Malaysia's Ministerless Finance Ministry


In mid-April, Daim Zainuddin resigned as Malaysia's Finance Minister. Prime Minister Mahathir Mohamad refused to accept his resignation, but Daim still walked. Now it's official, and Daim's refusal to return to his office at the spanking new National Economic Action Council (NEAC) building in Putrajaya, just outside Kuala Lumpur, is forming the backdrop for a new chapter in the turbulent annals of the Mahathir regime.

The Prime Minister initially announced that Daim had taken only a two-month vacation. Daim subsequently turned up in Hawaii, which silenced skeptics for a while. Now, he's back in Malaysia. Trouble is, he won't go near his office. In late May, Daim was spotted in the remote province of Keddah, and then in Kuala Lumpur, where he delivered a speech on money-laundering -- shunning the limelight on both occasions.

"He's anything but animated," says an economist in Kuala Lumpur who attended the speech. On June 5, Mahathir was finally forced to admit in public that Daim had indeed resigned as both Finance Minister and Treasurer of the ruling United Malays National Organization (UMNO), Mahathir's political party.

WHAT NEXT? Daim's motives for resigning are still murky. He isn't talking, but diplomats say he has recently complained that he is "tired" of politics, blaming political interference for the failure of bank reform, and has said that he wants to return to what he feels he does best -- business.

The question now is: What becomes of Malaysian economic policy? Many observers believe it will remain where it has resided all along -- firmly in Mahathir's hands. Under Daim, economic policy was wrested from the Finance Ministry in late 1998 to undo the work of Daim's predecessor, Anwar Ibrahim, who had adopted unpopular recommendations from the International Monetary Fund (IMF), such as raising interest rates, free-floating the Malaysian ringgit, and telling politically connected corporations to restructure billions of dollars in debt.

Proponents of globalization took heart from Anwar's embrace of free-market reforms. But Anwar was subsequently sacked, then tried and imprisoned for graft and sodomy, while the Finance Ministry and other agencies were cleared of Anwar's associates.

"GOOD-COP BAD-COP." Mahathir then appointed Daim, who ushered in capital controls, lowered interest rates, bailed out several corporations run by his personal proteges, and vilified the IMF. But that created new problems. "Daim was getting too powerful," says a diplomat in Kuala Lumpur.

Many observers believe that Mahathir will now use Daim's resignation as a long-awaited opportunity to wash his hands of everything that has gone wrong with the economy since the crisis. "This is going to be good-cop bad-cop game," says a banker in Singapore. After Daim's initial departure in mid-April, Bank Negara Malaysia -- the country's central bank -- removed the last of the capital controls over which he had presided since 1998.

In addition, Mahathir allowed himself to be seen in public meeting with Malaysian manufacturers, who are lobbying him to free-float or devalue the ringgit from its current 3.8 to the U.S. dollar to make Malaysian exports more competitive. Now, Mahathir can easily blame Daim for a 16.5% drop in the Kuala Lumpur stock market since Jan. 1, the loss of nearly $3 billion in foreign-currency reserves during the first three months of the year, the failure of Daim's initiative to merge 58 financial institutions into 10 "anchor banks," and the failure of UMNO-linked corporations to repay their debts.

GRUMBLING GROUNDSWELL. No question, Daim was becoming increasingly unpopular within UMNO -- and that was making him more a liability than an asset to his old friend Mahathir. In particular, grumbling about crony capitalism has been welling up from grassroots constituencies such as the opposition Islamic Party of Malaysia. This Muslim fundamentalist group has gained ground since the last general election in 1999.

Such complaints led an influential UMNO member to prepare a pamphlet for circulation at the annual UMNO General Assembly, scheduled for late June. While the pamphlet remains secret, diplomats who have seen it say it accuses Daim of charges similar to those that led to the sacking and arrest of Anwar in 1998.

But any actual change in policy can go only so far. Daim is expected to remain "at least a sounding board" to Mahathir, as one diplomat puts it, because he has been the Prime Minister's closest economic adviser since his first stint as Finance Minister from 1984-91. Mahathir said on June 5 that he would fill the vacancy himself for the time being. "So money politics may continue, but in a more refined form," predicts the diplomat. In Malaysia, some things never change. By Michael Shari in Singapore


Steve Ballmer, Power Forward
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