Malaysia will sue if Britain stops loan: PM Mahathir

Malaysia will sue if Britain stops loan: PM Mahathir

KUALA LUMPUR (Reuter): Malaysia's Prime Minister Mahathir Mohamad said yesterday his government may sue if Britain stops payment on a concessionary loan for the controversial Pergau dam.

"If they don't pay they would be breaking a contract," Mahathir told reporters after Chinese President Jiang Zemin delivered a speech on Beijing's foreign policy.

Britain's High Court on Thursday ruled that Foreign Secretary Douglas Hurd had acted unlawfully in authorizing 234 million sterling (US$376 million) in aid for the dam.

The court upheld an appeal by an aid lobby group against the subsidized loan, which the government admitted became "entangled" with a huge British arms deal with Malaysia.

"If you break your contract, there are laws in this country which apply to those who break their contracts," Mahathir said.

Asked about calls in Britain to cancel the balance of the loan, he said: "If they don't pay, then we may have to take them to the courts."

British Foreign Secretary Douglas Hurd said the government would meet its obligations. "The dam has to be built and we have to meet our contractual obligations," a statement from the British High Commission (embassy) yesterday quoted him as saying.

"The British government is considering whether to appeal against the High Court's decision, which does not alter the British government's determination to fulfill its commitments in Malaysia," the statement said.

Mahathir described the court ruling as "an internal matter for Britain".

Britain has just finished healing a rift with its former colony. Angered by British press reports about corruption in Anglo-Malaysian trade, Malaysia banned public contracts for British business in February. It relented seven months later.

Construction on the 600 megawatt Pergau dam in the east coast state of Kelantan is about three-quarters finished.

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Controversy about the dam erupted in October when a report issued by Britain's National Audit Office disclosed that Britain's Overseas Development Agency (ODA) had not approved the soft loan, saying the dam project was uneconomical.

Hurd, who faced tough parliamentary and media criticism about the Pergau loan, has maintained he reacted rightly in disregarding the ODA's objection. Promises to Malaysia had to be honored, Hurd said, and he believed the national interest would have suffered if the loan had been canceled.

Hurd told parliamentary hearings the aid "became briefly entangled for a few months in 1988" with a 1.3 billion sterling ($1.9 billion) arms deal that former prime minister Margaret Thatcher signed with Mahathir.

The deal -- under which Britain sold 28 British Aerospace fighter-trainers, ground-to-air missiles, radar from Marconi and two fast frigates from GEC-Yarrow -- itself marked an effective end to a "Buy British Last" policy, imposed by Mahathir seven years earlier.

At first Malaysia was puzzled over the "arms for aid scandal" in Britain, with officials saying it was an internal British affair. But that turned to irritation when what was viewed here as a perfectly reasonable hydro-electric project was presented in Britain as a misuse of taxpayer's money.

Irritation changed to outrage when the British press began examining how business with Malaysia was conducted.

Malaysia imposed the ban on public contracts for British business days after the Sunday Times of London published a story saying that a British construction firm was prepared to pay bribes to Mahathir to secure a building contract.