Malaysia Incorporated: Mahathir’s distortion of ethical standards

 |Feb 14, 2017
File pic credit Yeopmaz.
File pic credit Yeopmaz.

Today many question why, all of a sudden, I am taking Tun Mahathir to task for his excesses, many verging dangerously on the criminal that happened in the dim and distant past.

And what good would an official probe, such as that conducted by a Royal Commission of Inquiry do, they ask? For the record, I have been a Mahathir critic even when he was prime minister.

What follows, with minor refining, is an excerpt of a speech I made at the International Conference sponsored by the Queensland University of Technology Centre for the Study of Ethics, at Parliament House, Brisbane, from 11 – 13 February, 1999.

The speech was subsequently published by the Australian Journal of Public Administration in Volume 58 Number 4 – December 1999, under the title: Malaysia Inc. Ethics on Trial.

Mahathir often says somewhat sweepingly that Malays forget easily. To help jog the memory of readers of Malaysia Outlook, especially Malays of the younger generation, I offer the following tale of one man’s misguided sense of his own political immortality that took this country to the brink of unsalvageable disaster in racial, social, economic and political terms.

Mahathir’s 22 year stewardship, a word used here advisedly, is a legacy that has left a bitter taste in the mouth of the nation.

IN the wake of the NEP, Malays in positions of power and authority perverted the banking system to an extent that was not thought possible in a country that prided itself on having put in place apparently sophisticated corporate legal systems for dealing with just such ethical lapses.

Yet, the problems were compounded by an administration that was in many instances, responsible for perpetrating some of the worst financial excesses and scams.

In these circumstances, it would have been totally unrealistic to expect a commitment to transparency and accountability in either government or corporate sector business transactions.

Bank Bumiputra, touted as the ‘flagship’ of the New Economic Policy was established in 1978 and by 1988 it had assets worth more than US$15 billion. It moved aggressively into new territories, lending recklessly to politically well-connected companies and individuals, many of whom possessed neither the capacity nor the intention to make good the loans.

The bank shifted large sums of money to its wholly-owned subsidiary in Hong Kong, Bumiputra Malaysia Finance Limited, or BMF, which in turn lent in total close to US$1 billion to a Hong Kong $2.00 company called Plessey Investment Limited and another, Carrian Investments Limited.

Carrian went on a shopping spree, picking up a US$350 million investment in California and a 328-hectare real estate development in Florida (Clad 1989:53).

Within months of the BMF money going through his books, George Tan, the man who boasted that his Carrian Conglomerate would last centuries, saw his empire reduced to ashes. Bank Bumiputra’s catastrophic financial loss caused irreparable damage to Malay pride and prestige.

In Malaysia, a committee of inquiry was constituted, headed by an incorruptible auditor-general, Tan Sri Ahmad Nordin, whose report stopped just short of naming senior members of government who had profited from the loan disbursements.

The committee described how, in the course of the inquiry, they had come across several instances of irregularities, frauds, criminal breach of trust, theft, acts in complete disregard of honest commercial practice and contravention of several laws, both in Malaysia and in Hong Kong, in respect of the administration and operations of the BMF.

The committee report recommended that criminal proceedings be instituted against those involved. No such action was taken in Malaysia notwithstanding Mahathir’s much publicised theatrical outburst proclaiming that the BMF affair was a ‘betrayal of trust and a heinous crime.’

The Hong Kong authorities, on the other hand, began criminal action against the crooks as soon as the scandal broke.

Mahathir’s studied indifference served to reinforce suspicions of high-level complicity.

Perhaps the most damning indictment was the claim made by a Hong Kong lawyer, retained to defend one of the bank’s officers on charges of fraud and bribery, that BMF and its parent, Bank Bumiputra Malaysia Berhad, accepted an arrangement based on incestuous relations between senior politicians and bank officers, and that his client simply carried out Mahathir‘s orders (Clad 1989:53).

Naturally, this was never proven.

The Blurring of Ethical Lines: Birth of Mahathirism

File pic credit AFP.
File pic credit AFP.

In the early and mid-eighties, the Malaysian government went on a spending binge on a scale that easily dwarfed its earlier efforts.

Ever resourceful, and with an eye to filling the party coffers and the pockets of the politically well connected, the government decided on privatisation, arguing rather persuasively that it was an opportunity to dispose of its very considerable assets and to strengthen the nation’s finances. The rhetoric fell far short of achievement.

In the event, the nation rightly or wrongly felt that it had been cynically short-changed. The real beneficiaries, it would appear, were the politically connected.

While Mahathir might have been the architect of privatisation ả la Malaysia, it was Daim, his close friend whom he appointed Minister of Finance in the mid-1980s, who masterminded its practical implementation.

As an accomplished market player who had amassed a considerable personal fortune before joining the government, he turned privatisation, in no time at all, into an art form that was to become a model for an emergent business culture characterised by disregard for transparency – an operating model that has found ready acceptance by the country’s ruling political elite and is well and truly entrenched despite the soothing noises made about good governance by Mahathir.

Privatisation was perceived as a party plaything as far as the United Malays National Organisation (UMNO), the dominant component of the ruling coalition, was concerned. With Daim assuming the role of economic czar, Malaysia Inc., as postulated by the Mahathir doctrine, came into its own.

In his excellent book, Behind the Myth: Business, Money and Power in Southeast Asia (1989), Clad tells of the undermining of the power and influence of the Central Bank by the simple expedient of hijacking the Capital Issues Committee and putting it directly under Daim’s Ministry of Finance.

Clad also tells how Daim put all new listings on hold, and thereby created a demand for existing shares that was to benefit him and others like him enormously. The size and extent of his own shareholdings in all manner of companies was not lost on the Malaysian public.

Daim’s various measures to increase trading, given his very considerable personal shareholding, raised many eyebrows. According to Clad (1989), ‘He was nothing if not determined.

He lengthened scrip delivery time and gave preferential credit lines to banks lending to share investors.’ The banking system was systematically politicised and manipulated to serve party interests as well as those of the country’s leadership. The practice of using nominees to disguise the real movers and shakers was widespread.

Since the mid-eighties, major privatised projects have gone to friends of the ruling party, and speculation is still rife about the party’s involvement, directly or indirectly, in many of these mega public works and other infrastructure projects. Large numbers of contracts have been awarded on the basis of closed-door negotiations.

And the rationale? According to Mahathir, there was no time to waste by observing the niceties of an open tender system.

Malaysia was a country in a hurry. Although the public was not fooled by this disingenuous, machiavellian machination, given the gradual emasculation of many of the national institutions, specifically established under the Constitution to protect citizens’ rights, the government was able to treat widespread concerns about the impropriety of many of its actions with complete disdain and utter contempt.

Often resorting to the draconian Internal Security Act (ISA), which allows for indefinite detention without trial in the name of national security, the government ensures that sustained dissent or objection to its ethically questionable actions is quickly nipped in the bud.

The leader of the parliamentary opposition, Lim Kit Siang, who challenged the award of the North-South Highway contract, the largest public sector undertaking in Southeast Asia was rewarded with indefinite detention under the ISA for his trouble.

The judge who decided that the opposition challenge be allowed to proceed in a court of law soon found out that under Mahathir’s rule, a noted exponent of the Asian Values, an independent judiciary was not a tenable proposition.

What is more, according to Mahathir who had a view on every imaginable subject, a judiciary that is too independent would forget its place, and might be tempted to challenge the supremacy of parliament itself.

File pic credit Utusan Malaysia.
File pic credit Utusan Malaysia.

Soon after, Mahathir, not one to take slights real or imagined lightly, deployed his considerable street fighter instincts.

He orchestrated the dismissal of the highest law officer of the land, the Lord President, on the flimsiest of excuses. Some other Supreme Court judges met a similar fate. Their crime? At various times in the past they had handed down judgments that enraged the prime minister.

At about the same time he launched what amounted to a ‘search and destroy’ mission and, predictably, invoked the detested ISA to detain more than one hundred of his fellow citizens who merely happened to disagree, one way or another, with his plans and ideas.

Mahathir was not shy of deploying the full apparatus of state to get his own way.

As he had done before when he attempted and failed to corner the international tin market, Mahathir thought he could again raid the cash-rich Employees Provident Fund (EPF) with impunity.

Under considerable pressure because of the economic turmoil, he completely ignored the fact that the savings really belonged to Malaysia’s millions of workers and were held in trust for their retirement.

Such was his commitment to accountability and stewardship that he thought nothing about putting the funds at risk in order to save a few well-connected companies which, through that potent mix of mismanagement and disregard for normal prudence, had contributed, in no small measure, to their own financial downfall. Fortunately for the country, this time round, members of the Malaysian Trades Union Congress stood up for the rights of their members and put their foot down.

Mahathir, on this occasion, was forced to accept that the mood of the country had changed unalterably.

The blocking of the EFF avenue was difficult for Mahathir to stomach – particularly when his son’s shipping empire was sinking in an ocean of red ink.

How the family came to acquire those very substantial assets in the first place running into hundreds of millions of ringgit is a story that will probably remain shrouded in mystery for decades to come.

Not so mysterious, though, is a recent revelation that Mahathir’s three sons collectively hold directorships in scores of companies. At the height of the nation‘s greatest social and economic turmoil, his immediate thoughts were apparently not on the fate of the country. Rather, a scheme was put together using the Petronas-owned Malaysian International Shipping Corporation to take over his eldest son’s shipping interests.

According to Anwar Ibrahim, the then finance minister: “Mahathir was advised to follow procedure. Petronas and I asked that the assessment (the net worth of the assets) be made by an international company. He got angry because he thought the price should be higher. But the cost was 2 billion ringgit. That’s the people’s money. We just had to be realistic. But he was not satisfied with our argument.” (Malaysian Website source)

Petronas once again was used as a cash cow. When challenged. Mahathir, never at a loss for words, tried to explain when a bailout was not a bailout.

This attempt at putting a new twist to English lexicography was seen as a desperate clutch at a straw.

This whole unsavoury exercise was hawked around as a strictly commercial deal when, in fact, it was concluded on the basis of ‘suggestion from above’.

As I have indicated, this article is based on my speech in Brisbane in 1999, and there is no reference to Mahathir’s role in the colossal gambling spree on the Forex market and putting the national reserves at considerable risk.

That will be the subject of another article. In view of the public interest in Mahathir’s various alleged scams that are well-documented, the Government must heed the call for a Royal Commission to be established to inquire into those scams while Mahathir was in office.

A Royal Commission of Inquiry must be established to get at the truth and bring the alleged financial scams to a proper closure.

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Tunku Abdul Aziz is the former Special Adviser to former UN Secretary-General Kofi Annan on the Establishment of the UN Ethics Office and former Adviser to Bank Negara Malaysia.