Press statement by Kua Kia Soong, SUARAM Adviser 14 July 2018
The common mythology is that Dr Mahathir came back from the “twilight of the gods” to save Malaysia from the kleptocrat Najra. Methinks he has a bigger agenda, an agenda that had been skewed by his successors, Badawi and then Najib. Who would have missed the fact that his attacks on his successors had started from the moment Badawi did not follow his agenda? His recent adverse remarks on Khazanah and how it has deviated from its original goals of temporary ownership of companies on behalf of Bumiputras has raised new fears that he is going to privatise Khazanah and take us back to the days of Mahathir style crony capitalism. We hope he will prove us wrong…
The Father of Neo-Liberal Capitalism in Malaysia
There is no dispute that Dr M is the father of neo-liberal capitalism in Malaysia. As soon as he became Prime Minister in 1981, he set about promoting a wave of privatisation drives that were in tandem with the neoliberal ideology that was being aggressively promoted by two right-wing world leaders at the time: British Prime Minister Margaret Thatcher and US President Ronald Reagan. Mahathir’s close business associate and economic adviser was Daim Zainuddin who now sits as Chair of the non-elected Council of Eminent Persons.
Thus, during Mahathir’s term, publicly-held assets were sold off to cronies in private business who were appointed “corporate captains”. This process naturally led to increased competition for these resources within the ruling UMNO party and the factional struggles between Mahathir, Anwar Ibrahim, Tengku Razaleigh and Daim Zainuddin can be traced to fighting for the spoils of these resources. When Anwar Ibrahim took over as Finance Minister in 1991, he had his own cronies who controlled the Malaysian Resources Corp Bhd (MRCB) and the media companies under UMNO.
Neoliberal ideology supports a strong state, not a strong state that directly provides for public welfare, but one that enables businesses and capitalists to flourish freely. The economic recession during the mid-eighties hastened the process of privatization with the passage of the Promotion of Investment Act 1986 in order to open up the economy to private investments. Soon, one state sector after another became corporatized and then privatized: Telekom in 1987, followed by Malaysian Airlines (MAS), MISC (the shipping corporation), TV3, North-South Highway, Pos Malaysia, the electricity board (TNB), the railways (KTM) and HICOM (heavy industries).
While there may have been a case for privatizing loss-making state agencies, profitable industries such as Telekom were cherries ripe for the picking by well-connected private interests. It was the biggest public-sector employer with 30,000 employees and assets worth RM5 billion; its profits reached RM1.2 billion in 1984.
The golden age of crony capitalism
In reality, the privatization policy involved UMNO-linked businessmen using personal connections to influence the allocation of those favours. They were given, among other privileges, priority for government contracts, increased access to capital, opportunities to buy assets that were privatized and other subsidies. Those who benefited most from these privatization transfers were the UMNO crony capitalists. The directors of the new private companies were invariably the former managers of the statutory body. In the privatized Syarikat Telekom Malaysia (STM), for example, they began to enjoy more than double the salaries they got when they were in the government agency.
From the start of the NEP, UMNO had begun to appoint trustees in charge of investments in corporations such as Fleet Holdings. This was a strategic move to exert control over the media besides generating revenue for its political fund. One of the largest and most controversial of the privatization projects was the North-South Highway, which was given to United Engineers Malaysia (UEM), over which UMNO had a controlling share. The company had apparently access to the plans long before the tender was called. The projected toll collection was estimated to amount to RM54 billion over the 30-year concession period, with the burden of toll to be borne by the public. Other controversial contracts involving UMNO conflict of interests included the National Sports Complex, a gas processing plant, privatization of pharmaceutical stores and services and the RM6 billion sewerage project.
Mahathir was criticized for handing these multi-billion projects to UMNO controlled companies without any competitive tender. His response to these criticisms was bewildering and typically cynical: “We agree…but who is going to pay the RM360 million for the UMNO complex?”
Captive markets for private monopolies
The argument that privatization would lead to greater efficiency has no basis in reality especially when it has merely led to consumers being captive markets for private monopolies. This was not only so for roads and highways but also for telecommunication, post and the other services. For example, postal services deteriorated rapidly after privatization while postal rates were increased by 20 per cent in 1992. The privatization of Tenaga Nasional led to inefficiency, mismanagement and corruption, putting lives and the industry at risk.
With the adoption of the Privatisation Master Plan in 1991, a total of 246 government companies and projects were targeted for transfer into private hands. Mahathir’s vast privatization drive was accompanied by deregulation with further incentives provided for foreign capital. These included 100 per cent equity holding, tax concessions and others. Foreign capital was also allowed to bring in their polluting industries such as the storage of radio-active wastes by the “Asian Rare Earth” plant run by Mitsubishi in Perak. It led to a campaign of protests by the affected residents which caught the attention of the whole country. At its height, the campaign saw a demonstration of 10,000 people.
Thus, in the mid-1980s, Tajudin Ramli’s Technology Resources Industries was given an effective monopoly of the mobile-phone market. Then he was allowed to buy state-owned carrier Malaysia Airlines for 1.8 billion ringgit in borrowed funds. Invariably, Umno-linked corporate entities would get the benefit of the mandatory 30 per cent of share allocation for Bumiputeras during any corporate public listing or restructuring. UMNO also used nominee companies or prominent businessmen who held stakes in various companies on UMNO’s behalf.
Factional struggles over the spoils
The periodic power struggles within UMNO often produced unexpected revelations of great interest to the people. Thus, in November 1994 it was revealed that relatives of prominent UMNO politicians had been profiting from the preferential share-allocation scheme originally designed to help ordinary Malays under the NEP. Among these were Mirzan Mahathir, son of the Prime Minister; Marzuki Ibrahim, brother of the Deputy Premier Anwar Ibrahim, and Fazrin Azwar, son-in-law of International Trade and Industry Minister Rafidah Aziz, who happened to chair the allocation committee. This information was only leaked to the public by Rafidah Aziz because she wanted to show that it was not just her son-in-law who had gained from the allocations. (Asiaweek, 30.11.94)
Mahathir’s favoured “Bumiputera entrepreneurs” included Tajudin Ramli, Yahaya Ahmad, Halim Saad, Samsudin Abu Hassan, Wan Azmi Wan Hamzah, and others. All these nominees were presumably Umno’s nominees who were holding all these business interests on behalf of Umno. Mahathir’s own children didn’t do too badly either: In 2011, Forbes named Mokhzani Mahathir as the 15th richest Malaysian, worth US$560 million.
Failed capitalists bailed out by taxpayers
During the financial crisis of 1997, the state provided support for favoured firms linked to the “Bumiputera capitalists” after the imposition of capital controls, such as reflationary measures which included cutting interest rates and making credit more readily available to these fledgling firms. Banks were also encouraged to lend more, and to bail out troubled firms and a new expansionary budget was introduced in October 1998.
Mahathir’s son, Mirzan had shipping interests that had to be bailed out in 1998 with RM1.7 billion of Malaysian taxpayers’ money. In December 2000, the government bought back the 29% stake held by Tajudin Ramli in Malaysian Air System (MAS), the operator of Malaysian Airlines. The price was reported to be about twice the market price, thus effectively bailing out Mr. Tajudin. The government also effected a process of consolidation, instructing 58 financial institutions to merge, creating 10 “superbanks”. At the same time, large companies, such as Renong and the Lion group were allowed to repeatedly roll over their debts with government help.
In addition, the government permitted companies to carry out actions that might otherwise be considered violations of laws protecting minority shareholders. The most prominent case involved Renong, which was in distress but had a “well-connected” chairman. In November 1997, a subsidiary of Renong, United Engineers Malaysia, received a waiver of stock market rules, in order to provide a bailout to its parent. The stock market fell sharply on this news. However, in October 1998 after capital controls were in place, the government took over and paid off some of Renong’s debts. The size and nature of Malaysian subsidies to these well-connected firms should be instructive to remind the people of the comparison to the controversy over subsidies for fuel and basic food items to benefit the poor and lower rungs of our society. These firms that were linked to the favoured “Bumiputera capitalists” received billions in direct and indirect financial support from the government after the imposition of capital controls.
Badawi and Najib’s fate were sealed
When Abdullah Badawi took over from Mahathir in 2003, he had to deal with a railway privatization deal that had been negotiated privately without open bidding and public disclosure. It had gone to a businessman who had no less than RM22 billion in government contracts in the past six months, including 60 per cent interest in the RM6.4 billion Bakun Dam project. There were other projects in Dr Mahathir’s agenda that Badawi did not carry out including the crooked bridge to Singapore. Likewise, Najib did not follow Dr M’s agenda and this unfortunately sealed Badawi and Najib’s fate…
Keep Khazanah a national asset
With this short history of privatisation (or “piratisation”, as it was constantly mocked by the DAP supremo Lim Kit Siang) under Mahathir 1.0, it is clear that Malaysians must not allow our valuable sovereign wealth fund, Khazanah to be privatised. During the financial crisis of 1997/98, it was Khazanah that had stepped in to take over the assets of the failed companies owned by the crony capitalists – Renong, MAS and TRI. After taking over the assets, Khazanah revamped these GLCs with professional managers and better rules of governance. Khazanah currently owns 51% of PLUS Expressways, with the EPF owning the other 49%. By end 2017, the net worth of companies under Khazanah was RM125.6bil.
Certainly, we agree that professional managers in GLCs should not be over-paid – the income ratio in any GLC should not exceed 1:20 between the highest and lowest paid staff. GLCs being the peoples’ assets should be the paragon of labour relations and democracy, demonstrating the use of best practices in environmental, gender and inclusive ethnic relations.
Thus, we have seen how Mahathir’s privatization drive during his first term (1981-2003) was a boon for crony capitalists, especially those linked to the power holder in UMNO. Malaysian tax payers were the losers since these erstwhile profitable public utilities were sold for a song to the private capitalists and we became captive to UMNO-linked monopolies, such as the North-South Highway operator. The lack of competitive tenders for many of these privatization projects not only penalized tax payers but also discriminated against the smaller Bumiputera entrepreneurs.
So please, never again! Don’t let Dr M privatise our prized national asset and sovereign wealth fund Khazanah.