(Petaling Jaya, Tuesday): The Prime Minister, Datuk Seri Dr. Mahathir Mohamad said yesterday that the economic problems had made it uncertain whether Malaysia would be able to achieve its vision of becoming a developed nation by the year 2020.
There are no doubts whatsoever that the Vision 2020 targets have been made even more uncertain by mixed and contradictory signals by government leaders on economic policies and strategies.
The latest example is with regard to the pledge given by the Securities Commission that there would be no repetition of the loss of confidence in the Kuala Lumpyur stock market sparked by the controversial United Engineers Malaysia (UEM)-Renong deal last November, which caused the Kuala Lumpur Stock Exchange Composite Index to plunge by 16 per cent from Nov. 17 to 21 wiping out the stock market capitalisation by some RM70 billion.
In its annual report just tabled in Parliament, the Securities Commission Chairman Datuk Dr. Munir Majid said that the UEM acquisition of 32.6 per cent stake in Renong "menggugat keyakinan di BSKL, iaitu satu peristiwa korporat yang paling ketara sepanjang krisis pasaran pada 1997".
This is the first official admission that the single most devastating episode in the stock market crisis last year was not caused by George Soros or any foreign speculator but by the home-grown UEM-Renong acquisition, which was clearly a bail-out of some shareholders at the expense of the minority UEM shareholders.
Although Munir Majid pledged that there would be no repetition of the loss of confidence in the Kuala Lumpur Stock Exchange and the regulatory structures of the stock market as had happened in the UEM-Renong deal, his pledge has been negatived by other government pronoucements.
It is noteworthy that although Munir made the pledge in the Message
of the Chairman of the Securities Commission in the 1997 annual report
of the Securities Commission, it was dated 31st December 1997.
In a recently-released book, Hidden Agenda, the Executive Director of the National Economic Action Council (NEAC) and Government Economic Adviser, Tun Daim Zainuddin, said that while the Government will not use public funds to bail out shareholders and lenders, it does not preclude the possibility orf intervening where issues of public and natonal interests are at stake. He added that as in the case of United Engineers Malaysia and Renong, if the worst happens, the Government will not abdicate its responsibility to ensure that vital and viable assets and operations in those companies are saved, even with public funds.
The messages and signals here are mixed and contradictory with the Securities Commission Chairman admitting on the one hand that the UEM-Renong deal was a disaster in causing the worst plunge in investor confidence in the Kuala Lumpur stock exchange and the need to forestall a repetition, while on the other hand, a more and probably the most powerful voice on government economic policy showing no regrets or remorse about the UEM-Renong catastrophe and even declaring that if necessary "in the national and public interest", there could be a repetition of the UEM-Renong type of deals.
This is not an isolated instance of the mixed and contradictory signals by government leaders on economic policies and strategies, and it is no wonder that there is such a shortage of positive reports about the Malaysian economy in the foreign media.
The latest issue of Asiaweek May 8, 1998 carries an article under the heading "A Soft Landing Hits the Skids - Malaysia’s economy defies a recovery programme", which states "While earning plaudits from the International Monetary Fund, Malaysia’s do-it-yourself economic recovery program is running into trouble".
The article reported the pessimistic outlook for the Malaysian economy by foreign economists, quoting one as saying: "The risk of recession is growing by the week. In six months’ time we are going to see some horrid numbers coming out of Malaysia."
The article also reported that "foreign investors remain skeptical that leaders have the will to carry out structural reforms", referring to several politically well-connected tycoons who have received government-blessed bailouts when their business interests fell on hard times.
With this backdrop and the protracted inability of the government to restore confidence although the country is in the eleventh month of the economic clrisis, pessimistic forecasts are beginning to gain greater credibility.
For instance, last week, a senior World Bank official predicted that it would be three to four years before growth rates in Asia returned to healthy levels and the region’s financial crisis could be considered over. This is of course in sharp contrast to the pronouncements by Ministers and Deputy Ministers that economic recovery in Malaysia would be achieved in six months’ time.
Jean-Michel Severino, World Bank Vice President for the East Asia and Pacific region who was in Geneva last week to attend the annual meeting of the Asian Development Bank (ADB) said one major "political" challenge for the Asian countries is structural reform so that the traditionally "opaque links" between state, banks and corporates could be more open to reassure investors.
Is Malaysia prepared for such wide-ranging political, economic and structural reforms to restore confidence?