Islamic State issue and the arbitrary cancellation of the  RM3.2 billion Halim Saad UEM “put option” cast long shadow  highlighting greatest nation-building crisis facing Malaysia in 44 years

Media Statement
by Lim Kit Siang

(Penang, Saturday): The first year of the new millennium has been a momentous one. At the global level, the tragic and murderous events of September 11, and the unleashing of war in Afghanistan with its attendant human tragedy were but two linked events that changed the world. The tragedy in Palestine continued unabated; as the year ends, the two nuclear powers of South Asia are poised on the edge of a holocaust; the global economy moved into recession; the cause of human rights suffered as governments introduced laws and processes that attacked the very roots of basic human freedoms under the guise of protecting  “freedom and liberty”. Historians will undoubtedly debate the path mankind took at the dawn of the twenty-first century. Two essential themes will feature in their debates: the seeming clash of civilizations and the view that the crisis marked the effects of unfettered capitalism.

Nearer home, in this region, we have seen increased political instability, the rise of domestic insurgencies and higher levels of violence especially affecting two of our closest neighbours. We saw change in regimes in Indonesia and the Philippines, even though the democratic process determined a peaceful change in Thailand. In the broad, the financial crisis of 1997 continued to cast its long shadow on the economies of this region, now overwhelmed by a new global economic crisis. The failure to adapt and introduce urgent economic and political reforms ensuring accountability, transparency, social justice and a respect for human rights has prolonged the crisis of 1997 and turned that initial financial crisis into a multi-faceted crisis affecting the very fabric of our societies.

No country in this region has perhaps faced a greater crisis than Malaysia. The underlying issues have gone unaddressed and have been compounded by new and emerging issues. As a consequence, the experiment in nation building that began 44 years ago is facing its greatest test and crisis. The nation’s very fabric of the nation is under attack. And yet Malaysians have yet to fully awaken to the deep-seated issues that challenge this nation of ours. In 2001, the nation saw:

Bailouts have become more brazen. What started as loans and guarantees to crony corporations and hand-out of lucrative contracts, without benefit of accountability and transparency, in the immediate aftermath of the 1997 crisis, were followed by reverse nationalizations of corporate entities at inflated valuations. The Malaysia Airlines and IWK transactions drew a public outcry. The Time Dotcom deal, that drew on EPF and Pensions Trust Fund  assets, represented a newer but more cynical use of public resources to bailout a grossly mismanaged failed commercial venture.

The more recent cancellation of the  RM3.2 billion  UEM “put”  deal entered into by Tan Sri Halim Saad surpassed all previous bailouts as it marked  a point of departure. Whilst past bailouts were ostensibly claimed at either “buying assets” or to “inject” finance into corporations, no such pretense had been made in the case of the “put” option deal. The bottom line in this particular case was the cancellation of a private commercial contract. The cancellation in no manner helped United Engineers Malaysia Bhd (UEM) or Renong. It helped Halim --- pure and simple. This outrageous use of public funds is both immoral and a breach of the public trust.

The “put” deal raises a number of critical questions that touch on the propriety of what had been done. The Board of Directors of a public company have a fiduciary duty to their shareholders. While it is true that both UEM and Renong are owned by the Minister of Finance Incorporated via Khazanah, (its  investment arm), both are technically publicly-listed companies. The Directors are therefore subject to the provisions of current Company law.

If indeed thus subjected, they do not have the right to cancel a debt obligation without first making provision for a write-off. The question is whether this  was  done? If not, was the action strictly legal? Are they not open to criminal charges?  If indeed provision was made, where did the funding come from? Was it from the Ministry of Finance? If true, this implied that Halim was indirectly “paid off” by the Minister of Finance? Was there Parliamentary provision of such outlays by Parliament? If none, was the Minister of Finance not guilty of impropriety and abuse of office, bordering on a criminal act. If it was not from public sources, did UEM/Renong obtain funding from the banks? Would this not mean that highly-indebted corporations had taken  on more debts in order to let Halim off the hook?

Since public and taxpayer moneys are involved in the cancellation of Halim’s “put” option, a  full and complete accounting must be made. It is imperative under these circumstances that the Securities Commission launch investigations, lest it be seen as colluding, aiding and abetting a series of acts that are contrary to accepted standards of corporate conduct. The Securities Commission  cannot stand, arms akimbo, if it wishes to preserve its image as an independent watchdog of corporate behavior. It must act promptly. Inaction will send signals to the markets that it is a toothless watchdog and all recent talk of seriously addressing issues of corporate governance will come to naught.

In fact, the arbitrary and indefensible cancellation of Halim’s RM3.2 billion “put option” cast a long shadow into the new year and the future, raising the question whether there is going to be more of the same of KKN -  corruption, cronyism and  nepotism -  but only a change with a totally new cast of  characters in the corporate scene.
· The year saw a sharp rise in racial polarization. National unity was fractured by the events in Kampong Medan and the Barisan Nasional  Government has chosen to act in an ostrich-like manner by being unwilling to hold an open inquiry into the root causes of the clashes, bringing those responsible to justice and ensure that there  could be no recurrence of the worst racial clashes in three decades. The marginalized ghetto dwellers in Kampong Medan  have been largely forgotten and left to their own devices and there is little indication that the Barisan Nasional  government intends to address the underlying issues of obscene poverty. The recent disclosure of race-based ”streaming” in the school system is not only an  indictment of the failure of the national education policy and system to create a united Malaysian people but another facet of the greatest crisis of nation-building facing Malaysia since Independence in 1957.

The issues I have highlighted above will undoubtedly continue to occupy center stage in the year ahead. I would like, however, to single out an over-aching issue: that of the move towards the establishment of an Islamic State.

The DAP has steadfastly and vehemently espoused the case for an adherence to the 1957 Merdeka Constitution. We see no alternative to a secular system of government to ensure that Malaysians of all faiths are guaranteed a just, equitable, and democratic society built upon morality, respect for ethnic diversity and the freedom to worship according to an individual”s beliefs. We have adamantly taken the principled position that Malaysia cannot, as a multi-ethnic society, adopt a system of government based on the teachings and legal precepts of a single religion.

The divisive debate to-date between UMNO and PAS about their respective visions of an Islamic State have raised more questions than provided answers. Each has painted with a broad brush its vision of an Islamic state. Much of what has surfaced publicly has been concerned with symbolisms from  visions from a by-gone age and a cultural environment far removed from the cultural and political circumstances prevailing in a society such as Malaysia.

Neither PAS nor UMNO have fully articulated the nature and substance of what an Islamic state will mean in reality for Malaysians in terms of everyday life, in terms of democracy, human rights, gender equality, the role of Sharia law versus civil law etc. Neither PAS nor UMNO have to-date articulated a clear, precise and coherent view of what an Islamic State would mean in practical terms. Given the absence of a clear example of a modern Islamic State in this day and age, one can only surmise that the vision of an Islamic State in Malaysia must be based on an abstraction based in part on what is contained in the Holy Quran and in part on an interpretation of history pertaining to the “Golden Age” of political Islam.

According to a survey published last week by Freedom House in New York, "Freedom in the World 2001-2002.", more than three-quarters of 145 non-Muslim nations around the world are now democracies, while  most countries with an Islamic majority continue to defy the trend

 The survey concluded that many Muslims, including in the Islamic Republic of Iran, have learned that religion does not solve a country's social or economic problems and is not a substitute for democracy.

The survey found  only 11 democratic countries In the Islamic world,  comprising only 23 percent of the 47 nations that are predominantly Muslim. The study further noted: "Since the early 1970's, when the third major historical wave of democratization began, the Islamic world and, in particular, its Arab core, have seen little evidence of improvements in political openness, respect for human rights and transparency."

It is imperative that the leaders of both UMNO and PAS seriously begin to answer the fundamental concerns of those who cherish democratic rights as to how these rights would be guaranteed in an Islamic State.

There are a host of other issues pertaining to an Islamic State that have not entered as yet into public  discussion and both UMNO and PAS must respond to them. A significant dimension concerns the economic implications of an Islamic State. The Freedom House study contends that religion does not solve a country’s economic and social problems. In a globalised world countries have become more entwined and integrated. Global trade and capital flows are the key to nations becoming prosperous. Malaysia has not been an exception in this regard. Its prosperity and progress have been driven by trade and because of the hospitable environment for foreign investment, based largely on its image as a progressive and secular nation.  It has performed better than countries that have claimed to be Islamic.

The events of September 11 have further reinforced this fact. According to the New York Times, the Pakistani government estimates that because of factors related to Sept. 11, 68,500 workers have been laid off and 177 establishments closed, 70 percent of them in textiles and textile-related businesses. There have been widespread cancellation of orders by firms that have switched their purchases. The result is an unhappy lesson about the vicissitudes of globalization, in which modern corporations show little loyalty to any particular country or workforce but adapt quickly as they seek the most profitable and cost-effective and secure locations from which to conduct business.

It is clear that perceptions of stability and the political climate in a given country can influence the direction of trade and capital flows. The issue that UMNO and PAS must address is: Can Malaysia gamble with its future economic prospects by embarking on a path that leads to perceptions about its commitment to an open and modern economy not wedded to accepted international, albeit Western norms of trade and commerce.

It is incumbent on the proponents of an Islamic State to spell out in some detail the economic policies that such a state would entail.

While it may indeed to be feasible to adopt a system of Islamic banking domestically, how will such a State adapt globally? For instance, will it eschew international borrowings through bonds and commercial borrowings because they entail the payment of interest or riba forbidden by Sharia law?  How will Bank Negara manage its external reserves if it strictly avoids investments that attract interest? What of domestic fiscal policy? Will the Minister of Finance of an Islamic Malaysia not tax interest earnings, exclude income from “haram”  activities such as gambling, the trade in alcoholic beverages? How will non-Muslims, Malaysian and non-Malaysians be taxed? Will non-Muslims be subjected to forms of taxation sanctioned by Islamic laws? Will the Federal Government cease lending to off-budget agencies? How will EPF contributors be ensured returns on their contributions.  In brief, Malaysians of all faiths, Muslim and non-Muslim, are entitled to a full and comprehensive articulation of the economic implications arising from the establishment of an Islamic State based on the Quran and Sunnah. These are bread and butter issues of concern to all Malaysians irrespective of their faith.

The realty is that these and related questions demand responses. Those in UMNO and the Barisan Nasional  that are content to proclaim that Malaysia is already an Islamic State, are not being fully frank and honest. They will be inevitably challenged by those who demand full and strict implementation of Quranic laws, leading to an ever-escalating competition for a more purist form of Islamic State.

Such a competition and  debate, which  will continue unabated,  can only give  rise to unending  uncertainty and do irreparable damage to the economy and its future in a challenging and highly competitive global economy. Malaysians regardless of  faith can ill-afford such uncertainty which will inevitably have an economic cost.

This in brief is the stark scene facing Malaysians on the threshold of 2002. As the New Year dawns, the troubling issues that have loomed large in the past year will continue to confront the nation. It is my somber belief that the dangers Malaysia faces in the year ahead are many and if not overcome will overwhelm the nation.

I earnestly call upon all Malaysians, Muslim and non-Muslims,  young and old, rich and poor and of all political persuasions  to awaken to the  dangers the nation faces in the throes of the gravest nation-building crisis of the nation.

Malaysians need to become fully alive to the fact that there are at the very core, the issues of preserving national unity and checking the further suppression of our cherished and constitutionally guaranteed rights.

I call on every Malaysian to be vigilant and to withstand the  forces that seek to take away what  our forefathers solemnly agreed in the Merdeka Constitution social contract and to defend a  secular system of government with Islam as the official religion based on democratic principles, and a respect for the rule of law with equal justice for all.  Defending these fundamental national values is the duty of every Malaysian. No one can afford to be complacent.


*Lim Kit Siang - DAP National Chairman