Tuesday Jan 20 2004

Businessmen feel the winds of change as Malaysia
moves to end 'crony capitalism'

By John Burton

Until five years ago, Syed Mokhtar al-Bukhary was an obscure Malaysian businessman. But when Mahathir Mohamad, the prime minister, awarded the former rice trader several important infrastructure projects, including port and aviation facilities, he quickly rose to prominence.
Critics alleged that Mr Syed Mokhtar benefited from his friendship with Dr Mahathir, who had a long record of favouring a select group of businessmen with government support, raising charges of "crony capitalism".
With the arrival of Abdullah Badawi as the country's new leader in October 2003, Mr Syed Mokhtar's days of gaining choice public works contracts appear to be over.
Mr Abdullah has promised that all future government contracts will be awarded through open tenders rather than negotiated in closed-door meetings with bidders.
"The prime minister has sent a strong signal that institutional processes must be respected. No longer will it be allowed for businessmen to informally lobby officials for contracts," says Manu Bhaskaran, Singapore partner with US consultancy Centennial.
Mr Syed Mokhtar has already felt the winds of change. Last month, Mr Abdullah postponed "indefinitely" a M$14.5bn ($3.8bn, 3bn, 2.1bn) railway project, Malaysia's biggest public works contract, which had been awarded to the businessman in the waning days of Dr Mahathir's term in office.
A plan to privatise the Bakun dam, a M$6.4bn hydroelectric project on the island of Borneo, by selling a controlling stake to Mr Syed Mokhtar was also cancelled.
"The new policy is not aimed at any particular businessman. Instead, the government has decided to step back and determine the viability of some of these costly infrastructure projects when there is a large budget deficit," says Uday Jayaram, research head at ING in Kuala Lumpur.
Mr Syed Mokhtar is expected to retain the concessions for two of his most important projects, Tanjung Pelepas port and Senai airport in southern Malaysia, because they are considered vital to the country's ambitions to create a transport hub to rival that of Singapore.
The prime minister said his aim was to promote "healthy competition" in the economy that would make Malaysia more "business friendly" and attractive to foreign investment, which has declined recently.
The appointment of Nor Mohamad Yakcop, a respected economist, as second finance minister will mean "a significant revamp" of the ministry, which has often distributed contracts and projects to government supporters, says Jomo Sundaram, an economist at the University of Malaya.
Mr Abdullah has promised to improve the performance of important state-owned companies, such as Malaysian Airline Systems, Telekom Malaysia and power group Tenaga, with changes in management. Some senior jobs have been filled by political appointees.
But there are doubts about the extent of the reforms. Mr Abdullah recently delayed the planned elimination of car import tariffs that protected national carmaker Proton from regional competitors, such as rivals based in Thailand.
Analysts are also wondering whether the changes will stick - in spite of the prime minister's "Mr Clean" image. "It's still early days," warns Mr Jomo.
Mr Abdullah's economic reforms have upset vested interests in the ruling United Malays National Organisation (Umno), which has relied on pork barrel projects to remain in power. Umno officials have complained that Mr Nor and other outsiders are replacing party members in senior government posts.
Mr Nor's appointment is seen as particularly important since he will be in charge of the daily administration of the finance ministry, giving him an opportunity to crack down on patronage.
If the government performs poorly in forthcoming general elections expected by mid-year, analysts predict that Umno rivals will try to sack Mr Abdullah as prime minister.
Local investors have displayed cynicism about the government's commitment to reform by driving up the share prices of companies seen as having close ties to Mr Abdullah and other senior officials.
Scomi, an oil and gas services company, saw its share price jump by 1,000 per cent last year after it was listed because one of its owners is Mr Abdullah's son.
CIMB, a local investment bank, has also benefited from the perception of political connections since its chief executive is the brother of Najib Razak, the newly appointed deputy prime minister.
"There is a natural tendency in this country to associate companies with political figures," says Mr Jayaram. Listed companies with political ties enjoyed large share price rises in the 1990s.
But Mr Jayaram warns that investors are mistaken in applying the old rules to the new government: "Investors are going to find that political links will matter less and companies will have to be assessed on their own merits."


Parent site: "Focus on Malaysia"