Malaysian Maverick: Mahathir Mohamad in Turbulent Times Read online

  With the highway contract as its bedrock, United Engineers, which had voluntarily suspended trading in its shares for five years until 1988, prepared for a phoenix-like rise. Toll revenue and management fees alone would guarantee the company about a 17 per cent return on its outlay. In addition to the basic contract, revised from RM3.42 billion to RM5.7 billion, rising eventually to RM7 billion, there were multiple spin-offs, such as roadside advertising, service stations, rest areas, restaurants, towing concessions and cable-communication lines. With a 60-metre right-of-way on both sides of the highway, United Engineers effectively had become one of Malaysia's largest landholders.[67]

  The Time Engineering deal was a model for the rapid expansion that followed. By entering a series of financial and partial-ownership arrangements with major subcontractors, United Engineers and UMNO tried to ensure quick returns from work finished, rather than waiting several years for toll revenue to grow as stretches of the highway were completed. The acquisition of controlling stakes in listed companies and the creation of affiliated joint-venture construction concerns required little cash and generated ready income. Largely by swapping sharply appreciating United Engineers shares for those stakes, the company moved easily into the cement industry, electrical contracting, manufacturing and property. United Engineers also landed a host of other government contracts and privatization deals, ranging from land reclamation to a second road link with Singapore, and manufacturing drugs and distributing medical and dental products to state-run hospitals.[68]

  By early 1990 UMNO, through proxies working on its behalf, principally Halim Saad and Anuar Othman, had regained control of most of the party's assets.[69] And, largely through United Engineers, those proxies had also built Hatibudi Nominees into another large business group that was ultimately beholden to the UMNO leadership.[70] One significant chunk of shares in Utusan Melayu Press, however, remained beyond the reach of the leadership. They were registered in the name of Tengku Razaleigh, the former party treasurer. He signed a public declaration that the shares belonged to UMNO and authorized the company to pay any dividends to the party, but refused to sign them over to a proxy, "afraid that somebody may hijack them".[71]

  To consolidate what was threatening to become an unwieldy corporate sprawl and to get a grip on its runaway debt, UMNO in April 1990 restructured its businesses in one of the largest financial arrangements in Malaysia's history. It was valued at RM1.23 billion, though no cash was involved.[72] UMNO designated Renong Bhd., a modest-sized property company, in which to merge the party's controlling interests in eight publicly listed companies and dozens of its unlisted concerns, converting it into one of the biggest holding companies in Southeast Asia. The stakes included those in United Engineers and the bulk of the profitable communications and financial operations of Fleet Group. Renong swapped a controlling block of its shares for the party's corporate stakes, giving UMNO a commanding interest in Renong. To generate nearly RM440 million in cash for UMNO, Fleet Holdings sold some of its new Renong shares to existing Renong shareholders and reduced its stake in the company to 28.5 per cent. UMNO was in no danger of losing control of Renong, because Halim Saad also held, directly and indirectly, a substantial stake.[73]

  Also subsumed under the Renong corporate umbrella were the ever-evolving companies in Halimtan Sdn. Bhd., another UMNO-linked conglomerate in which Daim figured prominently. Halimtan, an exempt private company whose activities spanned gambling, gold mining, manufacturing, food retailing and financial services, was an example of how common directorships were used to shift assets from the government to private, UMNO or party-related business groups.[74] A number of publicly listed former tin mining companies were separated from state-owned Malaysia Mining Corporation Bhd., becoming the core of Halimtan later, via a web of minority shareholdings and common or sympathetic directors.[75] The intricate manoeuvres showed "the increasingly symbiotic relationship between the government and the party".[76] In one "extraordinary passage" tracked by analysts, Daim's stake in Cold Storage was fed through three UMNO-linked, cash-rich companies within two years, earning substantial profit at each stage.[77] Commented Peter Searle, the academic business specialist, "Although it was difficult to determine at what points the individuals concerned were acting for the party or their private corporate interests, ultimately it appeared that both were served by the relationship."[78]

  In early 1991, only nine months after the dramatic reverse takeover of Renong, UMNO again restructured what had become its flagship holding company. A RM1.95 billion package of measures sought to consolidate Renong's control over group companies, expand its operations and bolster cash flow. Renong increased its stakes in United Engineers and TV3, the two companies that were expected to contribute most to profit. In addition, Faber Group Bhd., the party's once-faltering hotel and property concern formerly known as Faber Merlin, was brought into the Renong fold. It had been left out earlier because of its heavy debts, which had since been cleared through a huge cash injection by Fleet Holdings.[79]

  Capitalized at RM6 billion to RM7 billion, Renong in its new form was one of the top three companies on the Kuala Lumpur Stock Exchange.[80] By one estimate, the total value of UMNO's shares, including those held by nominees at party headquarters and at state branches, was RM4 billion. By that calculation, about half, RM2 billion worth, were listed shares, comprising 2 per cent of the Malaysian stock market's overall capitalization. In addition, UMNO's property holdings were believed to total billions of ringgit.[81]

  Yet UMNO continued to adopt the formal position that the party was no longer in business. The official line was that all of UMNO's assets had been surrendered to the Official Assignee, and with their sale the party had effectively exited the corporate arena. That was the stand Dr. Mahathir took in Parliament. Daim went so far as to boast that his greatest achievement as UMNO treasurer was to get the party "out of business".[82] But the failure to disclose which assets had been held by the Official Assignee, by what process they were sold, and to whom and for how much, undermined UMNO's credibility. In the absence of evidence to the contrary, the blockbuster deal was regarded as merely "a new face on old practices".[83]

  Actually, UMNO still owned a majority stake in Utusan Melayu Press, the now-listed Malay-language newspaper publisher, while the party's cooperative, Koperasi Usaha Bersatu, retained a huge interest in Sime Bank Bhd.[84] These investments, however, were exceptions in the new order in which UMNO withdrew from direct party ownership of companies. Instead, control of party assets was transferred to private individuals, who were accountable only to a few senior party leaders.[85] By this legal technicality, UMNO sought to deflect growing criticism of the party for doling out contracts to its holding companies, as well as avoiding the risk of being financially ruined again.

  If, as Daim later claimed, UMNO received a "very good" price for the companies the Official Assignee supposedly sold to their previous managers,[86] the party should have been not only debt-free but flush with cash. As it was, UMNO remained in financial difficulty. In mid-1994, the High Court ordered that all the assets and liabilities of the old UMNO be turned over to Dr. Mahathir's New UMNO, which of course did not include the corporate empire. The court order reinstated UMNO's legal title to the party's headquarters, on which the party still owed about RM500 million, and to its many branch and divisional offices throughout the country.[87] Public corporate and legal documents indicated the party's remaining assets totalled about RM1.5 billion, while its total retained debt was more than RM1 billion. One of UMNO's lawyers estimated that the party's assets, minus its bank debt and other liabilities, amounted to about RM348 million.[88]

  There was no doubt, however, that UMNO leaders continued to control the party's dispersed assets; Daim's boys got most of them. Apart from Halim Saad's taking over most of Fleet Holdings' investments, Tajudin Ramli and Samsudin Abu Hassan obtained control of the listed companies in the Waspavest group, as Halimtan was renamed.[89] While a few Chinese businessmen with close ties to t
he ruling party ended up with companies once directly owned by UMNO, they appeared to be assigned the task of bailing out well-connected Malays.[90]

  The Renong-linked companies were required to contribute monthly to UMNO's operational expenses. Payments, in the form of cheques signed by two of the four UMNO trustees authorized to act on behalf of Hatibudi Nominees, were for varying amounts specified each month by Daim. At general election time, Daim simply told each company how much was needed, and the companies had to "figure out how to get it".[91]

  With Halim Saad as its executive chairman and controlling shareholder, Renong lost none of the exalted status it enjoyed earlier as a declared UMNO company, being awarded eight of the government's 13 large national projects in the 1990s.[92] United Engineers agreed to build a national sports centre for the government, in time for the Commonwealth Games in 1998, in exchange for prime property in the capital. A subsidiary of United Engineers, the single largest beneficiary of Malaysia's accelerated privatization programme, took over the operation of the Penang toll bridge. Renong group companies were involved in the design and construction of a passenger terminal for the futuristic Kuala Lumpur International Airport, and a Renong subsidiary held the rights to develop more than 100 square kilometres of valuable land in Johore. The company also had the only national fibre optic network, and won the contract to build one of the light rail systems in Kuala Lumpur.

  But there were clear limits to Halim's independence, mirroring the power plays in Malay politics and the aspirations of particular UMNO leaders. For example, in 1993 he had to relinquish Renong's interest in two major media companies, TV3 and New Straits Times Press, to businessmen aligned with Anwar Ibrahim.[93] To aid his bid for the deputy presidency of UMNO, Anwar wanted control of the country's only private TV network and the publisher of English-, Malay- and Chinese-language papers. Halim also responded to Malaysian government overtures to perform "national service" by taking over the Philippine government's ailing National Steel Corporation, after President Fidel Ramos sought help from Dr. Mahathir. The cost: US$800 million, no questions asked.[94]

  The Malay political leadership did not hesitate to intervene when Halim's embarrassing marital troubles threatened to fracture the company in 1995. His wife responded to his divorce petition with a claim for RM500 million "compensation" in cash and 50 per cent of his assets, which she estimated at RM5 billion to RM7 billion. The sharia court drama, involving custody and visiting rights for their three children, was studded with allegations of intimidation, detention, wiretapping, adultery and black magic.[95] The police arrested and banished to internal exile without trial a part-time bomoh, a practitioner of Malay traditional medicine, whom Halim's wife had asked to cast a spell on him. Halim also had the help of immigration officers, who intercepted his children on a school outing and put their thumbprints on documents for use in making duplicate international passports. Two different lawyers representing his wife quit after being threatened, one physically, the other by phone. "It's difficult to say whether the problems I'm having are political or personal," she observed.[96]

  As indicated by the acquisition of electronic and print media by Anwar's backers, the dispersal of UMNO's investments encouraged individual party leaders to cultivate their own business followings. Although Anwar had been a strident critic of entrenched political-business relationships, he ran into the harsh reality that control of resources was necessary to build a power base. Despite Anwar's disavowal of the links, executives identified with him secured more and more listed companies as he prepared to challenge Deputy Premier Ghafar at the 1993 party elections.[97] "Anwar's men", ambitious, younger and long frustrated by the domination of the Malay corporate scene by Daim's crowd, played a vital part as he staked his claim to be Dr. Mahathir's successor.[98]

  With politicians cultivating personal ties with corporate captains and assuming control over major companies, factionalism within UMNO sharpened and the scramble for benefits intensified. Elected party posts became passports to wealth and status for which candidates and their supporting networks were prepared to pay on a scale according to potential returns. Businessmen who once shunned politics sought key posts in the UMNO hierarchy. By 1995, the teachers and farmers who once dominated UMNO ranks had long given way to civil servants, technocrats and opportunists; almost 20 per cent of UMNO's 165 divisional chairmen were millionaire businessmen-cum-politicians.[99] The rapid descent on rural areas by urban politicians to cultivate a grassroots base, usually by buying support, led to the further "monetization of politics".[100]

  But it was hardly a case of innocent country folk being seduced by city slickers. With the plethora of development projects delivered at village and district level under bumiputra programmes, local UMNO politicians had already captured control of local administrations from bureaucrats. The biggest beneficiaries of policies aimed at alleviating the plight of impoverished peasants were, in fact, UMNO parliamentarians and state assemblymen, with their Malay and Chinese associates. They set up companies and awarded them contracts, persuading themselves they were fulfilling the 30 per cent quota for bumiputra ownership in business and management, even as they became wealthy and used their cash to buy continued support.[101] The internal clash over the spoils was fiercest in the pre-selection of general election candidates, leading to rising violence at UMNO branch and divisional meetings.[102] In the most notorious case, a member of Dr. Mahathir's Cabinet, Culture, Youth and Sports Minister Mokhtar Hashim, murdered a rival in Negeri Sembilan state eight days before the 1982 general election.

  Although top party leaders repeatedly warned against the evils of "money politics", it spread exponentially in line with general affluence and became institutionalized in UMNO. What had been little more than a free-lunch-and-junket habit escalated dramatically with the 1984 clash for the deputy presidency between Musa Hitam and Tengku Razaleigh. An estimated RM20 million was spent on that contest, setting an example that was followed in all subsequent elections and for all positions, from branch leaders to party president. In the divisive 1993 party elections, in which Anwar deposed Ghafar and Anwar's team of vice presidents outpolled opponents, RM500 million to RM600 million was distributed. The pay-off rate had increased nearly 30-fold in less than a decade.

  Among numerous abuses associated with the money ethos were insider trading and the manipulation of share prices to raise funds for political campaigns. Amidst speculation about a snap general election in the second half of 1989, for example, the share price of several UMNO-linked companies rose spectacularly for no other apparent reason. Kinta Kellas PLC, Time Engineering and United Engineers soared between almost three- and eight-fold within six months.[103] As Anwar marshalled his forces to drive Ghafar into reluctant retirement in November 1993, the Malaysian stock market was gripped by a familiar frenzy. Between 4 January and 9 June, daily trading on both the exchange's first and second boards averaged 356 million units valued at RM892.3 million, up from 77.7 million units valued at RM207 million for the entire 1992. Again, stock prices of three UMNO-linked companies, Renong, Idris Hydraulic (Malaysia) Bhd. and Granite Industries Bhd., surged nearly three-fold in just over a month.[104] With UMNO also exercising influence over regulatory and investigative agencies, official inquiries into insider trading went nowhere.

  Dr. Mahathir was among the earliest and loudest to decry the use of money to win party votes, declaring in 1984 that if the trend continued "one day only millionaires will lead UMNO".[105] At the General Assembly the following year, he denounced members who distributed cash to be elected divisional chairmen and others who bought votes with overseas trips.[106] After Ghafar revealed that one aspirant was willing to spend up to RM600,000 in a bid for office, delegates "liberally amended the party constitution to deter money politics".[107] The constitution was rewritten again at a special General Assembly convened for the specific purpose in 1994. It banned the giving or receiving of "rewards, gifts or valuable returns in any way or in any form", and armed the Supreme Council with pow
ers to curb corruption.

  While tightening the rules might have looked like a reasonable response to the unprecedented display of "money politics" the previous year, in reality it was a public cover for inaction. Delegates had been embarrassed by news reports that Bank Negara ran out of RM1,000 and RM5,000 notes at the height of the campaign leading to the 1993 General Assembly.[108] At the convention itself, participants declared that they had received gifts ranging from pens, radios and watches to foreign travel and cash. Some delegates handed out their bank account numbers to contesting candidates.[109] When the call for reform went up, the worst offenders joined the chorus, feigning innocence. Zainuddin Maidin, a former newspaper executive who later became an UMNO minister, called it "a most amusing piece of political farce".[110] Zainuddin, who was close to the prime minister, said it was "impossible" that Dr. Mahathir did not know which people were involved in "money politics" and the amounts that had changed hands.[111] The head of an UMNO committee appointed to examine the money question declared in 1995, "We've put an end to vote-buying in UMNO."[112] But nothing changed except the size of the bribes. Dr. Mahathir wept in 1996 as he implored colleagues "not to let bribery destroy the Malay race, religion and nation".[113] In 2001, he said "filthy rich" businessmen would not be allowed to vie for UMNO positions.[114] Near retirement, he was still lamenting the lack of "clear evidence" that would enable him to clean up the party.[115]