A Doctor in The House: A Memoir of Tun Dr Mahathir Mohamad (74 page)

I must admit that despite the profit I made, I did not invest again in those Hong Kong unit trusts. That was my last investment, until I bought 200 shares in Malayan Tobacco. Of course, I am against smoking. During the Japanese Occupation, I had no money to buy cigarettes but I vowed that when the British returned, I would buy a pack of Rough Rider cigarettes and start smoking. It was stylish and macho—everyone was doing it. But when I lit up my first cigarette and inhaled, I choked and got a horrible taste in my mouth. My reasons for opposing smoking are now less personal, and are based on medical knowledge and the public interest. But I bought the Malayan Tobacco shares long, long ago—before I became a Minister—and I still have them. I own no shares in any of the companies listed on the Malaysian Stock Exchange. I did buy shares in our own national unit trust scheme—the Permodalan Nasional Berhad unit trusts—when it was launched as well as in the other state-owned unit trusts every time they were launched. I bought them because I was expected to, and the management wanted me to be seen to support them.

Faced with the problem of Malays selling off their shares upon being allocated, it occurred to me that we might set up a unit trust management entity to buy the NEP-mandated Bumiputera share allocations and then sell units to individual Bumiputera investors. If they wanted to sell them, they could only do so to the unit trust managers. In that way, the shares would not be sold to the non-Bumiputera but would remain with the unit trust managers, who might sell the units to other Bumiputera or hold them in the trust until there were Bumiputera buyers. The units bought back by the managers could still earn dividends. The managers might sell them for capital gains as the market rose, or to avoid losses as the share prices depreciated. Some shares might fall in value, but the spread of the investments would cushion the fall. Only in rare cases, when the whole market collapsed, would managers make an overall loss on their investments.

I wrote to the Governor of the Bank Negara, Tun Ismail Mohamed Ali, asking him to look into the setting up of a unit trust to take over shares allocated to the Bumiputera. The returns from investments should be such that they would be more than from investments in fixed deposits at the banks.

Tun Ismail set up a working group which eventually proposed a complex, three-tier arrangement that practically guaranteed the investors would never lose money. Yearly returns on investments would be more than the interest on fixed deposits. The Government initially provided the Yayasan Pelaburan Bumiputera (the Bumiputera Investment Foundation) with RM200 million in seed money. The foundation would then set up PNB and finance it to buy shares allocated to the Bumiputera. The shares would be transferred to a unit trust management entity (the Amanah Saham Nasional or ASN), and the units would be sold to the Bumiputera at a fixed price of RM1 per unit. The buy-back price would also be RM1 per unit. The unit trust holder could sell back the units at any time, but only to PNB. In the meantime, he would earn dividends based on the units he held.

The Ministry of International Trade and Industry then allocated more than RM2.5 billion worth of shares to PNB, all intended for the Bumiputera. PNB bought over plantation giant Guthrie Corporation for RM1 billion, sold off its non-plantation businesses and made RM600 million in profit. It also acquired Harrisons Malayan Plantations (renamed Golden Hope Plantations), London Tin (renamed Malaysian Mining Corporation Berhad), Kontena Nasional Berhad, United Motor Works and Kompleks Kewangan Malaysia Berhad. When it was set up, ASN was open-ended, but it grew so big that a second unit trust company was launched, the ASB, or Amanah Saham Bumiputera. By 1990 ASN and ASB had 4.3 million unit holders between them. Dividends paid amounted to RM4.15 billion, with a RM2.52 billion special bonus allocated to ASN unit holders.

PNB succeeded in more ways than just ensuring that shares allocated to the Bumiputera remained with them. A campaign to get them to invest in unit trusts was launched and it included education about the share market, its functions and how it could be a way of saving money. In the process, the Bumiputera began to understand more about the modern economy, the function of money as capital, the management of capital and the ways that it may be raised for business purposes. They also learnt about how banks functioned and how and when they should borrow. Previously, they borrowed from 
chettiars
 or Indian moneylenders, usually providing their land as collateral. Not knowing how to use the money they borrowed prudently, they frequently lost their collateral. They often had no plan for repayment. Usually they borrowed to fund things which gave no return, such as weddings. They expected to repay their loans from their normal incomes, and very often they would not be able to service the loan or pay the principal.

When the Government began encouraging Malay investment in shares, it had hoped to create a nucleus of a growing Malay investment community. But fears were expressed, and soon confirmed, that even if this approach were to work and people did not sell off their recurrent share allocations for fast profits, too much of the NEP’s benefits would accrue to too small a group of Bumiputera investors. Most poor Malays would remain strangers to the benefits of unit trust investment. This problem needed attention so PNB was careful to give the poorest people an opportunity to invest and benefit from the economy’s heartening growth. They made a special provision so that for as little as RM10, people might already own units in the trust. For that RM10 investment, they would be allotted not 10 but 100 units, all to be paid for from the gradually accumulating dividends. Knowing that they too held a share in the nation’s top businesses and companies gave new pride to the poor.

In 1996, after some years of successful operation, it was decided that Malaysians of Thai origin should also qualify to buy the units. Next it was decided that Portuguese Eurasians should be eligible as well. Finally, a special unit trust fund was created for all Malaysians, including the non-Bumiputera. It soon became clear that the Thais, Eurasians and other non-Bumiputera had bought more units per head than the Bumiputera. While there were more Bumiputera unit holders, their average holdings were smaller and their total investments did not reflect their numbers. Were the Bumiputera less investment-oriented? Or did they just lack funds to invest compared to the non-Bumiputera? Perhaps, with newfound confidence, they were now investing elsewhere. It would have been useful to know.

While our policy of encouraging investment among Malays was perhaps not the success that we had expected, it was not a total failure either. At least the Bumiputera were now saving more than they had before. More significantly, perhaps, the people who ran unit trusts learnt a lot about finance. To those who complain about our opening the trusts to non-Bumiputera participation, one must reply that it would not have been fair to keep them out forever. We were initially using government money, money that belonged to all Malaysians.

We find that Malays regard the unit trust as a kind of savings bank. They would redeem their shares whenever they need money, as for example when going on pilgrimage. If they have some money to save they would buy unit trust shares. This is not bad because this way the money would be earning some dividends and to a certain extent would counter the depreciation of their savings due to inflation.

As of 2008, the number of PNB unit trust account holders stood at 8.9 million, up from 840,000 account holders in 1981. PNB invests in the international equity market and provides training in investments and scholarships for higher education. PNB has also given out dividends totalling RM60 billion to date and has invested in more than 300 companies. Most Malays, I fear, neither recognise nor appreciate this. Perhaps it is human nature to appreciate change only if you know how things were before. Our young people do not. They know only what came after so they don’t see any difference. What they do see, they take for granted. But older Malays should know better and perhaps they can still help the younger generation to understand.

The success of the PNB unit trusts led to other organisations and states setting up unit trusts. Even Majlis Amanah Rakyat (MARA) operates unit trusts for the Bumiputera. But all these other unit trusts value their units according to the value of their investments. If their investments show no great rise in share price or dividends, people are inclined to sell their units back to the managers, who must take on the loss since they do not guarantee a buy-back price. These fund managers are not as popular among Malays and Bumiputera as the unit trusts operated by PNB.

Many states tried to emulate PNB’s success and set up their own funds, guaranteeing big earnings for the unit holders. All went well for some time. But during the stock market collapse triggered by the devaluation crisis, the value of the state share funds dropped. For a while their units had inadequate backing, but when the unit holders wanted to redeem their shares, the state funds were unable to even pay the prices at which the shares were bought. Many investors lost faith in these state-operated unit trusts. During the downturn, they paid no dividends. They are doing better now because the value of their shares has improved, but it took many years before the market recovered and the share prices regained their original value. Thankfully, the problems with state funds have now been largely resolved.

As a form of affirmative action, public investment trusts are unique. The governments of many developing countries have since tried to emulate PNB because they see a system that yields steady and predictable returns, but few have succeeded. It is a model that seems particularly suited to the conditions of multiracial countries. In Malaysia, it has been the instrument to bring together the money-making capacities of the Chinese and the public-mindedness and capacity for public administration of the Malays, for the benefit of all Malaysians.

Our Malaysian managers have since acquired much knowledge about business. Whether they can successfully apply this knowledge in their private business after they leave fund management is still uncertain. One of them did, and failed, blaming the Government for his failure. But the funds have succeeded in improving the knowledge of Malays about business in the modern environment and have ensured that they hold substantial shares in the corporate sector. Apart from the huge number of scholarships given for higher education—well over 100,000—which have enabled poor Malays and Bumiputera from all over the country to gain tertiary and professional qualifications, PNB has registered great achievements in its core activities. The majority of its unit trust account holders are now better off. They were not rich or even well-off when they started to invest. This simple fact refutes charges that the NEP benefited only the rich, or the cronies of the Prime Minister. Besides, their numbers run into millions and they cannot all be the rich cronies.

Ownership of the units is fairly and widely distributed. Those with more money cannot buy up large numbers of units as every fund has a maximum number that a unit holder can own. The NEP is about equitability at all levels. The unit trusts cannot achieve this. Reducing economic disparities among races means not just equal poverty but also equal wealth. All communities must have equity in wealth also. Methods other than the unit trusts had to be devised to ensure equitability among the middle class and the rich. That is why we developed such a wide range of initiatives in education, including scholarships and training, together with opportunities and assistance to set up businesses, such as capital and affordable premises.

PNB has undeniably contributed much towards giving the Bumiputera a permanent and beneficial stake in the corporate sector. In doing so, it has gone a long way towards solving the nation’s core problem—the issue of inequity in ownership of corporate wealth. The disparities that plague us now are the legacy left by the Colonial Government’s construction of a plural society, characterised by ethnic separation and a marked, racially-defined division of labour. The British created that problem over the 80 years they ruled this country; those who criticise us for trying to correct the imbalance should remember that the imbalance is not of our own creation.

There is still much that we need to do to repair the damage that was left to us. But what we have already done, under our NEP and through PNB, is momentous. No other affirmative action scheme anywhere in the world has, to my knowledge, worked better, and Malaysians ought to be proud of this achievement. We need apologise to no one.

ENDNOTE

[
1
] In Islam,
riba
is forbidden because it is considered to be profit that is gained without effort or risk.
 

I was born a Muslim and I was brought up as a Muslim child. Very early on, I learnt to pray and to fast. My mother and a tutor taught me to read the Quran though I received little explanation on the contents.

My faith was strong and my belief unquestioning. Islam was my religion and I could not visualise being anything else except a Muslim. I just could not imagine any Muslim forsaking his religion. He may not be much of a practising Muslim but his commitment to Islam surely could not be shaken.

My house was surrounded by houses and shops where people of other faiths lived and worked. In front of my house was a Chinese shop which had an altar facing the entrance. Before a portrait of a deity were placed bowls filled with sand with joss sticks stuck into them. Off and on, I would see the old women with joss sticks in hand praying to the deity.

When we were poor during the Japanese Occupation, we had Indian Tamils living under our house. They had no altars or carved gods but I knew they would pray to gods installed in their temples.

At school among my classmates was a Eurasian boy who was Catholic. Of course when I went to university to study medicine, my classmates were of many faiths.

My knowing all these people from other religions, and being friends with them, did not undermine my own faith. But I never talked to them about religion. Instinctively I knew that we might get into arguments which might affect my relations with them.