Malaysia adjusts to life after Daim
By Anil Netto

PENANG, Malaysia - Uneasy questions about Malaysia's political and economic landscape are rising in the wake of the falling out between Prime Minister Mahathir Mohamad and a long-time ally and a key political meeting coming up later this month.

Nearly a week after Mahathir confirmed the resignation of Daim Zainuddin as finance minister, coffee-shop talk has now shifted to who will succeed him after Mahathir announced he was taking over as acting finance minister. The departure of Daim, who had been a key Mahathir ally until he went on leave two months ago, comes at a restive time for Malaysia.

Apart from the fact that it triggered political speculation - about rifts in the political elite and its happening as the prime minister prepares for a June 21 general assembly of his United Malays National Organization (Umnn) party - it is also a major blow at a time when economic growth prospects are fading.

Officially, the Malaysian economy is expected to grow by 4 to 6 percent this year, but private analysts are predicting growth rates of as low as 2 percent. That is a far cry from the 8.3 percent growth rate that Malaysia's economy posted in 2000. For the first quarter, the economy's growth rate was just 3.2 percent. Whoever eventually takes over as finance minister will have the unenviable task of steering the economy away from recession - a subject that is on many Malaysians' lips these days.

The relationship between Daim and Mahathir spans two decades, but analysts believe it was strained as a result of major policy and corporate decisions made by the influential finance minister that created tensions with Mahathir. The last finance minister to fall out with Mahathir was former deputy premier Anwar Ibrahim, who was sacked from the cabinet in September 1998 and is now serving a 15-year sentence for corruption and sodomy. Anwar's ouster unleashed the reformasi (reformation) movement calling for wide-ranging reforms.

"The Mahathir-Anwar rift had significant political implications," says political economist Terence Gomez, "but the Mahathir-Daim rift has corporate implications."

Some believe the purported rift between Mahathir and Daim may be traced to the bank merger exercise that was announced soon after Anwar was removed from office in 1999. Under the initial scheme, the government decided to forcibly merge 54 financial institutions into six designated anchor banks. In March, Singapore-based BusinessWeek magazine said under the six anchor-bank scheme, they would have been headed by banks known to be run by associates of Daim. After the banks missed deadlines to merge, the government announced that it was enlarging the controversial scheme to 10 anchor banks. Rumors about a rift between Mahathir and Daim circulated at the time.

Daim's departure also comes on the heels of a series of controversial corporate deals, including the government's buyback of Malaysia Airlines at more than double the market price of the shares, in a deal widely seen as a bail-out. It also follows the hugely undersubscribed listing of Time dotCom, whose shares were only 25 percent subscribed. The remainder was taken up by underwriters, who eventually passed it on to three firms including two state-managed workers' pension funds. This triggered a public outcry as the Time dotCom share price slipped.

While Daim was on leave, Mahathir's son Mokhzani announced that he was divesting all his corporate holdings, including in companies that had a stake in Phileo Allied bank, acquired during the bank consolidation exercise two years ago.

More controversial news followed: the profitable national postal system was abruptly privatized to Phileo Allied, despite criticism that the national postal system could have secured a market listing on its own merit instead of being privatized.

Some also believe these controversial deals have contributed to or were the result of the souring of the relationship between the two most powerful men in the land. There is also talk that the perceived bail-outs were eating into Malay support for Umno and that Daim's departure could have been aimed at deflecting potential criticism at tbe Umno general assembly.

But, unlike in the Mahathir-Anwar rift, there has been no public backlash between the premier and Daim.

Still, there are likely to be repercussions. "The key focus will now be on what happens to Daim's boys" in the business world, says Gomez, pointing out that there would be implications on ownership and control of politically linked firms.

Opposition politician Lim Kit Siang said the Mahathir-Daim fall-out would only aggravate market uncertainty and depress investor confidence, but sees no changes in economic policy otherwise.

"There are no indications that Daim's departure will signal long-awaited economic reforms toward greater transparency, accountability and good corporate governance and an end to the policy of bail-outs and buy-outs of crony companies and individuals at public expense," he added.

According to Lim, the Mahathir-Daim fall-out is not over policy differences on whether to end the policy of bail-outs and buy-outs. Rather, he claimed, it was "over differences as to who should be the beneficiaries of such government bail-outs and buy-outs at a time when the government must pick and choose the beneficiaries as public resources are stretched to the limit and are incapable of saving all crony companies and individuals".

Meantime, as economic conditions worsen, Mahathir is seen as likely to rein in dissent. In April, 10 key reformasi activists were detained under the harsh Internal Security Act. Two of them were freed by the High Court on May 30 and another two have since been released by police, leaving six still in detention.

On May 30, a key partner in the Umno-led ruling coalition, the Malaysian Chinese Association (MCA), announced that it was taking over two relatively independent Chinese-language newspapers despite protests from Chinese associations and media activists as well as from within the MCA. Many read the move as an attempt to tighten control over the media and narrow the space for dissenting views, as well as another sign that the ruling coalition has been increasingly relying on non-Malay support after its traditional Malay support base was split following Anwar's ouster. Almost all the major electronic and print media are now controlled by parties friendly to the ruling coalition.

Meantime, Mahathir appears to be in no hurry to name a successor to Daim as finance minister. "The [job application] forms have been sent out. I have finished the forms already," he joked to reporters.

(Inter Press Service)