A Doctor in The House: A Memoir of Tun Dr Mahathir Mohamad (111 page)

My family was not spared the criticism that generally greeted these rescue packages. My son Mirzan’s company, Konsortium Logistik Berhad (KLB), had made a profit of RM60.7 million in 1996, but it was so badly hit by the financial crisis that it had a debt of RM2.57 billion by 1997. Its interest payments alone amounted to RM90.6 million for that year. KLB had 40 vessels and three LNG carriers but most were still under financing. The company’s management decided that the only way out was to divest its shipping business and assets. It was a buyers’ market and the only company capable of putting up the money was MISC Berhad, a subsidiary of PETRONAS and one of the biggest international shipping lines in the country. For MISC, the acquisition was a strategic move that would allow it to become the country’s leading shipowner and operator. With the acquisition of KLB’s assets, MISC would have a fleet of 141 vessels. Two foreign companies evaluated KLB’s shipping assets and fixed the price at USD367 million, inclusive of a 20-year charter and USD222 million without. PETRONAS elected to disregard the charter value and offered to pay USD220 million—less than the lowest estimated value. KLB had no choice but to accept, leaving it with an overall loss of RM457.8 million on its books.

Clearly, for MISC and PETRONAS, the acquisition of KLB’s vessels was very profitable. There was no charity involved and the decision was based on good business sense. Anwar has repeatedly alleged that I asked PETRONAS to help Mirzan by buying KLB’s assets for RM2 billion. I had nothing to do with the transaction and all these details can be verified through Government records. In any case, this was not a bailout. When a company in trouble is completely bought over, it is for the benefit of the buyer. This is what happens when foreign companies buy over banks and companies at fire-sale prices when they are in trouble. Bailouts happen when the owner is helped with funds in order to overcome his problems. PETRONAS not only bought KLB at a very low price, but when the shipping business recovered, PETRONAS sold some of the freighters at a handsome profit.

Another project that got into trouble was the Bakun hydroelectric power plant in Sarawak.
[1]
 It was first proposed in 1982 at the beginning of my term as Prime Minister. Hydropower is usually best in snowy, temperate climates where water is drawn from melting snow. The snow melts throughout most of the the year so there is always water to drive the turbines. In the tropics, hydropower depends on rain and since it rains in Sarawak almost continuously throughout the year, it was possible to develop Bakun for electricity. True, the project would have had an impact on the environment, but there always is some sacrifice to be made for any development and certainly for a major project.
 

The initial idea was to carry the electricity across the seas over a distance of 600km, land the cable on the east coast of Johor, and then distribute the power throughout the Peninsula. In the process there would be voltage loss as you cannot boost the voltage at sea. When we first considered the idea, cable technology was not as advanced as it is now, but the manufacturers assured us they could do it. In the North Sea or the Baltic there were cables about 200km long, but nowhere was there a cable 600km long. We were not willing to take the risk that it might fail and since the cost of the cable was the same as that of a thermal power plant in the Peninsula, the idea of having it became less and less attractive.

Sabah and Sarawak did not consume much electricity. The total that might be generated from Bakun would be 2,400 megawatts, far in excess of the needs of the two states. We decided to maximise local use by creating power-intensive industries in Sarawak, which would also help in its industrialisation. The biggest user of electricity that we could think of was an aluminium smelter. It was initially very difficult to look for people interested in aluminium smelting, but as Chinese industrialisation picked up momentum, the demand for aluminium grew. At the same time, many countries decided that since their electricity costs were high, they should shut down their smelters and move them to where power generation was less costly. Malaysia is one of these places, as is the gas-rich Middle East. It took us a long time before we finally found a company, Dubai Aluminum (Dubal), that was willing to set up the smelter and buy the power.

We had started work on the dam before the financial crisis but once it hit, we decided to delay the construction of the main dam and power plant. After we recovered in 1998, we decided to go ahead once again, buying back control of the project from the Bakun Hydroelectric Corporation, the consortium led by Ekran Berhad that had been appointed to build the dam. We had to build the main dam with its spillway as well as the hydroelectric power plant. To ensure sufficient off-take of power from Bakun, we persuaded Dubal to invest in the power plant. With that they would have had to build an aluminium smelter to buy the electricity produced, which presented a win-win formula for them. If the electricity price was low, they would profit from the smelter; if it was high, then they would make money from the power plant. They agreed to build the smelter and take a 30 per cent share in the power plant. Since they were experienced aluminium smelters and had the technology and money to invest, we were quite happy with the arrangement. They paid RM90 million as a 10 per cent deposit on their 30 per cent share. Since the dam was to be built via tender, the price went down quite a bit. A Chinese company, which teamed up with Sime Darby, submitted the lowest bid and got the job.

Construction commenced but very soon after I stepped down, the Government decided they would not give the equity share in the power plant to Dubal after all. The deposit was returned and with this, the incentive for Dubal to invest in a smelter in Sarawak vanished. I was upset—it had taken us five years to get Arabs to come and invest, only to have the succeeding Prime Minister give back the money. Reneging on a contract is not a smart move. The reason our Government gave for the decision was that the Arab investor, Sheikh Rashid Saeed Al Maktoum, had no money. He is, in fact, the ruler of Dubai and he was developing his country and many others in the Arab world and Indian subcontinent. His three companies were capitalised in billions of dollars. To claim that he did not have money for the power plant is absurd. Dubai operates a very big aluminium smelter using natural gas as fuel for the electricity required. They understand the industry and the business so they did not decide to invest in Malaysia’s hydroelectric project blindly or out of misplaced confidence. This was a genuine business opportunity for them.

I subsequently heard that our Government wanted this cheap electricity to benefit poor people in the country. Tun Abdullah Ahmad Badawi, before he stepped down as Prime Minister, said there were plans to bring the electricity by undersea cable to the Peninsula—an idea we had abandoned long ago for good reasons. By the time the electricity reaches here, it will no longer be cheap. The voltage loss over that great distance would be very high, even if cabling technology has improved. In the end the charges per unit would not be lower than a local power plant. So how would poor people benefit from Bakun’s hydropower? The only ones who would benefit would be those who won the contract to lay the undersea cable. They would certainly not be the poor.

Attempts to rescue failing companies in Malaysia continued to be condemned, not least by local detractors. The Press and the public gleefully anticipated the fall of the newly rich, particularly those Malays who had benefited from the privatisation programme. While it is a general human characteristic to fawn upon the rich and famous and then revile them once they stumble, Malays seem to take a special delight in doing so when the fallen rich is one of their own. They labelled any attempt by the Government to help as a bailout and invariably assumed that those who were rescued had to be my cronies. The World Bank and the IMF actually urged that “inefficient” companies be allowed to go bankrupt as it would mean that only the hardiest and most efficient companies would survive the financial crisis. This may be good for the economy, but whether it would be good for our nation and its people was another matter. They did not take into account the extraordinary conditions caused by currency devaluation, nor did they care about the unemployment and other economic and social problems that would accompany these bankruptcies. You don’t push a company over just because it is teetering on the edge.

As a result of taking the World Bank’s and the IMF’s advice, many companies in neighbouring countries literally closed shop, throwing millions of workers out of their jobs. They rioted, burnt down buildings and went on a rampage, raping and killing people. On top of that huge social cost, their economies deteriorated further. Banks and companies from the rich countries, however, were ever ready to come to the rescue. They would buy the financially-troubled companies and banks at fire-sale prices and turn them around. Then they would sell and make huge profits. After “bailing out” the country through loans to settle its foreign debts, the IMF claimed the right to manage the country’s economy as it saw fit. All barriers to foreign takeovers had to be removed, which meant that these countries had to be open to foreign capital, forfeiting their economic independence and national sovereignty along the way.

Mindful of what had happened to some of our neighbours, we could not allow criticisms to prevent us from cushioning the effects of the currency crisis. Moreover, the Government was still committed to the objectives of the NEP—it had to be if the nation’s social cohesion and long-term survival were to be assured.

Today, those rich countries have resorted to bailouts on an unbelievable scale, giving out trillions of dollars. They now know that if they don’t bail out their banks and financial institutions, their whole economy would collapse. They no longer talk about our rescue plans now that they have to resort to the same strategies. However, they will find that their bailouts may not work for them as they did for us.

ENDNOTE

[
1
] Sarawak is the largest state in Malaysia and is located on the island of Borneo.
 

The 1999 General Election, the last in which I led the Barisan Nasional coalition, came only months after Datuk Seri Anwar Ibrahim was sacked as Deputy Prime Minister and expelled from UMNO. Especially with the black eye he got after the Inspector-General of Police hit him while in detention, we knew the Anwar issue would dominate the campaign and shape the election results. I could have delayed holding the election but I was not certain things would change in our favour. Anwar was a skilled politician and a persuasive demagogue—always convincing, he also knew how to endear himself to people.

By the time we decided to call for election, Anwar was behind bars but he had become a powerful symbol around which the Opposition rallied. Feelings ran high against me, even among UMNO members, and women who had loyally supported the party in the past suddenly turned against us and went on to vote for PAS.

Despite the hostility, I decided to go ahead with the election because we had just overcome the financial crisis and had the Chinese community on our side. Thanks to the measures that we had taken, Chinese businessmen who had been on the verge of bankruptcy suddenly recovered and pressure from their banks abated. Many were so grateful that they approached me at public functions to say that I had saved their lives. This convinced me that the Chinese would strongly support the Barisan Nasional, countering the anticipated loss of Malay votes.

The election was a tough one. Negative sentiment among the Malays was palpable with PAS trying to demonise me by calling me all kinds of names. This was hardly necessary—the notorious black eye sufficed to win them many votes and to cost UMNO dearly. Before his arrest Anwar had formed a new political party which he named the Justice Party, or Parti Keadilan. Unable to lead it himself because of his conviction,
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 he had his wife Datin Seri Dr Wan Azizah Wan Ismail step into his place to lead the party and run as a candidate in his parliamentary constituency of Permatang Pauh in Penang. Knowing how the Barisan Nasional always benefited from its inter-ethnic coalition, he had Parti Keadilan propose an election agreement with the other Opposition parties to form a coalition which he called Barisan Alternatif
,
 or the Alternative Front. Tengku Razaleigh Hamzah had adopted the same tactic when he led Semangat 46 and tried to bring PAS and DAP into a pact with his party. Where Tengku Razaleigh failed, Anwar was to do better.
 

The success of any such coalition under our voting system lies in the willingness of its participating parties not to contest against each other. Instead, in every electoral district, they have to support the agreed coalition candidates no matter from what party they come. That was how the Barisan Nasional and before it, the Alliance, had been able to win repeatedly since Independence. The DAP could never accept PAS’s Islamic state concept, which involved implementing the 
hudud
 Islamic laws as PAS understood them. For its part, PAS was equally unwilling to give up its quest for its version of an Islamic state, fearing that it might alienate rural Malay support. Ultimately, the Barisan Alternatif failed to function fully as a coalition and lost to the Barisan Nasional.

When I had been a vocal Member of Parliament in the 1960s, I had been labelled a Malay ultra by Lee Kuan Yew and the Chinese. I had even lost my seat in the 1969 General Election because the Chinese in my constituency turned against me. To find them supporting me so strongly in 1999 while many Malays were lukewarm at best towards me was strange, even ironic. So strong was our Chinese support that the Barisan Nasional did not just win, but again captured more than two-thirds of the parliamentary seats.

As always, I spent polling night monitoring the results at the UMNO headquarters on the 32nd floor of the Putra World Trade Centre. Most of the party’s leaders were gathered there with me, watching the giant television screen that flashed the polling results as they came in. There were cheers whenever we won a seat, and an air of excitement when we had reached first a simple majority—when we knew for a fact that we would form the next Government—and then the two-thirds majority.