Daim's Holiday 
The finance minister's long leave of absence prompts speculation about future fiscal policy

Asiaweek

FINANCE MINISTER Daim Zainuddin's decision to take a two-month leave of absence, confirmed on April 18 by Premier Mahathir Mohamad, suggests a rift between the two men, and could presage Daim's eventual departure from the powerful ministry. With Malaysia facing a slowdown would Daim's exit spook the economy?

Not really, most analysts say. Malaysia's general economic direction is unlikely to change, as demonstrated by the announcement of the business-as-usual Eighth Malaysia Plan in parliament just days after Daim's leave began. But Daim's absence will yield a power shift towards one man--Mahathir himself. And that means that policies held dear by Mahathir, such as capital controls and the ringgit's peg to the U.S. dollar, will remain in place. If Daim's influence is waning, capital controls are unlikely to be reversed any time soon.

On the corporate front, clearly Mahathir is no longer content to leave major decisions to Daim. It may signal the end of a relationship that was grounded in mutual trust, allowing Mahathir to handle political issues and leaving economic and corporate management in Daim's hands. "The deal before was that Mahathir trusted Daim to do things," says a former federal minister.

Rumours of a Mahathir-Daim rift have been circulating since a 1999 bank consolidation exercise in which the premier overrode Daim's wishes. Despite denials from both men, fresh rumours resurfaced this year after it seemed that the premier was beginning to distance himself from his finance minister over widespread criticism of two deals linked to Daim--the late-2000 nationalization of Malaysia Airlines and the loss on paper of 105 million ringgit ($28 million) after the civil service's pension fund was used to underwrite the flotation of Time dotCom, which tanked upon listing. Both companies were connected to protégés of Daim.

According to senior party officials, Daim was criticized at various levels in the ruling United Malays National Organization, or Umno, over the deals. Senior government officials also say that Daim came under fire in a recent cabinet meeting, at which he was not present, without being defended by Mahathir. The criticism was mainly over the share deals but also involved complaints that the Finance Ministry insisted on control over some contracts awarded by other ministries. An eventual Daim exit could mark an erosion of power away from the Finance Ministry towards other agencies.

Mahathir, when asked whether Daim's extended leave presaged a resignation, stopped short of a categorical denial. "You'd better ask him," said Mahathir. "If I say anything, he might get angry."

Daim himself has said little, though his aides have been working overtime trying to dispel notions of resignation. According to other sources, when a senior Malaysian politician asked Daim recently why he'd taken leave, the finance minister replied bluntly: "I'm sick and tired of Umno."

A lesser-known deal, Umno officials say, that may have irked Mahathir involved banking group Phileo-Allied. Phileo's major shareholder is now a company controlled by Mokhzani Mahathir, the premier's son. In January, its banking business was sold--it's now a listed shell with 1.2 billion ringgit in cash. That makes it eminently valuable but Mokhzani's efforts to sell the company have been futile so far. An attempt to sell the company to a Hong Kong businessman in February was blocked by regulators who report to Daim.

For the next two months at least, Mahathir will be taking second opinions on the economy from two advisers who report directly to him--former central bank adviser Nor Mohamed Yakcop and former central bank governor Ali Abul Hassan Sulaiman. Under their more bureaucratic and less personal purview, economic policy could become more transparent and predictable. Umno officials say that Ali has already been asked to find out which companies and their owners benefited from privatization and government contracts.

Even so, most analysts hesitate to say the split is final. The two men go way back. Daim, as Umno's treasurer since 1984, is perhaps the only man who knows where all the money goes. And Daim "has never hesitated to take the heat for Mahathir," says a close Daim associate, adding, "Things are not always what they seem."