JP/4 /MALAYSIA

JP/4 /MALAYSIA
Malaysia Inc.is turning over a new leaf

By Vikram Khanna

SINGAPORE: While it is likely to narrowly escape recession
this year, its growth will be slow -- maybe 1.5 per cent, at
best. Industrial production and exports will both decline in
absolute terms. Unemployment will almost certainly rise from last
year's levels, and foreign direct investment will fall.

Yet, this country's stock market has been roaring lately,
having risen by around 25 per cent since May. And there is a new
confidence in the air that even the most cynical of foreign
investors can't help noticing.

This is Malaysia.

And the corporate reforms that have been unfolding quietly
over the past three months could be an object lesson for some of
the region's unrestructured economies.

At a conference organized by The Economist Corporate Network
last week, Ms Paddy Bowie, a Kuala Lumpur-based consultant,
provided a summary of the clean-up that's been going on.

She spoke of Malaysia Inc turning over a new leaf, in which
the culture of political connections, tilted playing fields and
special deals is being jettisoned, and a new professionalism and
discipline is taking its place.

The high-profile businessmen who have been seen as
personifying cronyism -- figures like Halim Saad of Renong and Mr
Tajuddin Ramli of Malaysia Airlines -- are out of the limelight.
The new czars of Malaysia are a small army of young technocrats,
19 like LSE-educated Azman Yahya, who heads the Corporate Debt
Restructuring Committee (CDRC), a new agency set up to clean up
the corporate sector.

The CDRC is at the center of the new reforms. Since the Asian
crisis, Malaysia's highly indebted companies have been
notoriously slow in cleaning up their books. Many have preferred
to buy time or to lobby -- often successfully -- for bailouts on
favorable terms.

That game is now over. The CDRC has given Malaysia's big
debtors three months to agree on debt workouts and 12 months to
implement them. It has also relaxed conditions for obtaining
approval from creditors; now only 75 per cent need agree, as
opposed to 100 per cent previously. So, blocking workouts will no
longer be so easy.

Nor does anybody seem to be getting special protection. The
government is, for example, taking steps towards a hostile
takeover bid for the beleaguered conglomerate Renong, with a view
to selling off assets and offering a cleaned-up version back to
the public.

The former management of Malaysia Airlines -- the recipient of
a particularly generous bailout last year -- is to be
investigated. Other companies to be restructured include such big
names as the Malaysian Resources Corporation Bhd, the Lion Group
and the Berjaya Group.

Teams of accountants are also being sent into smaller, highly
leveraged companies. Many will see forced changes of ownership.
Some will end up being institutionally owned, while being run by
professionals -- which would effectively separate ownership from
management, to the benefit of minority shareholders.

Certainly, there will be pain in the restructuring to come in
corporate Malaysia over the next few months. Some banks and
controlling shareholders will have to book big losses. Many
companies might go bust. There will also be forced asset sales.

All that is part of the price for purging past excesses. The
point is, Malaysia's leadership seems willing to pay it.

Cynics suggest it is happening because Malaysian Prime
Minister Datuk Seri Dr Mahathir Mohamad wants to protect his now-
threatened economic legacy and boost his image. Whether this is
true or not is irrelevant; what matters is what's being done.

Why is this a lesson for countries like Thailand and
Indonesia? Because it shows that reforms are not only possible
during tough economic times, but also that markets reward them.
Indeed, the payoff for bank and corporate reforms may be higher
during bad times.

When there's an economic boom in progress, investor confidence
is there anyway, whether such reforms are pushed through or not.
But when that boom turns to bust, ramming through reforms can
rekindle confidence at a time when it is most needed.

Such timing also prepares the economy to make the most of an
upturn when it comes. It's an experience from which a lot of
countries in the region can learn.

This comment first appeared in Singapore's The Business Times.

The Straits Times / Asia News Network