| BUSINESSWEEK ONLINE : AUGUST 28, 2000 ISSUE | ||||||||
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| INTERNATIONAL -- ASIAN BUSINESS
Commentary: Cronyism: Malaysia Still Hasn't Learned Its Lesson (int'l edition) It seemed like a deal made in corporate heaven. In April, Singapore Telecommunications Ltd. offered to pay $171 million for a 14.5% stake in Time Engineering, the debt-laden owner of Malaysia's most extensive fiber-optic network. The benefits were clear: Practically overnight, Singtel would have generated an enormous amount of international traffic for Time's underused electronic backbone. It also would have provided technical and marketing expertise to help Time compete more effectively with its rivals and boost the subscriber base of its cellular subsidiary, which currently accounts for a measly 6% of Malaysia's 3.8 million users. But the Malaysian government killed the deal, instead inviting state investment arm Khazanah Nasional to lead a $1.4 billion bailout of Time. What does Khazanah bring to the table? Nothing but cash. As a result, Time Engineering will likely continue to stumble along until it needs another fiscal infusion--at a time when telecoms worldwide are practically printing money. The homespun plan to rescue Time is textbook Malaysia Inc. Moreover, in recent months, the government has arranged or proposed bailouts for carmaker Perusahaan Otomobil Nasional (Proton), Malaysian Airline System, and national sewerage company Indah Water Konsortium. The trouble is that such largesse does nothing to stem the companies' losses, since the capital injections aren't accompanied by efforts to shake up management, trim costs, and impose fiscal discipline. DARK CLOUD. Malaysia could be setting itself up for another fall. During the boom years prior to 1997, Prime Minister Mahathir Mohamad could afford to lavish subsidies on companies headed by his political allies and still produce stellar economic growth. Even though the economy is on track to grow a sizzling 8% this year, its recovery is largely dependent on the surge in electronics exports by foreign companies--Intel, Agilent Technologies, Motorola--that operate in Malaysia's free-trade zones. New foreign investment applications are already down 30% this year, and Aug. 8's politically motivated sodomy conviction of former Deputy Prime Minister Anwar Ibrahim will only erode foreign investor confidence further. That downturn highlights the country's need to diversify into sectors like autos and electronics to drive future growth. As the series of government interventions indicates, however, many of these industries still can't support themselves. And by extending the era of crony capitalism, the government prevents businesses such as Time from making strategic moves that would enable them to compete globally. The problem is that, instead of turning troubled companies around, Mahathir's main objective still seems to be to ensure that Malaysia's biggest companies are controlled by his friends. That's why a man like Halim Saad still runs the Renong group, even though Renong expanded into huge property developments, construction of bridges, and light-rail transport, with all these projects highly leveraged. Renong became Malaysia's biggest defaulter, with $6.84 billion in debt, most of which has since been rescheduled. Another example is Mahathir confidante Tajudin Ramli. In 1994, he bought a majority stake in MAS, the national carrier, and embarked on a rapid fleet expansion. But his growth projections proved unrealistic. The result: some of the worst service in Asia and losses that tripled last year, to $182 million. MAS is one of the few national airlines in the region without a major alliance partner putting more people on its planes. PROPPED UP. Then there is Proton, Malaysia's attempt to become an auto powerhouse. Despite the seemingly strong recovery, it lost $2.1 million in this year's first quarter and is only afloat thanks to tariffs of up to 300% on imported cars. Proton's only chance of survival, once tariffs come down in 2005, is a union with a global auto heavyweight. But that isn't yet politically feasible. So cash-rich Petroliam Nasional, the state oil and gas monopoly, is being called upon to pay $263 million for a 27% stake. That money would be better spent refurbishing a business with real potential. But it won't happen so long as the government keeps propping up companies and chasing away foreign suitors. It's a short-sighted policy that Malaysia will surely regret come the next downturn. By Frederik Balfour Correspondent Balfour is based in Hong Kong. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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