By Terence Gomez
Halim Saad’s billion-ringgit suit against the government, a former minister and Khazanah Nasional puts the spotlight on political business — the ownership and operation of businesses by political parties. Our columnist looks at the suit in this context and opines that the suit should take its full course and that lessons must be learnt from it.
When Halim Saad filed his massive RM1.3 billion suit against Khazanah Nasional, it returned to the fore a trend in Malaysia that defines its political system — the practice of political business.
The term “political business” was first employed to describe the practice of political parties owning corporate equity, a factor that led to the rise of large investment holding companies such as UMNO’s Fleet Holdings (which owned, among other leading firms, the New Straits Times Press and TV3), the MCA’s Multi-Purpose Holdings and the MIC’s Maika Holdings.
All these holding companies would come to be mired in controversy, a factor that led to UMNO transferring its assets to trusted nominees in the early 1990s.
Halim Saad
Enter Halim Saad, who by his own admission, had long served as an UMNO trustee, though he answered primarily to his mentor, Daim Zainuddin, then the Finance Minister, and to then Prime Minister Mahathir Mohamad.
Halim had been fortunate to come to hold in his own name the vast corporate base that UMNO had built during the 1980s when Fleet Holdings was under Daim’s control. Halim was also in the right place and at the right time as Mahathir was then actively voicing his intent to produce an ensemble of entrepreneurial Bumiputera capitalists.
Mahathir justified the selective patronage system he would introduce by arguing that the best way to create Malay capitalists was to distribute government concessions to those most capable of generating wealth.
This marked the beginning of a different sort of political business nexus, one characterised by an intimate familiarity between UMNO and elite businesspeople. This form of political business would define Mahathir’s premiership and become a constituent feature of future UMNO-led governments.
Mahathir relied heavily on Daim to aid his vision of creating huge internationally-renowned Malay-led conglomerates. Both men were captivated with the workings of the stock market and saw Bursa Malaysia as a route to rapidly creating domestic capitalists.
Mahathir Mohamad
Malaysia’s stock market capitalisation relative to GDP (gross domestic product – goods and services produced) would emerge as the highest in Southeast Asia. Between 1989 and 1993, equity market capitalisation as a percentage of GDP increased from 105% to 342%. By 1997, the Bursa Malaysia was listed as the 15th largest in the world in terms of market capitalisation.
A form of “casino capitalism” was the result of this deployment of the bourse to create conglomerates, which reflected Renong’s pattern of corporate development. This casino capitalism was welcomed, even celebrated — many got rich by it — until the 1997 Asian currency crisis.
Things fell apart quickly and this crisis disclosed not just the problems with this type of corporate growth but why political business ties, ostensibly for the purpose of redistributing wealth equitably and nurturing Bumiputera capitalists, was simply not a viable way to implement policy.
Daim Zainuddin
The history of Renong’s development and Halim’s suit suggests that, in spite of privatisation, Mahathir and Daim would use their now indirect control over this business group to show Bumiputeras how to nurture domestic firms.
The suit also suggests that UMNO leaders, having once granted corporate equity to private individuals, were not bound to honour the latter’s ownership rights. The nationalisation of Renong also reveals that UMNO leaders were capable of using government institutions to relinquish business people of their assets following disputes, a factor that would undermine public confidence and contribute to serious wastage of government resources.
In this context, what is interesting about the suit by Halim is that it does not mention Mahathir or Daim, only the public institution and person deployed by them to sort out the problem of the UEM-Renong share buyback controversy that had undermined investor confidence during a period when the economy was struggling to deal with the repercussions of the Asian crisis.
That Halim did not name Mahathir and Daim suggests that he is open to a compromise, one where he retrieves companies untimely ripped from him, as he would see it, or be privy to adequate compensation to enable him to re-emerge as a major corporate figure in his own right. It also suggests that, to Halim’s mind, Mahathir remains influential enough to determine how his legal suit with Khazanah should proceed.
It would be unfortunate if this suit is not taken through due process in a court of law as there are important lessons to be learnt here. One key lesson would be how not to develop an enterprise. The second lesson is the enormous public cost of selective patronage ostensibly to develop Bumiputera-led big business, a practice which can also contribute to business nominees holding corporate assets in trust for UMNO. The third lesson is the need to end political business ties that continue to define the Barisan Nasional government.
A select group of well-connected individuals is still privy to major privatised contracts while one businessman in particular, Syed Mokhtar Al Bukhary, has benefited from numerous government concessions allowing him to develop a conglomerate in a manner that appears strikingly similar to the pattern of growth of Renong under Halim.
The Najib Abdul Razak government has already been subjected to serious criticisms for privatising a range of public enterprises to Syed Mokhtar. Selective patronage by politicians in power continues to be exercised in a manner that is not transparent, in spite of persistent statements in government plans about the need to dispense with “rent seeking” and “patronage”.
While patronage continues to define UMNO politics, the nature of the quid-pro-quo has become more obscure with greater difficulty in tracing the flow of funds between businesspeople and politicians, an issue that raises concerns about covert concentration of power.
This multi-billion suit by Halim will draw attention to these facts as well as indicate how things can go very wrong if we do not learn the lessons of history. And, if a similar corporate crisis recurs, a GLC like Khazanah may not be in a position to bail out well-connected over-leveraged firms that can ruin Malaysia’s economy.
Terence Gomez is professor of political economy at the University of Malaya and the author of Politics in Business: UMNO’s Corporate Investments (1990), Political Business: Corporate Involvement of Malaysian Political Parties (1994) and Malaysia’s Political Economy: Politics, Patronage and Profits (1997).
You must be logged in to post a comment.