Source; The Singapore Straits Times 14th January 2001

NEP has a crash-landing

The Malaysian government pays RM1.79 billion for Tajudin's shares and gets him off the hook as MAS labours under huge losses, representing the policy failure on creating Malay entrepreneurs

By Brendan Pereira

MALAYSIA CORRESPONDENT

SIX years at the top can cut a man down to size. It can turn him from a role model to a mere mortal. It can strip off the aura of power and replace it with an air of ordinariness.

That appears to be the story of Malaysia Airlines chairman Tan Sri Tajudin Ramli.

When the son of a farmer took control of the national carrier in 1994, many spoke glowingly of how a man from a back-of-beyond village in Kedah could rise to the apex of one of Asia's top airlines.

His was the success story of the New Economic Policy, a sweeping three-decade old programme aimed at giving Malays a bigger slice of the economic pie.

His poster-boy image is a distant memory today, as is a cornerstone of the NEP: that a select group of Malays can be handpicked and nurtured on government largesse to become successful captains of industry.

Gaining currency among some ruling party politicians is the view that large businesses should remain government-owned but be run by teams of Malay professionals, whose rewards are tied closely to the performance of their companies.

Deep in the bowels of the 1997 currency crisis, Tan Sri Tajudin's company and image were in a tailspin.

The airline was racked by losses stemming from rising fuel costs, mounting depreciation charges and interest payments on its huge borrowings.

SHARE SELLOUT TO GOVERNMENT

TODAY, the company is staring at its fourth straight year of losses.

But the problem of turning the company around will not be Tan Sri Tajudin's. He is happier than he has been in months, say some MAS staff.

The government has bought his 29 per cent stake in Malaysia Airlines for RM1.79 billion or RM8 a share.

This is the same price he paid per share in 1994 when the government sold him the stake.

It represents a 160 per cent premium over the value of the stock today and is understood to be RM2 higher per share than that suggested by government-linked agencies.

Tunku Abdul Aziz, vice-chairman of Transparency International, speaks for many when he says: 'The perception, rightly or wrongly, is that it is not MAS that is being saved; the chairman of MAS is being let off the hook with his original investments intact.'

When a well-funded athlete fails to deliver at a major meet, an inquiry is ordered.

When well-connected and supported businessmen like Tan Sri Tajudin and Renong's Halim Saad are found wanting, serious questions are being asked about the spine of the Malay entrepreneurs.

Says Datuk Shahrir Samad, Umno Supreme Council member: 'The entrepreneurs were supposed to handle the creation of Malay wealth. In fact, it's been a subversion of Malay wealth.

'We have created businessmen who are not averse to taking risks but are averse to suffering the consequences of risk-taking. This whole idea of creating an elite Malay business class has to be looked at again.'

Ruling party politicians have come up with a new way of defending this aspect of the NEP: They say nothing.

Sometimes, even this tactic does not work.

During campaign rounds at the recent Lunas by-election, a senior Umno leader met a Malay farmer who confronted him with allegations that the government only helped some Malays.

Before the party leader could say anything, the farmer pulled out an opposition newsletter highlighting the list of businessmen bailed out since 1997.

Says the politician: 'You cannot convince anyone on the ground. To the people, these businessmen are the cronies the opposition is talking about. The fact that they are well-connected lends credence to these allegations.'

POLICY SPELLED OUT IN BOOK

WHAT irony. These entrepreneurs were supposed to be role models for the community.

In his treatise, The Way Forward, Prime Minister Mahathir Mohamad sets out the mechanics of the NEP. The policy was never about making every bumiputera rich, nor was it about equitable distribution among all of them.

'Rather, it was about balancing the opportunities and wealth between different racial groups in Malaysia.

'So there had to be bumiputeras who became rich due to the NEP and the privatisation policy.

'They were selected because, one way or another, they managed to convince the authorities that they were capable, whether due to their experience, capital or qualifications,' he wrote.

The big players were expected to be creators of wealth, to provide business opportunities for smaller businessmen and employ qualified people from the community.

The taxes they paid to the government would be used to educate children of low-income bumiputeras and build roads, schools and mosques in isolated places such as Kroh, a one-street town on the Malaysia-Thai border.

In reality, there has been a negligible trickle-down effect. The conglomerates were giving out contracts to subsidiaries, who were subcontracting to other subsidiaries.

Notes an Umno Youth executive council member: 'Everything seems to be moving around in the hands of a few people.'

There was a reason for this merry-go-round. Many of the handpicked entrepreneurs borrowed heavily for their initial investment. They kept all the businesses and spin-offs 'in-house' to obtain sufficient revenue to service their loans.

SHORT-TERM LOANS, LONG-TERM PROJECTS

BUT even that policy could not keep some of the entrepreneurs afloat.

After the currency crisis, Halim Saad's Renong had debts of RM4.5 billion against RM4 billion in assets.

Critics say the cigar-puffing businessman was imprudent and blame his use of short-term loans to fund long-term projects.

Tan Sri Halim's take: 'We would have been fine if not for the plunge in securities' value.'

Maybe, but without government help, would he have the luxury of puffing a cigar and sipping coffee at his favourite corner at the Equatorial Hotel?

The total debt of the Renong group is over RM25 billion or five per cent of all corporate lending by Malaysia's banks.

It is fair to say that he cannot be allowed to fall.

But the Malaysian leadership also knows that the business-as-usual approach is alienating the public.

In a speech, Deputy Prime Minister Datuk Seri Abdullah Badawi noted, 'The government may not be able to afford another round of rescues.

'I am well aware of the rumblings and discontent among the professional business community that the government should not continue to protect those who have blatantly mismanaged their corporate empires and have repeatedly come back crying for help,' he continued.

'I am aware that these criticisms are being made by Malaysians themselves and I am aware that many of these criticisms are valid.'

His speech came when rumblings against Tan Sri Tajudin's stewardship of MAS was reaching a crescendo and when criticisms against him by cabinet ministers in private were growing.

Behind the scenes, there were intense negotiations over the government taking over Tan Sri Tajudin's stake in the carrier.

At one point during the testy exchange over the pricing of the shares, the authorities considered allowing him to hold on to his 29 per cent stake but stripping him of the chairmanship of the airline.

Then, came the controversial deal.

Dr Shamsul Anwar Sulaiman, an Umno Youth exco member, says that the time has come for the government to consider keeping control of strategic businesses and allowing it to be run by the many capable professionals that the NEP has produced.

Over three decades, thousands of children of farmers, clerks and civil servants have been put through universities here and in the United States, Australia and Britain on the back of a scholarship and quota system.

They form the professional class that today forms the management level in companies such as Sime Darby and Petronas and international outfits such as Arthur Andersen.

Dr Shamsul and others in the ruling party believe that this growing class should be allowed to run companies like MAS.

If they perform, they should be rewarded with stock options in the way many of the New Economy businesses to do so.

If they do not perform, they should be removed. This change in strategy could create a larger pool of more self-reliant entrepreneurs.

Just as important, it could be a safety valve against the belief being spread by the opposition that the divide between Malays is a divide between the 'haves and have-nots'.

The theory suggests that the only people who have gained from the NEP are Umno politicians and their supporters.

It has been hawked from hamlet to hamlet since the sacking of Anwar Ibrahim put the issue of cronyism on the Malaysian political landscape.

For rural folk, where electricity and proper drainage remain a yet unfulfilled need, this argument of the 'haves and have-nots' has a strong pull. In their eyes, the elite business class and the politicians who prop them up are the enemy.

Yet as Umno Supreme Council member Datuk Azim Zabidi says: 'The NEP is not about Tajudin or Halim or any other Malay businessman.

'It has been about successfully uplifting the standard of Malays.'

The figures back him, but the perception does not.

Overseas investors jittery over bailouts

A MALAY businessman received an SOS call on Tuesday from an official of a well-known stockbroking house.

The gist of the conversation was this: A group of United States fund managers were in town and they were perturbed with the nature of the Malaysia Airlines deal.

Could someone convince them that Malaysia was still the country to pour funds into despite concern over the restructuring of several companies?

Could that someone be the businessman?, the stockbroker wondered.

Without a pause, he replied: 'The MAS deal cannot be defended from any angle. If you must tell the US fund managers anything, tell them that the Cabinet reshuffle could bring an end to such deals.'

At a time when talk of a US economic slowdown grows louder and cast a shadow on the continued growth of the Malaysian economy, any negative perceptions arising from the country's commitment to corporate governance could spook already cautious investors.

Overseas and domestic investors have shied stay away from the Kuala Lumpur Stock Exchange, causing a freefall of 33 per cent between February last year and January this year.

A slack equity market bites into the value of a company's stock and could hurt its restructuring plan.

Worse still, the perception that the government has not learnt any lessons from the 1997 currency crisis could give long-term investors a reason to pour their money into other countries in Asia, especially the economies of China and South Korea.

Datuk Megat Najmuddin Megat Khas, president of the Federation of Public Listed Companies, said that international investors are demanding greater transparency in business practices.

He said: 'Boards of directors must be held more accountable. The government cannot be bailing out every single company as it involves taxpayers' money. When conglomerates fail, it is a big blow to the economy. How did these companies deteriorate? A simple answer: lack of transparency.

'If shareholders had known the true state of the companies, it is doubtful that they would have allowed them to take on large projects and even larger loans to finance them.'

Local investors have already started making their unhappiness known. A report by a Kuala Lumpur research house noted that companies that had announced proposals in the past two years that were perceived as hurting the interest of minority shareholders saw their stockmarket capitalisation fall by up to 45 per cent in the days after the announcement.

Since most foreign funds had already left the market, analysts put the fall down to local investors pulling out.

But government officials say that too many foreign analysts and observers have a skewed view of Malaysia's economic performance and its regime of corporate governance.

Dr Sulaiman Mahbob, head of the National Economic Action Council, wrote in The Edge recently: 'The wider picture of the recovery has been left out.'

Much talk, he noted, has centred on the restructuring of a few companies.

He said that the critics did not realise that the Corporate Debt Restructuring Committee has restructured 31 of the 47 cases, involving about RM24 billion, or slightly over 60 per cent of the total amount of debts. --Brendan Pereira