Sunday, April 13, 2008

Blast From The Past - The Malaysian Dilemma Part 3 of 6



by D.P. Pangai


Cynics say that this is merely a device to put much-needed funds into the hands of the cronies. We will probably see more of that without Anwar in the government (especially in the key Finance Minister's post).

The short-term economic benefits remain questionable and may not lead to the desired "spin-offs" nor the jump-start which the economy requires and which can only come from recovery of the stock market and of the ringgit. The economic recovery action plan unveiled by Daim, recently-appointed Special Functions Minister made all the impact of a damp squib and failed to impress anyone except the government.

This has frustrated Mahathir, Daim and their cronies and led to their further allegations of a foreign conspiracy against Malaysia. Perhaps they should also consider the possibility that it might be a "conspiracy" only against them and their cabal and that the rest of the unfortunate Malaysians have just got caught in the cross-fire in this high stakes game.

Recent stock market gains have also had more to do with government and government-controlled funds being forced to ramp up the market than any other factor. Confidence has not really returned, in spite of the currency and share market restrictions imposed by Mahathir.

Even the government’s efforts to raise funds through the issue of bonds by the Asset Management Corporation were scuttled by rating agencies’ decisions to downgrade Malaysia’s debt instruments to almost junk bond status (and since the currency restrictions effectively junk). This has left the government with no choice other than to tap into the National Oil company, PETRONAS’s cash reserves, currently estimated at RM30 billion. But it is apparent that even this will not be enough and what will then be left for the rest of the country?

An article in the Singapore Business Times dated 15th June 1998 stated that "some simple arithmetic suggests that the AMC, which aims to raise RM25 billion, will not be able to absorb even half of total NPLs (Non-Performing Loans). So far, the NPL ratio has hit 10.6 per cent against 6.7 per cent in December last year and less than 4 per cent before the regional financial crisis. The latest ratio translates into an absolute amount of RM44.3 billion, a massive jump of RM16 billion from RM28.3 billion in December 1997. The ratio could touch 20 per cent next year, translating into almost RM84 billion of NPLs or a staggering 59 per cent of real GDP.

It is clear, therefore, that Malaysia will have to come up with more drastic measures to rehabilitate the economy besides the AMC and the other steps implemented so far."

If other people can see this why can’t the Malaysian government, or is it just refusing to acknowledge the true damage that the country has suffered and will probably continue to suffer as a result of its mind-numbing bumbling and fumbling? Malaysia seems to have adopted an official stand of outright denial of any real damage other than that directly caused by the stock market and currency speculators. There is an almost complete lack of disclosure of collateral damage. If the damage is not recognized, how is it going to be repaired? This is another question on the minds of many if not most Malaysians.

In the case of the Central Bank, in what can only be termed a massive cover-up, its currency losses were said to be only "paper losses". Malaysia did not lose any real money then, apparently, but it has now.

The Singapore Business Times goes on to say that "Another major area in which Malaysia may need to revamp its policies is privatization, particularly of infrastructure projects.

Expenditure on such projects, in which the private sector is expected to play a major role, has been and will continue to be the single largest component of the country's capital expenditure plans. For instance, under the Seventh Malaysia Plan, which runs from 1996 to 2000, over RM260 billion is expected to be spent by the public and private sectors to build and upgrade the country's infrastructure.

However, the heavily indebted private sector will now be hard-pressed to carry out such projects. The government will therefore have to find a way to maintain the pace of development of infrastructure despite this constraint.

One possibility is a two-pronged approach, whereby the government deprivatises some projects and repackages the terms and concessions of others to make them more viable."

With due respect, the latter proposal would seem like giving the pirates a second chance to loot and pillage. Even if more equitable terms can be obtained (which is doubtful since the present circumstances will require them to request for greater concessions thereby adding to the public’s burden), can Malaysians depend on these economic buccaneers to be equitable? Deprivatisation sounds like a better idea, if the government can get its act together and ensure that the system is not abused or further abused - which remains highly questionable. Again Reformasi begins to sound better and better.

People seldom heed the lessons of history thus leading to history repeating itself. In the case of Malaysia it would appear to have repeated itself with a vengeance and at great cost. In particular Malaysians had forgotten the lessons of the last recession in the middle to end of the 1980’s.

Malaysians who had rallied together under the clarion call of Prime Minister Dr. Mahathir’s "Vision 2020" and the self-deceiving propaganda of "Malaysia Boleh!" or "Malaysia Can!" now find that in their hurry to get to 2020, they took many unwise and misguided short-cuts, pushed too hard and too fast, failed to implement proper safe-guards (and even ignored safe-guards that were already there), attracted unwanted short-term investments which they had no control over and which fled as just as suddenly as they came in, borrowed too heavily, over-spent on large-scale projects which now face abandonment or underutilization all at the behest and encouragement of the government, mismanaged their enterprises and spent large sums for unproductive purposes. This they all deny, of course, maintaining the deception that what they did was appropriate and correct for the circumstances at the time.

In fact, the problems Malaysia is facing today - the root cause of the disease - may perhaps be traced even further back than the mid-1980’s to the mid-1970’s, when Dr. Mahathir was then the Deputy Prime Minister. From the time of his appointment in 1975 by Hussein Onn, the Prime Minister, over the heads of two other more senior Vice-Presidents of UMNO, the main party in the ruling coalition, Ghaffar Baba and Tengku Razaleigh Hamzah, Mahathir probably knew that sooner or later he would have to face a challenge from Razaleigh who was then Minister of Finance and was also in a better financial position and had arguably better support among the grass-roots of UMNO than Mahathir at the time.

The man Mahathir chose to be the key-man in his defence campaign was Daim and it was Daim’s job essentially to raise the funds which this entailed. Daim’s main vehicle for this purpose was a company called Peremba, which also became the grooming ground for the young managers who in their 30’s in the late 1970’s were appointed by Daim to head large public-listed companies but still reported to him even though he himself did not appear as a shareholder or director.

At the same time he maneuvered himself into control of Fleet (and directly and indirectly into many other companies as well), UMNO’s investment vehicle, which had before that been controlled by Razaleigh and his men. Fleet was then in control of the New Straits Times group, the largest media group in Malaysia and which now owns TV3, the first private TV station in Malaysia.

Under Daim, Fleet made many blind and questionable investments, including the purchase of a controlling stake in Faber Merlin, a public-listed hotel and property company which had been mismanaged and bled dry by Chang Ming Thien and which by the mid-1980’s had accumulated losses running into the hundreds of million ringgit. Interestingly, Chang Ming Thien was also the Chairman of the United Malayan Banking Corporation, UMBC, in his capacity as a Trustee of MCA (the main Chinese party component of the ruling BN coalition).

People may also still remember him as the Chairman and controlling shareholder of the Overseas Trust Bank of Hongkong, which collapsed in the early 80’s also as a result of mismanagement, criminal breaches of trust and plain theft (very much the same things that he had done in Faber Merlin).

UMBC came under the control of Daim’s family companies in a manoeuvre under which it was exchanged for the Malaysian-French Bank which Daim had previously bought. Was this a coincidence or was it quid pro quo - you scratch my back and I scratch yours? In Malaysia this became the name of the game. Only those with the right connections to Mahathir or Daim could jump on the bandwagon and take part in the game. Only Mahathir and Daim knew the game-plan. All others followed instructions, whether they understood them or not - this was the new breed of Malaysian professionals, many of whom were accountants but numbered among their ranks lawyers, engineers, architects, bankers and others.

These and many other corporate exercises and excesses were the main sources of funds used to keep Mahathir in power both in UMNO as well as over the country. This was where money politics in UMNO and the nation reached unprecedented scales. Hundreds of millions of ringgit were spent on party and national elections. Candidates of the ruling National Front coalition whose credibility was doubted had to ensure their being voted in by purchasing credibility and buying votes either with hard cash provided by the party leadership or from projects and businesses that they had been favoured with.

Mahathir became Prime Minister in 1981 and immediately launched his administration with the slogan "Bersih, Cekap, Amanah" or "Clean, Efficient, Trustworthy". After a while, this slogan became a joke and was quietly forgotten in favour of various others from time to time - Mahathir’s government has made a fine art out of sloganeering to divert people’s attentions from what they are really up to. But many did realize what was really going on.

The joke was that "clean" meant to "sweep clean" and "efficient" meant that this clean sweep was done so efficiently as to leave nothing behind for others except his cronies, while the only "trustworthy" aspect of his administration was that it could be trusted to keep the clean sweep a secret. At the same time, high levels of borrowings were also used not only to finance these purchases and corporate exercises but also to sustain operational shortfalls caused by these exercises.

(To be continued...Part 4)

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