The last stand of Mahathir Mohamad

By Peter Montagnon and Richard Lambert

SINGAPORE: Towards the end of an hour-long conversation, Mahathir Mohamad makes a surprising admission. He is amazed, he says, that when he started out in politics, it was the non-Malays who mistrusted him. Now, it is the other ethnic groups, such as the Chinese, who support him, and he is distrusted by his own people.

It is the mark of a shift in Malaysian politics since the divisive trial of Anwar Ibrahim, Mahathir's former deputy as prime minister. The trial, which finished in August, split the Malay community, unleashing a more strident brand of Islamic politics that enabled PAS, the main Malay opposition party, to make inroads in last year's elections. Since then, Mahathir, who has said he will stand down before the next election in three years time, has been under unusual pressure.

It cannot be comfortable for a Malay politician to depend on ethnic Chinese support. The prime minister certainly seems quieter than usual. Gone are the diatribes against financiers such as George Soros, though he does reveal a long-harbored grudge against James Baker, the former U.S. Treasury secretary, for complaining about his penchant for Malay suits. In place of the invective is a more considered view of the world, but the old prickliness still shows, and he is determined to stand his ground.

Mahathir still believes that speculators did great damage during the Asian crisis. Unlike Thailand, Indonesia and South Korea, Malaysia did not have excessive foreign borrowing, but it was lumped together with these other countries and subject to a relentless speculative onslaught that destroyed much wealth. The rules of the game, are one-sided, he argues. Developing countries such as Malaysia are told to have transparent financial regimes. Yet nobody regulates the speculators, and when they run out of money, like Long Term Capital Management, they are rescued by their cronies.

Malaysia cannot lift its exchange controls or abandon its currency peg until this changes, he says, but the prospects are slim, because people in the west have become comfortable again now the crisis has abated. "The general feeling among countries that can be subjected to attack is that there should be some regulation. But countries that are rich and do not feel they are at risk feel that everything is OK and they are making a lot of money."

One possibility would be reform at a regional level, but, again, Mahathir is sceptical. He welcomes closer collaboration between the 10 countries of the Association of South-East Asian Nations on one side and Japan, China and South Korea on the other. It is reminiscent of his attempt some years ago to forge an East Asian Economic Caucus, to have excluded the United States.

Yet he believes the United States is putting pressure on some Asian countries not to go too far in collaboration. "We feel we are being watched, and, off and on, somebody suggests that developed countries from other regions should also be part of the whole thing. I do not see why we should always have the presence of other countries when we are talking about matters affecting our own region."

He emphasizes that the arrangements under discussion are not as ambitious as some had hoped. "The idea of an Asian Monetary Fund has not really taken off. We are talking about swap arrangements now, but that has not been finalized either. So we get the sense that some people are being forced to drag their feet."

ASEAN, once the showcase for south east Asian collaboration, has itself has been undermined by APEC, the Asia-Pacific Economic Co-operation forum, which groups most Pacific Rim countries including the United States, Canada and several Latin American states. Mahathir was never very keen on APEC, which aims to liberalize regional trade, because he thought it would overshadow ASEAN. Now ASEAN does not function as a co-ordinated group within APEC, although he admits that this is also because it has been hit so badly by the economic crisis.

If his views on regional collaboration are bleak, Mahathir is adamant in defending his record at home. He is proud of Malaysia's multimedia corridor -- including the latest in film animation studios -- and of the country's economic growth record. The economy grew at near double digit rates in the run-up to the crisis and, even this year, is expected to grow at 6 per cent.

He brushes aside concern at the slow pace of corporate restructuring and the weakness of the local stock market, which, he says, has outperformed others in the region. "We are trying to improve corporate governance," he says. "We have looked into the banking system to improve that too. We have done quite a lot. One has to remember that Malaysia had been much better regulated before (the crisis). We even had our own bankruptcy laws a long time ago whereas other countries have just begun to put that in place."

Corporate restructuring does not extend to breaking up Malaysia's large companies and selling parts off to foreigners. "There are certain things that we clearly have a need to keep for ourselves. Otherwise we would be merely workers for foreign companies." Similarly, he is cautious about the need for key companies to recognize the losses lurking in their balance sheets.

Nor does he see any reason for backing away from the large projects for which Malaysia is famous. Kuala Lumpur's new airport is cheaper and bigger than that of Hong Kong and designed for a long life. The government would eventually make a profit from moving the capital to Putrajaya, outside Kuala Lumpur, because it had put in infrastructure and land values would rise.

Even the Bakun dam, one of the most controversial projects, would eventually go ahead because Malaysia needs power for the long term. By waiting, such projects cost more. "If you spend something that you cannot afford, yes, it is a waste. But we are spending money on things we can afford and we need."

Without efforts to redistribute wealth, the country would have faced racial tension when the economic crisis flared up because of resentment over the concentration of wealth in Chinese hands. But he acknowledges that one disappointment is that ordinary Malays have not exploited the advantages they have been given.

"It's a problem of having to change the culture of the people. To them, money is mere convenience that they carry in their pocket. They don't look at money as capital. You have to change their mindset. I have found that people in communist countries are just like that too."

The shortage of entrepreneurs, he suggests, may be why his efforts to build up a Malay entrepreneurial class have been misconstrued. When the government finds a Malaysian to buy a company, it is accused of selling to a crony, but these are people who have been identified as capable of managing. "That is why they were given a chance. If we just sell to anybody who makes a bid, the chances are that the company will be sold off to the other races and that is not going to serve our purpose."

Another disappointment must be the divisions within the Malay community and between the races, which seem to have become wider after the Anwar trial. Mahathir says that Anwar had cells of supporters in various organizations. He also blames some of the tensions on the PAS, which he claims has been systematically sowing hatred against the government, even in kindergartens. Now the task is to put his own party, UMNO, back on track. When that is done, he will think about stepping down. But he declines to set a date. "We have to be revamped. We have to have younger people support the party, and after the party has been strengthened, I think I can leave."

-- The Straits Times/Asia News Network