Less Than Convincing  List of Anwar's alleged cronies raises more questions
                           By Simon Elegant in Kuala Lumpur
                                   July 8, 1999

              Bespectacled and slightly owlish, Rustam Sani seems an unlikely crony. The academic and political commentator is more bemused than anything else that his name was prominent on a recently released list of supposed beneficiaries of patronage from former Deputy Prime Minister Anwar Ibrahim.

              "I was shocked," Rustam, now an opposition politician, says of the government contract awarded last year to a company he then chaired. "I had completely forgotten about it," in the three years that have passed since the company applied for the contract. Rustam laughs at the idea that  he received the contract because of his ties to Anwar. The contract was
awarded in October, Rustam points out, when Anwar was already in jail and Prime Minister Mahathir Mohamad himself was acting as finance minister with the right to approve such projects.

              The list, released in mid-June at the annual convention of the ruling United  Malays National Organization and published in all the local newspapers, was meant to prove that "we don't practise cronyism.Unfortunately the person who practised cronyism is the person who accused us of cronyism," as Mahathir declared to the REVIEW before the Umno general

              But Rustam is by no means the only name that's less than convincing  evidence that Anwar was the chief or only practitioner of cronyism in the Malaysian government. Denials continue to appear--the latest from a retired civil servant who says he only met Anwar for a few minutes at a party--and a close examination of the list reveals omissions, exaggerations
and puzzling inclusions.

              Indeed, some political analysts--not to mention Mahathir's political opponents--have wondered why the prime minister bothered to release a  list that appears hastily and carelessly assembled.

              "Why did the streetwise Mahathir play such a weak hand?" asks an anonymous writer on the popular Free Malaysia Web site devoted to Anwar and the party his wife founded after his arrest. "There are no doubt a number of reasons, but most boil down to Dr. M's rising desperation to  finally exorcise the ghost of Anwar."

              Even some of the prime minister's supporters echo that thought. "Mahathir feels the need to explain and keep on explaining," says the chief of one of  Umno's regional divisions. "Obviously he feels that a lot of people still don't believe there was no conspiracy" to topple Anwar.

              One prominent name on the list was that of long-time Anwar ally Kamarudin Jaffar, allegedly awarded contracts totalling 11 billion ringgit ($3 billion). But Kamarudin, who did not respond to requests for comment, holds stakes of only 10% and 6.3% respectively in the two main projects involved, a monorail and a plan to build the world's longest building. The
People Mover and Linear City are most closely associated with  businessman Vincent Tan, who holds substantial stakes in
the projects. Tan enjoys close relations with Mahathir.

              A similar case seems to be that of Rahim Ghouse and Wan Husni Wan Sulaiman, alleged to have been awarded the
2.4-billion-ringgit Express Link project. The two men are directors of a company holding a stake in the  project. But the largest stake held by a private business--40%--went to Francis Yeoh's YTL Corp. Yeoh unabashedly declares himself Mahathir's
"biggest fan." Another 40% is held by a government savings fund for  Muslim pilgrims.

              Analysts say that one danger in issuing such lists is that their release could backfire. Even if they do believe Anwar gave contracts to his friends,  says P. Ramasamy, a lecturer in political science at the National University of Malaysia, some Malaysians are bound to look again at the political ties of those business people who received the lion's share of
such contracts. "That's fine, they'll say, when are you going to release Mahathir's list?"

Attracting Attention
The perception of Malaysia
July 8, 1999

                       Few countries in Asia attract as much unfavourable attention as Malaysia has lately. Sometimes it's justified:
Anwar Ibrahim's injuries under custody, for one. Prime Minister Mahathir Mohamad's attempts to blame foreigners for his country's problems hasn't helped. But Malaysians aren't xenophobic and the country is working through its problems--although
with room for improvement. Indeed, the central bank last week confirmed that GDP declined 1.3% year-on-year in the first
quarter--after an 8.1% fall in the preceding period--a sign that the economy may have bottomed out without incurring a debt with the International Monetary Fund. Still, Kuala Lumpur draws attention to its flaws like a lightning rod.

                       Certainly, there are problems to merit unfavourable report. Even if GDP  were to grow 2% this year as some believe, Malaysia's economy would still be 5% smaller than in 1997. If this is a recovery, it means only that people  aren't getting poorer. It'll be a while before the country regains its pre-crisis  wealth. And here there is reason to worry about
the pace of much-needed corporate restructuring. You'd think that those who ran companies into the ground would be out the door by now. Yet, the faces in corporate boardrooms have changed little.

                       On another front, we wonder if Malaysia Airlines, which is 12 billion ringgit ($3.15 billion) in hock, wouldn't be better off if market mechanisms decided  its future. There is speculation that the government-owned petroleum company, Petronas, is considering a controlling stake.

                       Be that as it may, Malaysia isn't always in worse shape than those against  which it is often unfavourably compared. While bad debt is high, estimates  of this at 25%-30% of total loans this year is below the 45% in Thailand,
and Indonesia's 75%-85%. Also, Kuala Lumpur to date has taken over $6 billion worth of bad loans and bank recapitalization is progressing well. As a whole, the banking sector is stable. Then there's the question of  Malaysia's risk factor, a matter raised when it recently issued its 10-year global sovereign bond. The paper was priced at 330 basis points above equivalent U.S. Treasurys.

Many noted that South Korean and Thai    sovereign issues were trading at only 240 and 230 basis points, respectively, above Treasurys. But forget Korea; you can't compare an OECD economy with a developing country. On the surface, comparisons
 with Thailand seem appropriate. The problem is that while Thailand's Yankee issue maturing in 2007 often is regarded
as a benchmark, it is tightly held and illiquid--begging the question whether it is actually a benchmark. Bid-offer spreads on its "2007 Yankee" sometimes can be as  much as 30-40 basis points, compared with the usual 5-10 basis points expected of sovereign paper. And while it's true that the market eagerly snapped up the state-owned Electricity Generating Authority of Thailand's $300 million 10-year bonds in October, it wasn't a recognition of low risk in  a quasi-sovereign issue: The World Bank is guaranteeing the principal and one interest payment.

                       While on the whole Malaysia may not be better off than its neighbours,  neither is it faring worse. The perception that it is may be coloured by its insistence on maintaining capital controls, which unfairly changed the  rules of capital flow midstream. Controls are a big, black mark. So if it wants  to alter the perception that it says is unfair, Malysia may want to consider  better treatment for the investors it locked in with controls. After all, give a  little, get a little.