'If We Are Going to Bail Out the Company, Why Does He Have to Stay? ' : Malaysia Turns Its Back on Tycoons 
International Herald Tribune
January 11, 1999
Thomas Fuller

When critics complain about Malaysia's brand of crony capitalism, the name that usually comes up first is Halim Saad, a boyish-looking millionaire who runs the country's largest infrastructure company.

Political connections do not get any better than this: Mr. Halim's company, Renong Bhd., was once the business arm of the governing political party. Over the past decade, Renong has secured many of the most prized government contracts, and Mr. Halim is a friend and protégé of Daim Zainuddin, the governing party's treasurer who was appointed finance minister Friday.

Yet Mr. Halim is in trouble, and so are many of the cash-strapped Malaysian cronies these days as the government becomes increasingly reluctant to bail them out for fear of a public backlash.

Since economic turmoil swept through Southeast Asia 18 months ago, it has been fashionable, especially in the context of Malaysia, to speak of crony capitalism — close links between businessmen and governments. These links, the argument goes, are impediments to reform because bad management is not punished. Governments bail out companies, but the same faces remain at the top.

But the government's recent attitude toward some high-profile Malaysian companies in recent weeks, including Renong, tells a different story.

The Finance Ministry has rejected an initial plan to rescue Renong from its sea of debt, and the government has allowed foreign creditors to pursue defaulted debts.

"There is a feeling that if we are going to put money in, why don't we take control?" said a government adviser who has spoken to both Mr. Daim and Prime Minister Mahathir bin Mohamad about the issue.

Renong is not the only crony company in trouble.

The Malaysian central bank took control of the largest finance company in the country, MBf Finance Bhd., last week. Frustrated with the management of the company, the bank effectively fired the chief executive officer — a member of a high-profile family — and replaced him with a bureaucrat.

In December, the head of the country's largest financial-services group, RHB Bhd., ceded control of his company after the government helped restructure his debts.

Rashid Hussain, the controlling shareholder and founder of the group, took a "crew cut," in the words of Tan Siok Choo, a visiting fellow at the Institute of Strategic and International Studies in Kuala Lumpur. His stake in the group will be reduced to 17.3 percent from 29.3 percent without any cash compensation.

"Rashid could become the standard-bearer of the quiet revolution that ushered in a new era of corporate governance and accountability," Mr. Tan wrote after the deal was announced.

Accountability is not confined to business these days. Last week, the top police officer, Abdul Rahim Noor, resigned and took responsibility for the September beating of Anwar Ibrahim, the ousted deputy prime minister.

"It shows the world and the people that the prime minister is not protecting anyone," one cabinet minister said of Mr. Abdul Rahim's resignation.

But perhaps the most striking development has been the government's new attitude toward Mr. Halim and Renong.

The company has been the embodiment of Kuala Lumpur's openly advocated policy of close links between government and corporate chieftains that has been referred to as "Malaysia Inc."

A few months ago, given Mr. Halim's political connections, his position might have been the most secure in the country. But suddenly his job looks tenuous.

The prime minister recently told the government adviser that, while he wanted to make sure that Renong as a company did not fail — about 10,000 jobs are at stake — Mr. Halim's job security was another matter.

"If we are going to bail out the company, why does he have to stay?" Mr. Mahathir was quoted by the adviser as saying in a recent cabinet meeting.

Mr. Halim is squeezed between foreign creditors eager to recoup their money and an increasingly bailout-weary government.

Analysts say the foreign creditors are seeking government guarantees for their restructured debt but that the government has balked at the prospect, thinking that it will be perceived as a bailout.

"The only way they could do it without causing too much public uproar is that Halim has to be sacrificed," said Lai Tak Heong, head of research at SG Research Malaysia Sdn. in Kuala Lumpur. "That may well happen eventually. Rightly or wrongly, a lot of the talk about cronyism is focused on this one person."

Mr. Halim's bargaining chip is clear: He has built up goodwill with the government over the past few years. Unlike other companies that were given large-scale projects, Mr. Halim and Renong have completed major works on time.

The appointment Friday of his longtime mentor, Mr. Daim, to the post of finance minister, might also help secure his job.

But, the government adviser said: "He is one of the most prominent cronies, so to speak. Politicians are politicians, and they must respond to their constituency."

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