MALAYSIA’S FINANCIAL SCANDALS: MEMORY JOLT FOR FORGETFUL POLITICIANS

Press statement by Kua Kia Soong, SUARAM Adviser 15 July 2019

George Orwell once said:

“The most effective way to destroy people is to deny and obliterate their own understanding of their history.”

Those who are in power today can try to rewrite the past but they won’t succeed, not when almost all of history has been digitised already. We are made to believe by the new history changers that the 1MDB scandal has been the only financial scandal in Malaysian history and the previous Prime Minister is the first kleptocrat our country has ever had. The former Leader of the Opposition, perhaps thankful that his son’s corruption charges were dropped and further rewarded with a Finance Minister’s post, is now quick to say that he never said that Mahathir was ever corrupt. Let us remind him of the financial scandals in the Mahathir era and what he said about them…

Sensational financial scandals since 1981

Soon after Mahathir became the PM in 1981, the Maminco-Makuwasa scandal erupted, incurring a loss estimated to be RM1.6 billion or more. In 1986 Mahathir publicly admitted that Makuwasa was created to recoup the government’s losses from the Maminco debacle and to repay its loans to Bank Bumiputra.   

The Bank Bumiputra Malaysia Finance (BMF) was also one of the earliest scandals when it surfaced in 1984. BMF gave out loans in amounts that exceeded its capital, losing RM2.5 billion in the process and a bank official sent to investigate the scandal was murdered in Hong Kong. In the 15 years following that, Bank Bumiputra had to be bailed out at least four times until it was merged with Commerce Asset-Holding Bhd to form Bumiputra Commerce Bank.  Lim Kit Siang called this the “scandal of scandals”.

In the early nineties, the botched attempts by Bank Negara to wager vast amounts of its assets on the forex market left the country between RM16 billion to RM31 billion poorer after George Soros “broke the Bank of England” on 16 September 1992. Clearly a reckless (moronic?) gamble using Malaysian taxpayers’ money, Mahathir then called Soros a “moron”. Then Finance Minister Datuk Seri Anwar Ibrahim assured Parliament that it was only a “paper loss”. Former finance minister Tengku Razaleigh Hamzah reckoned that the amount of money Malaysia lost was closer to RM31 billion over the two years from 1992 to end 1993. It is easily Malaysia’s biggest scandal of all time.

But it was Perwaja Steel which, according to Mahathir in his memoirs, “gave me the most trouble”. Showcased as his visionary drive toward heavy industry in the eighties, Perwaja made accumulated losses of RM9.9 billion by 1996 and had to be privatized.

There were other financial scandals that nonetheless exposed the excesses of the Bumiputera policy. Mahathir was criticized for handing multi-billion projects such as the North-South Highway and the 6 billion Sewerage project to UMNO controlled companies without any competitive tender. Lim Kit Siang called it “piratisation”. (Pirates are never corrupt – they just loot.) 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.  

With the overnight affluence among the UMNO leaders, money politics became the norm in the party elections and the stock market was blatantly manipulated to raise funds for the political campaigns. The periodic power struggles within UMNO have 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. Is this corruption?

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.  

During the financial crisis of 1997, the state provided support for favored 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. 

Ku Li said the exorbitant amount of the bailout and construction of these projects that was forced onto Petronas had deprived the company of the much-needed cash build-up for reinvestment, which would ensure its business sustainability. According to him, since 1997 the subsidies to the national power supplier, the independent power producers and some other non-power outfits amounted to RM136.5 billion. And while these power producers continued to enjoy subsidized fuel price, petroleum subsidy to the consumers – which purportedly cost the government RM14 billion in 2011 – was partly discontinued.  

All in all, as claimed by the academic Barry Wain, Mahathir was responsible, during his term in office from 1981 to 2003, for squandering RM100 billion through mismanagement, corruption and financial scandals. If it had not been for the fortuitous outflow of oil, most of the prestige projects associated with the Mahathir era would not have been possible. Still, the profligate spending on these projects has left little for reinvestment or for social services for the present and future generations.

Thus, Mahathir’s term in office was marked by sensational financial scandals which were not unexpected of an authoritarian populist who did not pay much heed to accountability and good governance. They are a reminder to Malaysians for understanding why UMNO politics and Malaysia’s political economy have developed in the way that they have. Najib’s 1MDB scandal was possible only because of the political system that Mahathir created. The use of public funds by UMNO for the general election and to reward corporate allies was part of the BN locus operandi.

As the former Leader of the Opposition Lim Kit Siang reminded us on 30 May 2015,

“Just before the 13th General Elections on February 23, 2013, I had declared that if Pakatan Rakyat was to capture Putrajaya in the general elections, we should re-open investigation not only on Mahathir’s RM30 billion Bank Negara forex scandal of 1992, there should be a Royal Commission of Inquiry into the RM100 billion losses suffered by the country in the financial scandals of the 22-year Mahathir era… a dark era in Malaysian history which saw key national institutions in the country like the Judiciary, the civil service, Attorney-General’s Chambers, the Police, the Anti-Corruption Agency , the Election Commission compromised and subverted to serve the behests of one man, the Prime Minister and from which disaster Malaysia has not yet fully recovered.”

Alas, to try and rewrite Malaysian history or to feign amnesia is not an option. I would recommend that our forgetful politicians continue taking the fish oil…

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