Malaysia: Buffeted From Below


Professor Dr Michael Leigh

Malaysia's economic perplexities have been eclipsed by bewilderment as to how to respond to events in Indonesia. Dr Mahathir's initial response was that "there are attempts to topple President Suharto by outsiders. As for Malaysia, there are attempts to topple me by outsiders". The Prime Minister believes that the external environment is unjustly punishing his and his neighbours' economies. In Cairo in mid-May he sought to extend solidarity amongst the G-15 group, with Malaysia taking a leading role as the articulator of the goals and priorities of the South. Deputy Prime Minister Anwar played his chosen role of softening Dr Mahathir's remarks, to minimise negative foreign reaction and also to enhance his own position as the Malaysian leader with whom the world can do business. The domestic downturn, however, remains the subject of lively debate. A growing school of thought opposes further IMF-inspired belt tightening. The recommendation to Finance Minister Anwar is to institute a set of measures directed toward alleviating poverty, and stimulating local economic activity. This is an alternative to further community-supported corporate bail-outs. It is also viewed as a way of redressing income disparity in Malaysia, the highest in Southeast Asia according to the UNDP 1997 Human Development Report. Bailing out one high-flying entrepreneur after another is viewed by domestic critics as a very expensive, ad hoc policy. It is an electorally dangerous strategy, especially when Employees' Provident Fund contributions, Government-guarantees and the reserves of semi-government instrumentalities are employed. Yet the Government is in a real bind. The affirmative action program of the past 25 years has been marked by the emergence of a Malay corporate elite, who have become the core of UMNO. A string of corporate bankruptcies will severely undermine that base, and with it the Barisan Government. The use of Petronas funds to rescue the floundering shipping enterprise of Mirzan Mahathir has affected the Prime Minister's standing. The press has been permitted to outline a proposed arrangement to enable high flyer Tan Sri Tajudin to settle personal debts totalling RM800 million. Using a personal loan facility of RM1.792 billion, Tajudin had bought effective control of Malaysian Airlines. His new company, MAS Capital, would acquire MAS aircraft at their book value (RM9 billion). Due to the ringgit/US$ depreciation, the market value of the aircraft has risen to RM14 billion. Through that refinancing and subsequent leaseback, MAS Capital would realise a windfall, and do so in the Labuan tax haven. Another acid test, keenly watched in Kuala Lumpur, will be whether the Government gives tangible support to Tan Sri Ting Pek Khiing, whose Bakun dam development has been frozen.

WATCHPOINT: Comparisons will be made between Indonesia's treatment of crony capitalism and corporate bail-outs in Malaysia.


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