http://www.asiaweek.com/asiaweek/magazine/ business/0,8782,129535,00.html

Asiaweek
Issue 15th June 2001

On His Own

Daim Zainuddin's departure ends one of Asia's most effective political alliances - and begins an uncertain era for Mahathir

By ARJUNA RANAWANA

He went quietly, slipping away from Kuala Lumpur in a small white Proton, the commonest car on Malaysia's roads. The customary silver Mercedes of the country's deputy chief power-broker, Daim Zainuddin, was nowhere to be seen. There was no comment to the media. Daim's boss, Prime Minister Mahathir Mohamad, had already announced that his closest ally over more than two decades had given up his ministerial portfolios. A few days later, Mahathir confirmed that Daim also had resigned as United Malays National Organization treasurer and a supreme councillor. He didn't say why - which only spurred speculation. "In a time of scarce resources, they quarreled over whom to rescue," says Lim Kit Siang, chairman of the opposition Democratic Action Party. Daim lost.

PAPERING OVER THE CRACKS

THE PROBLEM: UMNO is seen to support business cronies. MAHATHIR'S RESPONSE: Ease Daim out and sack a few corrupt middle-rankers. Son Mokhzani Mahathir sells business interests. BUT Malaysians and foreign investors remain skeptical.

THE PROBLEM: UMNO's image is that it is old-fashioned, uncaring and out of touch. MAHATHIR'S RESPONSE: Install feminist Azalina Othman Said in high-profile party role. BUT Jailing of opposition activists under Internal Security Act signals little has changed.

THE PROBLEM: Courts are seen as pro-government. MAHATHIR'S RESPONSE: Appoint a new chief justice. BUT Rebuilding judicial credibility will take time - though one high court justice already has ruled that two ISA arrests were illegal.

THE PROBLEM: Malays are split, so UMNO must depend more on Chinese votes. MAHATHIR'S RESPONSE: Employ two Chinese advisers. Chinese coalition partner buys feisty Chinese press. BUT Newspaper purchase splits Chinese community.

As risky moves go, this one is a doozy. Believed to be Malaysia's richest citizen, Daim, 63, also is thought to be the keeper of UMNO's skeletons. Together he and Mahathir have ensured the party's financial and political dominance, micro-managed the economy, nurtured a coterie of rich Malay businessmen and brooked no interference to their power.

But now the premier is scrambling to placate an electorate increasingly hostile to such autocratic rule. Within UMNO itself, the rank and file complain that the party is indelibly tainted by money politics. Due to address the UMNO general assembly later this month, Mahathir needed to make a big statement. Daim's resignation, whether voluntary or induced, counts as a deafening shout. But will it placate the critics? The outcome is unclear.

Mahathir had prepared the ground for sacrifice. Daim had been on leave as finance and special projects minister for two months; speculation about a rift in the tandem rolled around unanswered. As outrage mounted over government rescues of two tycoons perceived to be Daim proteges - Kuala Lumpur bought shares in Malaysia's national airline at twice the market price from one and channeled public pension funds into a largely ignored listing of the other's internet concern - Mahathir rarely commented. The estrangement began to look deliberate. Daim's removal as UMNO treasurer, a post he has held for six consecutive terms, is particularly salient. First, it further distances Mahathir from any past controversies. Second, it reiterates his determination to enforce party reform. "There is now hope for more checks and balances, and that could alleviate corporate governance issues," says Stephen Hagger, head of CFSB Securities in Malaysia.

Mahathir says he will take over the finance portfolio while a replacement is considered. With long-term economic growth plans already in place, the markets, at least, are unlikely to experience any seismic shift. But not so for the prime minister. Mahathir is now virtually isolated at the top of the pile, minus a trusted confidante in UMNO's inner circle. Twice Daim has answered his emergency call to take up the reins as finance minister. Both times the former teacher, lawyer and magistrate has been credited with helping pull Malaysia clear of crisis. Indeed, Daim is regarded as the architect of the 1980s boom that resulted in annual growth of 8% through most of the decade.