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ATimes: Is Malaysia ready for life after Daim?
By Anil Netto
22/4/2001 2:43 am Sun
Is Malaysia ready for life after Daim?
By Anil Netto
The decision by Malaysia's powerful Finance Minister Daim Zainuddin to
go on two-months' leave has rekindled speculation about his long-term
position in government, despite Prime Minister Mahathir Mohamad's
denial that the minister is resigning.
The vacation announcement on Thursday came after months of speculation
of a rift between Daim and Mahathir. There have been rumors of a
falling out between the two over such issues as banking consolidation
and the country's ringgit currency peg. The move also highlights the
state of the economy and what critics say is the lack of meaningful
economic and political reforms to improve accountability and
Daim's vacation, officially because of fatigue, comes at a time when
the economic growth forecast for 2001 has been whittled down steadily
from 7 percent to 5-6 percent to just over 4 percent in the past few
months. The government had also come under fire over controversial
bail-outs and the use of state pension funds to take up unsubscribed
shares in the initial public offer of a politically linked firm.
"He could be tired, you people [media] disturb him a lot, asking
questions endlessly and criticizing him over the Malaysia Airlines
issue," Mahathir told journalists. He was referring to the
government's buy-back of Malaysia Airlines (MAS) shares earlier this
year from Naluri Bhd, an aviation group led by Tajudin Ramli, who was
MAS chairman. The government bought a 29 percent stake at 8 ringgit
per share, more than double the market price.
Fears that the ringgit would be re-pegged have also dogged the stock
market as foreign investors reportedly continued to liquidate their
positions on major counters. The government has denied rumors of a
Mahathir said on Thursday he would not appoint an acting finance
minister and Entrepreneur Development Minister Nazri Aziz will
represent Daim in cabinet meetings. However, should Daim not return,
Domestic Trade Minister Muhyiddin Yassin and ex-finance minister
Razaleigh Hamzah are his most likely successors.
Politically, the administration of Mahathir, in power for 20 years,
has been stung with criticism after the arrests of eight opposition
activists under the draconian Internal Security Act, which allows
indefinite detention without trial. The activists are linked to the
National Justice Party (Keadilan), led by Wan Azizah Wan Ismail, wife
of jailed former deputy premier Anwar Ibrahim.
Anwar, now in hospital with a back ailment, is embroiled in a
psychological tussle with the government over whether he has a right
to travel abroad for minimally invasive endoscopic spinal surgery at a
specialist clinic in Munich. The government insists that the surgery
be performed in Kuala Lumpur and that any specialist and equipment
required should be flown in.
Daim succeeded Anwar as Finance Minister in January 1999 after Anwar
was ousted from the cabinet in September the previous year, and there
is believed to be little love lost between the two.
The announcement of Daim's vacation comes soon after the central bank
announced that its net international reserves fell by US$1.5 billion
(5.7 billion ringgit) in the second half of last month to reach $27.2
billion on March 31. The central bank said that the decline was mainly
due to an unrealized revaluation loss due to the appreciation of the
US dollar and the diversified currency composition of the bank's
international reserves. The National Economic Action Council (NEAC),
of which Daim has been executive director since December 1997, carried
a table on its website showing that Malaysia's external reserves to
GDP ratio of 43 percent in June 2000 was higher than that of most
industrialized East Asian economies, apart from Singapore.
Earlier this month, Standard & Poor's revised the outlook of its
long-term foreign currency rating on Malaysia to stable from positive.
Apart from an unusually high fiscal deficit of 5.7 percent of GDP, it
also estimated that nonperforming loans (NPLs) would reach 30 percent
within a year and that the recapitalization costs for the banking
sector would reach 40 percent of GDP.
The NEAC refuted the claim, arguing that "even at its peak, net NPLs
only reached 14.9 percent in November 1998 and in gross terms, NPLs
only reached 20 percent of outstanding loans".
Although Mahathir has denied that Daim is resigning, it has not
stopped tongues wagging. "He is not leaving in the first place. Just
going on leave," Mahathir said. For some time talk of a rift between
the two has persisted, but both men have said that they are able to
work with each other.
Expectations of the departure of Daim heightened last year when
Mahathir appointed former central banker Nor Mohamed Yakcop as his
economic adviser. And earlier this week, the premier appointed another
economic adviser, former central bank chief Ali Abul Hassan Sulaiman.
Daim, 62, was born in a village in Kedah, Mahathir's home state. This
is his second stint as finance minister, the first being from
1984-1991, after which he returned to the private sector. He was
brought back into the cabinet in June 1998 as special functions
minister to promote economic recovery, a move seen as a precursor to
Anwar's ouster three months later.
But meaningful reforms to promote transparency and accountability have
been slow in coming. Despite Mahathir's frequent lashing out at the
global financial architecture, Malaysia remains dependent on the
performance of the US and Japanese economy, especially in the
electronics sector. The US absorbs a fifth of Malaysia's exports.
Economists have noted that structural flaws in the economy cannot be
corrected by macro-economic policies and that countries such as
Malaysia can ill afford another round of pump-priming. The government
recently announced a 3 billion ringgit stimulus package to boost
consumer spending and speed up infrastructure projects.
Critics point out that instead of merely restructuring and
rehabilitating bad loans, the top management of heavily indebted firms
should have been sacked. Without such a deterrent, the performance of
these firms is unlikely to improve. They also want the link between politics and business to be severed so
that the system of dispensing patronage and contracts to favored firms
is eliminated. Instead, there appears to be a further attempt at
wealth concentration, as seen in the initial bank mergers scheme that
envisaged six super banks. The scheme was later widened to create 10
large banks, but only after much criticism.
They also want the link between politics and business to be severed so that the system of dispensing patronage and contracts to favored firms is eliminated. Instead, there appears to be a further attempt at wealth concentration, as seen in the initial bank mergers scheme that envisaged six super banks. The scheme was later widened to create 10 large banks, but only after much criticism.
Several analysts want the regulatory authorities to be truly
independent and impartial to wipe out any unethical wheeling and
dealing and the alleged propping up of the stock market. They also
want the interests of minority shareholders - especially in
politically connected firms - to be protected. In the past, the rights
of minority shareholders have seldom been an issue of concern during
At present, power is highly centralized in the Malaysian political
system and there is a widespread perception that regulatory
institutions, such as Bank Negara (the Central Bank) and the
Securities Commission, do not have sufficient autonomy to act
With Daim's vacation confirmed, the real issue now is whether Malaysia
has the political will to implement serious structural reforms and
changes. More crucially, the key question is whether such reforms can
be implemented and enforced impartially without fear or favor,
especially when they involve politically connected firms and
But as long as political reforms - such as the decentralization of
power in the prime minister's office and the strengthening of
democratic institutions - are lacking, there appears little hope of
achieving meaningful economic and corporate reforms.