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SunBiz: Malaysia's Prime Minister Faces Difficult Times
By Angela Mackay
4/10/2001 12:47 pm Thu
Sep 30, 2001
By Angela Mackay
-- There is no love lost between George Soros and Malaysia's prime minister,
Mahathir Mohamad. The hedge fund manager extraordinaire-turned-philanthropist
accuses Mahathir of running a corrupt and repressive regime to keep his cronies
wealthy. The Malaysian leader says Soros is a vulture who preys on vulnerable
economies to make a profit.
Each is right in his own way. Mahathir runs one of those dubious regimes dressed
up as a democracy and Soros admitted (10 days ago in Hong Kong) that when he ran
a hedge fund he did so to make money, not to improve the world. In fact, the
United States-based businessman appeared to enjoy flailing himself. He also said
markets are amoral and that he did not contribute at all to society by running a
Anyway, the Malaysian ringgit was definitely in Soros's sights in 1998 and he
went for it, resulting in Mahathir shutting the economy to outsiders and fixing
the currency to the US dollar.
Until last week, little had really changed since. But, last Tuesday the
government said it would spend $1.1 billion to boost a sluggish economy in
danger of slowing even more after the attacks on New York and Washington, and
lowered its forecast for this year's growth to 1 percent. Moreover, the central
bank cut its key interest rate for the first time in more than two years.
Something had to be done because, with the currency pegged, all the pressure was
being taken on asset prices. The local stock market index, for example, has
fallen 10.8 percent since the attacks on America.
Something had to be done because, with the currency pegged, all the pressure was being taken on asset prices. The local stock market index, for example, has fallen 10.8 percent since the attacks on America.
Corporate reform has been slower than other parts of the region, probably
because Mahathir has been so protective of vested interests. The prime minister
could not risk inflicting the drastic pain experienced by his neighbours in
Thailand and Indonesia for fear that his government of almost two decades might
topple. After all, that's what has happened to all the Asean countries
surrounding Malaysia, so why should Mahathir be immune?
Hence, the preference for slow change. But there are signs that even this sacred
cow must go. The country's Corporate Debt Restructuring Committee said last week
it expects the numbers of bankrupt companies to rise as global growth slows.
This is bad news for companies and even worse news for the banking system, which
has been plugging leaks and slushing money around the system to give the
impression of prosperity.
The committee has assets worth about $10 billion to try to sort out. A few days
ago there was a breakthrough of sorts when creditors of Malaysia's two rail
firms agreed to a plan to convert $1.4 billion of overdue loans into bonds. The
government plans to acquire 80 percent of Kuala Lumpur's light rail system,
leaving the rest with Renong, Taylor Woodrow, state-run pension funds and other
shareholders. The bail-out will be cheaper for the government than initially
planned because, by guaranteeing the bonds, it will pay creditors a lower coupon
The takeover will have a twofold effect: slash about 10 percent off the
country's $16 billion worth of bad loans which stem from the 1997-98 financial
crisis in east Asia and help banks stem a decline in profit as the economy slows
In August, the committee set a three-month deadline for banks and their debtors
to submit plans for their bad loans and up to one year for implementation as it
seeks to cut the $7.9 billion owed by some of the country's biggest companies.
But the global slowdown is complicating Malaysia's plan to clean up as much as
$8.7 billion of overdue debt.
Meanwhile, Mahathir has a difficult political balancing act to stage. He wants
to crush any Muslim fundamentalist movements in his country, but he cannot
afford to isolate the growing number of Muslims in Malaysia who want a greater
say in government. Just over half the population are Muslim; the rest are of
Chinese and Indian extraction.
Recently, Mahathir jailed the son of the spiritual leader of the country's
biggest Muslim political party. Nik Adli was accused of plotting to topple the
government to establish Islamic rule across the region via an armed struggle. He
was also said to have trained with the Afghani military in the early 1990s.
Mahathir has lost the confidence of many middle-class Malaysians and a majority
of Muslims. Economic hardship will exacerbate that. The last thing the prime
minister wants is to make Soros a happy man, but the choice may not be his to
(Sunday Business - Knight Ridder/Tribune Business News via COMTEX)