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