The original KLEPTOCRATIC regime

Extracts from Nikkei Asian Review:

Before Mahathir looks to the future he must exit the past

by William Pesek - 04 June 2018


Mahathir Mohamad circa 1998 would not recognize 2018's Mahathir -- and that is a good thing.

As prime minister in the 1990s, Mahathir was the father of Malaysia's modernization, presiding over rapid industrialization and huge infrastructure projects that put it on the global investment map.

But investors came to distrust his autocratic tendencies, anti-capitalist rhetoric and the ways of a regime that critics denounced as kleptocratic.

They took the opportunity to flee amid the 1997-1998 Asian crisis. 

Today, at 92, Mahathir seems downright warm, fuzzy and business-friendly. In an uncharacteristically calm voice following last month's surprise election win, Mahathir said: "We strive to be a trading nation. A trading nation means markets and you do not quarrel with your markets. You try to be friends with them." [...]

But the bad news is that Mahathir has yet to articulate plans to overcome the biggest challenges facing Malaysia.

The most immediate is impressing investors. Mahathir's initial priority is reining in government finances he says are in a "horrid state." How, though, can he reconcile the bevy of populist handouts he promised voters with his fiscal disciple pledge?

As Finance Minister Lim Guan Eng told the South China Morning Post a few days ago, "we want to be a 'what you see is what you get' government.'"

It is hard not to see that Mahathir's pledges to cut taxes, renew fuel subsidies, write off farmers' debt and dole out cash bonuses to civil servants and pensioners will be impossible to meet.

Plans to scrap the 6% national goods-and-services tax alone makes meeting 2.8% fiscal deficit target for 2018 (from 3% in 2017) seem fanciful.

more expensive without GST??? 

Mahathir also will face difficulties instilling financial discipline within his Pakatan Harapan coalition, which is ruling for the very first time.

The new government is being creative in launching a crowdsourcing effort to reduce national debt. A few donations, though, will be no panacea for a prime minister who promised far more in largesse than tax receipts are likely to generate.

Bringing the top executives of state-owned enterprises to account and tightening corporate governance must be priorities. Open tenders in public procurement should come as soon as possible. The push for transparency and efficiency would also get a serious boost by listing state oil company Petronas. It would be a vital first step toward reducing the role of state companies, paying down debt and signaling to investors that Malaysia is pro-business.

Mahathir must reverse steps he took in the 1990s to weaken the judiciary, water down parliament's powers, jail critics and neuter the media. Sadly, Najib learnt from his former mentor and deepened the assault on institutions that hold leaders accountable.

There is also the matter of foreign economic partners. Mahathir criticized Najib's cozy ties with China and his overreliance on mainland cash. Malaysia, Mahathir warns, risks becoming "the next Sri Lanka," a reference to heavy debts smaller countries take on as part of Chinese infrastructure projects.

In the search for alternatives, Mahathir would be wise to renew his old friendship with Japan, where he is due to pay a visit this month. Prime Minister Shinzo Abe, after all, is anxious to expand Japan's influence in Southeast Asia. Abe could kick in a generous plan to build a bullet-train link from Kuala Lumpur to Singapore -- with Tokyo and the private sector assuming most of the cost so as not to wreak Malaysia's balance sheet.

Mahathir could reciprocate by giving Tokyo greater access to Malaysia's resources. It is a win-win that would throw Beijing off balance.

Dr M must prove the 90s are really over. Last week, another blast from Mahathir's past, financier George Soros, warned "we may be heading for another major financial crisis."

In the late 90s, remember, Mahathir blamed Soros -- whom he called a "moron" -- for the ringgit's sharp drop. Now, as the ringgit comes under downward pressure anew, Mahathir is pointing to Najib's neglect. But Mahathir should look in the mirror, too.

In the years after 1997 and 1998, Indonesia, the Philippines, South Korea and Thailand, to varying degrees, let the forces of creative destruction cleanse financial systems. Mahathir's approach was from the populist playbook: impose capital controls, call currency trading "illegal" and circle the wagons. As a result, Malaysia still has one foot stuck in a bygone economic era.

Voters are looking forward as they give Mahathir a chance to right the wrongs of two decades ago. Mahathir, in turn, has the future in mind with plans to pass the baton to Anwar Ibrahim, his 70-year-old ally, in a year or two. Both men need to bridge the gap between the vibrant Malaysia of their dreams and political reality.

An obvious way it to shake up Malaysia's sprawling bureaucracy.

The new government plans to save about $2.5 billion on such reforms this year. Why not raise those ambitions? A labyrinthine bureaucracy that protects the status quo. It keeps the fruits of Malaysia's 5% annual economic growth from trickling down to those being left behind.

The downhill journey for our once-impeccable Civil Service started with Operasi Isi Penuh which doubled its workforce of approximately 400,000 to a massive 800,000 in 1983.

The very title of that operations Isi Penuh gave an inkling of the recklessness of the recruitment into the Malaysian Civil Service (MCS).

The conceptualizer was none other than then-PM Mahathir

Like most of his schemes, his Operasi Isi Penuh was a terrible failure.

But in fixing a tactical problem he endowed us with a strategic headache, as he had done so with so many other issues, eg. judiciary, senate, forex, bmf, bank bumiputra, maminco, memali, Sabah illegal influx, perwaja, proton, bakun, road tolls, etc etc etc - so what's new?.

for more see:

(a) Isi Overflow?
(b) Ops 'Isi Penuh' revisited 

Perhaps the greatest challenge of all is the country's deep-rooted system of race-based quotas, which discriminate in favor of the dominant ethnic Malays at the expense of the Chinese and Indian ethnic minorities.

Mahathir and Anwar are painfully aware of the political passions involved. Back in the 1990s, when Anwar was Dr M's deputy prime minister, he enraged his boss by calling for an end to affirmative action.

Now, Anwar 2.0 is telling Malays fearing a loss of status and benefits not to worry. The new government, he says, will "honor the guarantees" for so-called Bumiputeras.

That would be a grave mistake. Restricting the access of Chinese- and Indian-Malaysians to affordable housing, college scholarships, government jobs and contracts amounts to preserving economic apartheid.

These retrograde policies, says economist Udith Sikand of Gavekal Research, means that, "longer term, Malaysia is destined to remain stuck in the middle-income trap," which can afflict developing nations when they approach the $10,000 income level. That is where Malaysia is today. And it is where it might stay unless Mahathir and Anwar break with the past.