Malaysia Inc : the rise and (fall) of Dr M?
This is an excellent assessment on Malaysia Inc. Wont be a surprise to
us as to how far Dr M is willing to sacrifice public interest (that's
orang kampung to us!) to keep his crony-capitalism system alive...
Mahathir's fate anchored to tottering Malaysia Inc, NATION
Manjit Bhatia
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Dismantling a corrupt 'Malaysia Inc' by Anwar Ibrahim would have
been disastrous for Mahathir Mohamad's personal power and legitimacy.
That's why the latter is desperately hanging on to it, writes Manjit
Bhatia.MALAYSIA'S recalcitrant prime minister Mahathir Mohamad remains a
safe bet despite the Malay-based demonstrations? Hardly. For one thing,
ordinary Malays understand the economy better than most observers,
including Mahathir, think. And the economy's not getting any better.
Monumental problems remain and Mahathir doesn't have the political will
to resolve these.No doubt Mahathir has different views on the economy than many
market analysts, though not all. Several local analysts would ''agree''
with Mahathir's assessments only because they're too afraid to face his
wrath.Take the scandalous sacking of his deputy prime minister and
finance minister, Anwar Ibrahim, as one case in point -- worse still,
the trumped-up charges of corruption and sodomy against the reformer.
Consider, too, the sudden ''resignation'' of the last central bank
governor and his deputy. It says a lot about the influence of political
power over economic policy-making in a nation deeply mired in crisis.Last September, Mahathir pushed through sweeping currency
controls which included a fixed exchange rate and an end to the
ringgit's external convertibility. In Tokyo this week, he lamented that
''being a heretic is better than being colonised''. Despite his
predictable anti-Western rhetoric, it's also significant for his now
anti-manic free marketisation.Recently Mahathir received strong support from a predictable
ally, Japan's vice finance minister, Eisuke ''Mr Yen'' Sakakibara.
Warning that the world is facing an impending economic crisis, with the
US preparing to softly land its economy, Sakakibara gave Malaysia's
currency controls the thumbs-up. He wasn't alone, though: the policy
elite of the Hong Kong Monetary Authority, the pseudo-central bank, also
gave currency controls the nod.Sakakibara was more bold, imploring Malaysia to keep currency
controls for several years. Not that Mahathir has deliberately sought
approval from foreigners for his policies. But in a region confronted
with growing uncertainties now swirling around the world, such support
is crucial when the Malaysian economy is at a dire crossroads.Still, should Mahathir feel absolved for his draconian moves?
Hardly. Failure of currency controls will surely cause Mahathir loss of
face, his credibility completely ruined as would his legitimacy within
Umno, the ruling Malay party. He has put virtually all of his eggs into
one basket. If the basket is crushed, his chief nemesis Anwar, who's
more market friendly, will be vindicated for his economic policy stance.
Whether it will be sufficient to see his return to the centre of
Malaysian political life is less known.Currency controls are a high-risk gamble for Mahathir. It's not
inconceivable that the potential for failure is a major motivation for
his swift moves to comprehensively marginalise Anwar and other key
opponents. Consolidating state power in the hands of a virtual dictator
means Mahathir is preparing to stay on in power, despite the fact that
his use-by date has surely expired.The second stage of the high-risk game in his neo-nationalist
policy turn was the budget which Mahathir, as the self-appointed finance
minister, announce on Oct 23. Given the mounting uncertainties in the
Malaysian economy, the budget will run its biggest deficit in over a
decade. The aim: to pump-prime the economy out of the deepening
recession.Mahathir says he is targeting GDP growth of 1 per cent next year
compared with an expected minus 5 per cent slump this year. Predictable
optimism. To achieve this, he will have to spend heavily and run up a
deficit of 6 billion ringgit to 10 billion ringgit. The 1998 budget had
planned for an 8 billion ringgit surplus; analysts say it will now
likely face a 3 billion ringgit deficit, compared to a planned budget
deficit of 3 billion ringgit in 1993 and a 5 billion ringgit surplus
last year.True, the 1999 budget is a ''crisis'' budget, with an inevitable
deficit. Indeed, the deficit will easily be 5 per cent to 6 per cent of
GDP. Given the crisis, many local analysts say the deficit is no cause
for alarm, and justified for an overall economic recovery plan.
Moreover, if there's more strife, the government could dip into
surpluses accumulated between 1994 and 1997.Perhaps, but few know what the surplus is, given the lack of
transparency over several years, and more so now. It's more than likely
the government has already been dipping into the State's reserves in
defending the ringgit before currency controls were imposed. Since then,
the rallies on the local bourse are more the result of State-backed
institutional funds weighing into the market.All the more reason for scepticism for the future.Attempts at
implementing corrective economic measures, in addition to making changes
to capital controls in order to attract long-term capital inflows, are
laudable. Certainly, to some extent, the latter could help cover the
deficit a little. For the most part, though, budget measures will
contain recommendations from the hand-picked National Economic Action
Council (Neac), headed by Mahathir.Therein lies the problem of credibility of this budget's
measures. Mostly it will be a spending budget, targeted at
infrastructure spending to boost consumer demand through the multiplier
effect. This may not work, since the problems could approximate Japan's
Keynesian liquidity trap. Moreover, it will be at the cost of
undertaking real reforms, something Mahathir isn't prepared to
undertake.Take the massive problem of recapitalising the banking sector --
which is expected shrink from 39 banks to 8 super-banks -- will cost at
least 60 billion ringgit. And still there's no clear indication of how
that money will be raised, despite the formation of Danamodal, a
State-sanctioned vehicle to raise capital on the open market through
bond sales.Not only has the plan not got off the ground, in spite of
continuous official hubris, key international investors haven't even
blinked at the plan. For that reason, mergers are expected to be
coerced, especially as banks' exposure to worsening debt levels reach 30
per cent of total bank loans, thus posing dire systemic risks of
collapse.More recently, privatisation -- the main engine of Malaysia's
fast growth since the mid-1980s recession -- has not only come in for
criticism, but with Anwar out of the way, it's back on Mahathir's agenda
in a revised form. Or is it? From helping cronies and relatives of the
ruling elite amass massive wealth, privatisation's new face now seeks to
bail out the highly-geared companies.Privatisation's patron in the 1980s was Mahathir, and he
entrusted the plan, dubbed Malaysia Inc, to his trusted confidant and
loyalist, former finance minister Daim Zainuddin, a multi-billionaire
who was recently reappointed Special Functions Minister -- a role which
largely replaced Anwar's finance portfolio. Now the duo are back at the
forefront.The flagship of Malaysia Inc then was Umno company Renong, run by
Halim Saad, a Daim protege and personal friend of Mahathir. Several
Malay, Chinese and a few Indian cronies have benefitted from Mahathir's
patronage, as had Indonesian cronies under Suharto. But Halim -- with
his ballooning personal debt and Renong now in even bigger trouble,
along with its subsidiary United Engineers Malaysia (UEM) -- is a
frontrunner for Mahathir's bail-out benevolence.Mahathir is yet to officially approve the plan, although rumours
suggest Anwar had already given a tentative nod for the issuance of
10.5billion ringgit worth of bonds to help Renong partially settle its
20billion ringgit debt, about 5 per cent of total loans in the banking
system. There's no way of confirming the rumours since Anwar is in jail.
But Renong's collapse could easily take with it some banks, most notably
the debt-ridden Bank Bumiputera and Sime Bank which provided cheap,
unsupervised loans.Renong isn't the only crony company that will form part of the
core of an implicit rescue plan in Mahathir's budget. Like many other
crony businesses associated with the dominant elite, Renong exemplifies
the inherent dilemma of a revitalised privatisation plan -- old wine in
a new bottle -- upon which Mahathir's Umno relies for ''money politics''
-- buying Malay votes and political power.Thus dismantling a corrupt Malaysia Inc by Anwar would have been
disastrous for Mahathir's personal power and legitimacy. That's why
Mahathir is desperately hanging on to it. Even restructuring Malaysia
Inc for a more efficient, productive, commercially viable and genuine
system remains dubious. A massive revamp could allow the real private
sector to become the economy's new growth engine. But how would Mahathir
do this without compromising ''public interest''?After all, that public interest, since the heyday of the
pro-Malay New Economic Policy of the early 1970s, is encompassed in the
establishment and embedded in powerful patronage structures and
institutions of co-optation, coercion and repression. And it's these
that form the basis of Mahathir's urban-elite support but not his
overall legitimacy. And he'll depend on these structures and
institutions to pursue a bail-out of cronies.If he does, he will surely face the wrath of his chief
constituency, the Malay-Muslims, in particular the worse-off rural folk,
who are suffering the brunt of the economic crisis. Three slaps in the
face are far worse than one.
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