easily rectified.

Auditors rarely refuse to sign the accounts – unless something is seriously, seriously wrong.

The real question we should now ask is: how widespread is such dodgy accounting in Malaysia?

Most accountants would be familiar with the tricks of the trade – “creative accounting”, they call it. This involves creating fictitious invoices and dummy sales contracts, for instance. You know, the stuff they don’t teach you in accountancy school. Basic book-keeping entries – such as credit sales, debit debtors – can do “magic” to your bottom line. Another common trick involves playing with provisions for doubtful debts and stock losses – or not making enough provisions.

Accountants and management often have an intuitive feel for what kind of bottom-line the market (or their board of directors or key shareholders) is expecting. When their promotion prospects, stock option prices or bonuses depend on what kind of profit they deliver, devious management staff can easily “massage” the figures until they reach a “profit” that is within the range the market (or top management) is expecting. As for junior accounting staff, they often know when they see accounting entries or dummy invoices that are false or concocted. But they are usually too afraid to refuse to enter such transactions in the books for fear of losing their jobs.

About a decade ago, I sent in an article to the journal of the Malaysian Institute of Accountants titled “My boss wants me to cook the books” or something to that effect. In that article, I discussed what accountants and other financial staff could do if ever they faced pressure from their bosses to manipulate the accounts or to put in false entries. The article was never published.

Anyway, this is a piece I wrote a couple of days ago for Asia Times Online – before the preliminary findings of the special audit on Transmile were reported. You will see that Transmile is not the only firm to practise “fancy accounting”:

PENANG, Malaysia – Dodgy accounting at a handful of prominent listed companies has put the spotlight back on Malaysia’s financial reporting and corporate governance. Not only has it taken the shine off the stock market’s recent good performance, which is only now emerging from the doldrums of the 1997-98 Asian financial crisis, but it has cast a shadow over recent upbeat investor sentiment. Full article: Cooking the books in Malaysia

Constantine, Christianity and the values of Empire

Anil Netto
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Emperor Constantine’s conversion to Christianity had a profound impact on history. The imperial values of the Roman Empire were pitted against the values of the Gospel, as expounded by Christ in the Beatitudes (Blessed are the poor, blessed are the meek etc). That tension and contradiction has reverberated right down the ages. Many Christians, while on the surface subscribing to the teachings of Christ, were in reality taken up by the values of worldly empire, materialism and militarism rather than the renunciation, simplicity and non-violence that Jesus advocated.

Although we do not have the Roman Empire with us today, we have other superpowers. The values of Empire – and a global neo-liberal economic structure that favours the rich and the powerful – are still very much in our world. If at all there is an unseen global enemy, it has to be the unjust economic system that these powers nurture. It is a world ruled by a small group of fabulously wealthy elites who promise an utopia of worldly riches and bliss but instead oppress the poor and downtrodden even more.

In this piece for the Herald, I tried to show the impact that Constantine’s conversion had on Christianity and how the early dynamism was eaten up when Christianity became the religion of the Empire.

For the first couple of centuries after Christ, the early (Christian) communities were very much the Church of the Poor, sharing their possessions and working for the common good. “I have come to bring the Good News to the Poor,” were Jesus’ first words as he embarked on his mission. Since then, the message of Christianity has been widely seen as a critique of the rich and powerful.

Constantine’s conversion to Christianity had positive and negative implications for Christianity and the Gospel message. Constantine’s chief legacy was to ensure that the persecution of Christians ceased. Christianity, as the state religion, became more widely known to the farthest reaches of the Empire.

But Christianity also assumed some of the imperial trappings of the Roman Empire, though some laws were liberalised a little and Christian worship was tolerated. Much of the trappings of imperial power had nothing to do with the teachings of Jesus but everything to do with the quest for earthly power. Gradually, the Emperors turned Christianity into a religion of the rich and powerful while the Church confined itself to formalism and ritualistic legalism and basked in triumphalism.

Constantine unfortunately introduced the sword into Christianity – a prelude to the use of violence in the name of Christianity. He ironically and tragically put the cross – a symbol of Christ’s suffering and oppression – on the shield of the Roman soldiers, the majority of whom were pagans.

It set the stage for the abuse of Christianity to justify violence in centuries to come: the bloodbaths and torture during the Crusades, the Inquisition, and the conquistadors (the Spanish conquests that brought swathes of Asia and South America under colonial rule).

These were the dark eras in church history, for which the late Pope John Paul II, to his lasting credit, apologised. In a marked contrast to earlier ages when the church was allied to the superpowers of the day, John Paul earned the ire of the present day superpowers, the United States and its allies, when he rejected arguments in favour of the war on Iraq and condemned the US-led invasion in 2003.

….

Other transformations occurred when Christianity became the official religion of the Empire. The reign of God, under which the early Christian communities believed they were ruled, was compromised as many mainstream Christians tried to conform with the values of the Empire and the reign of the Emperor.

Instead of the liberty they enjoyed as the people of God, there was the obligatory profession of an imposed religion. Instead of trying to detach themselves from worldly possessions and sharing their possession in solidarity with others, Christians were now content to perform the bare minimum ‘obligations’ to conform with the ‘natural law’.

As Antonio Gonzalez observes in his book ‘The Gospel of Faith and Justice’, (Orbis Books, a Maryknoll publication) the non-violence, great love for the community and the sharing of possessions, which was distinctive of the early Church, ceased to be practised widely. Instead, many began to regard these practices and way of life as the preserve of ‘superior’ Christians who opted for religious or monastic life.

World Bank should go with Wolfowitz

Anil Netto
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So Wolfowitz goes without being held accountable for his criminal scheming against Iraq.

After I wrote the piece below, an academic friend told me, “Although he did have to step down, it was hardly a fall — guy walks away with that statement about acting in good faith, plus a golden hand-shake of a year’s salary. The girlfriend gets to keep her pay increase and the pension of USD100k.” Well, he has a point.

Still, Wolfowitz’s gone, with his reputation in tatters. And, as an Indonesian activist told me when I was writing this piece, now that Wolfowitz is stepping down, it is time for people around the world to realise that the World Bank’s role is over. ”We must learn from Hugo Chavez that there is no development and democracy with the World Bank,” he stressed. ”I hope it’s not just Wolfowitz stepping down from the World Bank, but the World Bank must now ‘step down’ from our country (Indonesia) and the world.”

PENANG, Malaysia, May 21 (IPS) – Paul Wolfowitz’s fall from grace is symptomatic of the double standards and hypocrisy of the World Bank and strains the marriage between neo-liberal policies and militarism that he embodied, say activists and analysts.

Wolfowitz, an architect of the war on Iraq, finally bowed to pressure after a favouritism scandal involving his girlfriend, ex-bank employee Shaha Riza. He is due to step down as Bank president on Jun. 30, three days after another key player in the aggression on Iraq, British Prime Minister Tony Blair, heads for the exit.

“It’s a humiliating, and, for many, not unwelcome, fall for Wolfowitz who thought he’d found a respectable bolt-hole at the World Bank after his criminal enterprise in Iraq,” said Glasgow-based political scientist John Hilley, who has written on militarism and neo-liberalism. ”Yet, it’s a dark irony that he has gone down for engaging in cheap, nepotistic malpractice while his high crimes, the design and execution of mass terror in Iraq, go unpunished.” Full article: World Bank should go with Wolfowitz – Activists

“I don’t know anything about politics”

Anil Netto
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Some people complain when they hear sermons from religious preachers which they think are too “political”. Many feel uncomfortable when these preachers question the existing social and economic and even political order and the prevailing values of the day. Politics, they feel, has nothing to do with religion.

In fact, the sharpest critics of such preachers are those who have a conservative and narrow understanding of what it means to be a compassionate and concerned human being in a world where 2 per cent of the world’s population control half the world’s wealth. Others feel that politics is of no interest to them and they do not see how it is connected to their lives.

In Christianity, Jesus himself was “politically incorrect” in his sermons: the values he expounded – compassion, sharing of resources, love, justice – were sharply at odds with the values of the Roman Empire as well as the authoritarian local religious system of his time.

Here’s an anecdote about Burma’s Nobel Peace Prize winner Aung San Suu Kyi, which I included in a piece I wrote for the Herald in December. (By the way, let’s add our calls for the release of Suu Kyi, whose term of house arrest will come under review on 27 May. This courageous freedom fighter has been detained for 11 of the last 17 years by Burma’s military regime, which is afraid of its own shadow).

Suu Kyi once wrote about a young woman who got up during a meeting and complained, “I don’t know anything about politics.” She asked the young woman why she was at the meeting then and the young woman began to explain why.

“I discovered that she (the young woman) knew everything about politics,” wrote Suu Kyi, in the foreword to the book “Burma – More Women’s Voices” (published by the Alternative Asean Network on Burma or Altsean-Burma).

“She did not know she was talking about politics. She talked about the fact that she was worried about her children’s education, she talked about insecurity of her husband’s job, she talked about the worry of constant inflation, she talked about the fact that people were afraid to talk freely on the streets. All these really were political matters but she did not realise that they were political matters. Which is why I say that women are very, very politically aware although they do not know it themselves.”

The classic divide-and-rule strategy

Anil Netto
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As we celebrate 50 years of Independence and 44 years of Malaysia, we would do well to consider some of the cleavages in our society that have given rise to simmering tensions every now and then.

Our ethnic-based political system compartmentalises us into neat categories of Malays, Chinese, Indians, Kadazans, Iban, etc. And now we have certain groups dividing us on the basis of religion.

Granted, not all these divisions are created by the politicians but they have to bear some responsibility for allowing the system to unleash these forces and divisive laws and rules on the population. The bumi-non-bumi dichotomy is one such example; you know, the emphasis on race, rather than need, when it comes to affirmative action policies.

In the last few years, a new divide has emerged: the Muslim-non-Muslim divide. This has arisen from a number of factors which we won’t go into in this piece.

These divisions and cleavages are not a uniquely Malaysian phenomenon.

According to Asghar Ali Engineer of the Mumbai-based Centre for the Study of Society and Secularism, the ruling classes in India have used caste and communal issues to divert attention from horrific problems such as poverty, malnutrition and deaths from hunger. “The Gujarat carnage of 2002 took place precisely when the BJP Government was signing various international trade treaties and liberalising (the) economy benefiting (a) handful of economic elite.”

This is a piece I wrote in December for the Herald:

Chomsky regards fundamentalism and conservatism as a conscious effort to try and undermine progressive social policies.

Christian religious groups are mobilised into a political force to focus on specific moral issues such as gay marriages that are of no threat to CEOs of major corporations, he said. Meanwhile, the social dimension of the Gospel is ignored. Christ’s path of justice and peace has been shoved aside in favour of war and exploitation of human and natural resources.

As Chomsky notes, “And if you can shift the focus of debate and attention and presidential politics to questions quite marginal for the wealthy — questions of, say, gay rights — that’s wonderful for people who want to destroy the labour unions, or to construct a social/political system for the benefit of the ultra-rich, while everyone else barely survives.”

In Malaysia, notice how the focus on religious disputes has shifted attention away from certain crucial socio-economic issues.

During the recent Umno general assembly, the Article 11 coalition and other civil society groups came under fire from certain politicians. This succeeded in drawing the delegates’ – and the Malaysian public’s – attention away from the other major issues of the day.

What are these issues? The ongoing negotiations for a Free Trade Agreement with the United States; the widening gap between the rich and poor of all ethnic groups; the huge gulf between rich and poor Malays; the awards of contracts to cronies; the RM2 billion in non-performing loans suffered by Bank Islam; the Zakaria mansion fiasco and an array of corruption scandals. More recently, came the demolition of a squatter settlement along with the surau in Kampong Berembang, leaving Malay families homeless.

All these stories were marginalised as everyone started getting hot and bothered over the keris and the threats, whether real and imaginary, to various religious groups. Notice how successfully they have steered the debate away from these socio-economic issues to issues that divide society. It’s the classic colonial tactic of divide and rule.

Moses and Gandhi: From “small people” to inspiring leaders

Anil Netto
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Very often, we admire the brave women and men of history who dared to stand up and lead their people against authoritarian and tyrannical rulers. We are so inspired by their raw courage that sometimes we fail to see that they were just ordinary people like us who felt compelled to act because of the injustice they saw around them.

Throughout history God has used “small people” to achieve miraculous deeds. It is almost as if He was trying to overturn the natural order of things. Most people usually regard the strong – rather than the meek – as the natural inheritors of the earth. When Moses was asked to lead his people out of Egypt, his first reaction was one of horror: he felt his lack of eloquence – some believe that he had a speech impediment or suffered from stammering – would be a major handicap.

This is an excerpt from a piece I wrote for the Herald:

I couldn’t help but be struck by the parallels between Moses and Mahatma Gandhi. Like Moses, Gandhi was the unlikeliest of liberators. Frail and odd, he hardly showed any signs of greatness or courage in his early adulthood.

Studying law in England, he was incredibly tongue-tied and couldn’t speak in public to save his life – though he was somehow elected to the Executive Committee of the Vegetarian Society in England. Before long, one of the other committee members approached him, “You talk to me quite all right, but why is it that you never open your lips at a Committee meeting?”

Gandhi thought to himself: Not that I never felt tempted to speak. But I was at a loss to express myself. All the rest of the members appeared to me to be better informed than I.

Once when the Committee was discussing an important issue, Gandhi finally felt compelled to express his own views. How to do it was the question. I had not the courage to speak and I therefore decided to set down my thoughts in writing. I went to the meeting with the document in my pocket. But even with the help of notes written on paper, Gandhi was unable to read it out, so tongue-tied was he. In the end, the President of the Society called on someone else to read out Gandhi’s notes.

His shyness remained with him throughout his law studies in England. “Even when I paid a social call, the presence of half a dozen or more people would strike me dumb.”

And yet, this was the same Gandhi who was called upon to inspire and mobilise the Indians both in South Africa and India. He took on the might of the British Empire – peacefully, through sheer moral force – and won independence.

So you see the striking parallels between Moses and Gandhi as far as their lack of eloquence was concerned. Neither Moses nor Gandhi had the benefit of Toastmasters International training sessions. But when push came to shove, when they heard the “call”, they were transformed into men of courage who would eventually free their people from domination and imperialism.

Scomi and the “gift” to Penang commuters

Anil Netto
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In February, newspapers reported that government-owned RapidKL would take over the management of the bus system in Penang, putting an end to Penangites’ public transport woes after years of shoddy bus service. Prime Minister Abdullah Ahmad Badawi said it was the government’s “Chinese New Year gift” to Penang commuters.

The government’s “quick” move rendered obsolete the Penang state government’s move to set up its own firm, Penang State Bus Service (BNPP). At that time, I wondered why the federal government was preempting the BNPP, which had been in the midst of applying for permits from the Commercial Vehicle Licensing Board. The Penang state government for its part had already obtained a RM50 million (US$14.2 million) soft loan to buy new buses.

Fast forward to the present.

The Edge (30 April) reports that government-owned Syarikat Prasana Negara Bhd, which owns public transport infrastructure, recently awarded a RM31 million contract to supply buses for Penang to Scomi Engineering Bhd, a company whose major shareholder is Kamaluddin Abdullah, the prime minister’s son. Of course, Scomi “technically and financially gave good products and pricing,” said the Prasarana CEO in justifying the decision. So, it looks like Scomi is more qualified than any other company to supply buses, huh. Hmm…

That is just the appetiser though. The real prize is the RM20 billion at stake for urban rail projects: RM1.2 billion for the proposed Penang monorail project; RM5-10 billion for the Kota Damansara-Cheras line; and at least RM10 billion for LRT extension in the Klang Valley.

The Edge says that jostling among companies for the various contracts has already started: “But whispers along the corridors of power in Putrajaya allude to only the well-connected getting a slice of the pie, especially the job to provide the rolling stock and designing and implementing the electrification system.”

Those jobs were previously handled by foreign firms but now “local names have surfaced”.

The business weekly lists them as:

  • MTrans Technologies Sdn Bhd, a company under – you guessed it – Scomi Engineering;
  • MMC Metrail under Syed Mokhtar Al-Bukhary; and
  • Doxport Technologies Sdn Bhd, a firm whose chairman is Umno treasurer Azim Zabidi.

The Edge quotes a source as saying, “Many are well aware of the power play behind the scenes and some companies have been subtly told not to waste time in bidding for the job. The lesser names would stay out. Even the foreign companies are likely to tie up with the local names to get a part of the job.”

Come again? This is a “gift” to Penang commuters? Let’s see who Prasarana awards the Penang monorail project – and the rest of the rail projects to – in the end. Watch this closely.

Anyway, this is an earlier article I wrote about how the deregulation and privatisation of the Penang bus service has proven to be disastrous, forcing the government to step in.

PENANG, Malaysia, Mar 12 (IPS) – A state-owned bus company is set to take over public transport in this traffic-clogged northern state after a concerted civil society campaign highlighted the failure of the existing privatised, deregulated bus service.

But public transport campaigners are not about to celebrate. They are wary of a federal-level firm, albeit government-owned, coming in to manage what is essentially a state-level metropolitan bus service. Earlier with the lack of enforcement by a federal-level regulatory board has not inspired confidence that an ‘imported’ solution is best. Full article: State to run city buses as privatisation fails

Ijok: Is there more than Najib vs Anwar at stake?

Anil Netto
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So I gather some see this by-election as a proxy battle between Najib and Anwar. Others see it as a mini-referendum on the Barisan Nasional’s performance. Then again, there are many who are totally put off by the way the BN announces millions of ringgit in development allocations in the run-up to polling day. They call it a “buy election”. Where is the morality; does anybody care about ethics?

In the heat of the by-election campaign, there has been much discussion about the ethnicity of the candidates and whether Keadilan did the right thing in appointing Khalid to counter the BN’s candidate from the MIC.

To me, the candidates’ ethnicity is completely irrelevant. What I want to know – and this is what voters should ask – is their stand on the issues that really matter. Of course, it is also important to have a significant opposition presence in Parliament to act as a check and balance.

One of the most critical issues that voters should be concerned about is the ongoing FTA negotiations with the United States. We may have missed the United States’ “fast-track” deadline, but that has not stopped both sides from pressing ahead with the negotiations. That shows us how badly the United States wants an FTA with Malaysia after putting Korea in its pocket. Let’s hear what the two candidates have to say about this.

I am against an FTA with the United States because I believe it will hurt a developing nation like Malaysia in the long run. I want to know why the Malaysian government is pressing on with the FTA when it hasn’t made public a cost-benefit analysis. Has it even prepared a comprehensive analysis? Shouldn’t the public know about these things? Most of us are not aware that the US trade unions themselves have joined forces with the MTUC to oppose the proposed pact.

Why would trade unions in both countries oppose an FTA pact? This is what I wrote for IPS:

KUALA LUMPUR, Jan 22 (IPS) – Trade unions from the United States have joined forces with their Malaysian counterparts to strongly oppose ongoing negotiations for bilateral free trade agreements (FTAs) until workers’ concerns are first addressed.

The American Federation of Labour and Congress of Industrial Organisations (AFL-CIO) and the Malaysian Trades Unions Congress (MTUC) are poised to ink a joint declaration agreed upon in Kuala Lumpur last week.

The declaration resembles those that U.S. labour federations had previously signed with their counterparts in South Korea in June, Central America (2002) and Australia (2001),

The Kuala Lumpur declaration on the proposed US-Malaysia FTA asserts that economic integration between the two countries must result in broadly shared benefits for working people and communities, not simply extend and enforce corporate power and privilege. It also warns that violations to workers’ rights had reached crisis levels. Full article: US unions oppose free trade with Malaysia

The not-so-golden golden years

Anil Netto
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Whenever we talk of marginalised groups, many of us tend to think of migrant workers, Orang Asli, refugees, plantation workers and squatters, people with HIV/AIDS.

Often, we tend to overlook the fact that many of the senior citizens among us are no less marginalised, whether at home or in public life, while the young take centre stage.

It is a sad fact that the contribution of senior citizens to society and their wisdom are rarely recognised. Many of them receive only a few hundred ringgit a month in pension or have long since used up their meagre EPF savings and have to rely on their children for financial support. For most of them, it is a daily struggle to balance their budget.

I had a long chat with William, a sprightly senior citizen, several months ago. He told me about the deep loneliness and insecurity that accompany old age and the alienation that senior citizens often feel. It prompted me to write a piece for the Malaysian Herald, an excerpt of which is reproduced below:

When you consider that the cost of living has soared, it is hard to imagine how retirees make ends meet. This is especially true in the case of health care. On the one hand, private hospital treatment is so expensive, while on the other the queues at government hospitals are so long. If Jesus were around, he would surely have pity on the crowds, many of them senior citizens, waiting to see doctors, waiting at the pharmacy to get their medicines, waiting for buses to take them to hospital. If they need to see a specialist or need specialised tests such as an MRI, they may have to wait for weeks if not months. God help those who need urgent specialist attention and who don’t have the money. Even if the serious ill are admitted to hospital, how are the bed-ridden treated there and what is the quality of nursing care like?

But getting to the hospital itself is another challenge. They either have to rely on family members and friends for transport. Taxis are of course expensive, especially for those struggling to make ends meet. Our public transport, on the other hand, is hardly friendly to senior citizens and the disabled nor does it take you up to the hospital doorstep. For senior citizens to use public transport, it has to be safe, accessible, efficient, caring and inexpensive. Can that be said for the public transport we have in Malaysia?

Moreover, to use public transport, you have to first walk along the road and cross at junctions. Crossing a busy road can be a nightmare for the ailing senior citizen or disabled person as unfortunately, here in Malaysia, motor vehicles rule the road.

The pavements are no easier as many of them are designed without the senior citizens and disabled in mind. They have all kinds of obstacles in their path, with steep steps up and down ever so often. The pedestrian will be confronted with motorcycles (parked illegally), lampposts, telephone booths, signboard stands, tables and chairs. How are senior citizens and the disabled supposed to navigate their way through this obstacle course? This is in stark contrast to more developed countries, where senior citizens often use public transport at discounted rates and walk along or even use wheelchairs along wide empty pavements that are much friendlier to their needs.

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