Softly, Softly Go Reforms

Producer: Michael Vatikiotis , S. Jayasankaran
First broadcast: 27 May 04, Far Eastern Economic Review

It was hard enough for Abdullah to replace a legend last year, but now the soft-spoken prime minister needs to overhaul Mahathir's policies.

After Prime Minister Abdullah Ahmad Badawi's first six months in office, many Malaysians are wondering when the new premier will start delivering on his oft-touted reform agenda. On March 21, the 64-year-old Abdullah won the biggest election victory in Malaysian history largely on the back of promises of a more open and efficient government. Yet to some Malaysian business people, Abdullah's new government has failed to capitalize on the mandate and appears slow and indecisive.

Gone are the firm pronouncements of his predecessor, Mahathir Mohamad. Gone, too, are the bold projects that sliced through the countryside and gave Kuala Lumpur its modern skyline in less than a decade. "There's still a lot of uncertainty and nothing seems to be moving [in terms of new government contracts]," says an ethnic-Malay businessman. "People don't know what direction the country is going."

But perhaps critics need to pay more attention to what the soft-spoken Abdullah is saying and doing. Big-ticket projects have been cancelled or postponed mainly because the current prime minister doubts that Malaysia can afford them. A lot of grumbling occurs because instead of rewarding political and corporate loyalists-a trademark of the Mahathir era-Abdullah has surrounded himself with a few young advisers who shield him from supplicants and lobbyists.

In an interview with the Review, Abdullah says that his first targets for a clean-up are government-linked companies (GLCs), which account for 34% of the Kuala Lumpur stockmarket's capitalization and are often key players in the economy. The GLCs include some of the country's biggest companies such as power and phone utilities, Tenaga Nasional and Telekom Malaysia, as well as national car maker Proton. Most are profitable, but corporate analysts agree that, with few exceptions, the GLCs are indifferently managed in comparison to their local and regional peers.

Abdullah wants to change all that, and his first step is to bring in more professional managers. He has told the cabinet that politicians can no longer expect plum positions on the boards of these companies. "A lot can be done to make these companies do better," Abdullah says. "We need people with the necessary experience . . . qualifications and a proven track record. "

A tentative make-over of Malaysia, Inc., has already begun. On May 14, Abdullah consolidated 40 state-owned, often publicly traded, companies under Khazanah Nasional, the federal government's investment arm. He appointed Azman Mokhtar, the 43-year-old former country head of Salomon Smith Barney in Kuala Lumpur, to head the holding company.

Ultimately, Abdullah aides say, Khazanah is to become a market-driven state investment concern in the mould of Singapore's Temasek Holdings, permitted the freedom to invest overseas, do deals with foreign partners, and close money-losing units.

Abdullah's aides say that new managers for GLCs will include non-Malays, who make up about 40% of the country's 25 million people. That would be a notable change. GLCs have traditionally been led by ethnic Malays, reflecting an entrenched policy of helping the Malays compete with the economically more successful Chinese. "Right now there are at least two Malaysian Chinese being considered for key positions in financial institutions," says a close political ally of the prime minister.

Such a move has political risks for the premier, himself an ethnic Malay. In September, there will be crucial elections for top officials in the United Malays National Organization (Umno), which leads the ruling National Front coalition government. Taking plum corporate positions away from ethnic Malays is a potential source of discontent in Umno, which has a long tradition of patronage. In addition, making the GLCs more efficient is likely to mean shedding workers. Most of the GLCs were once government agencies.

Given such pitfalls, political analysts wonder if the premier will be forced to dilute his reform agenda. Indeed, one reason for the initial disappointment with Abdullah is the sense that he has already done so, appointing a new cabinet after his election that contained few of the fresh faces that some had hoped to see.

But Abdullah insists that he is resolute about shaking up the big state companies. "We cannot compromise. It is important that good people be appointed to head these companies and to sit on the boards," he says.
On Abdullah's watch, Singapore's Temasek Holdings has been permitted to buy 5% of Telekom Malaysia and is negotiating to buy at least 30% in Alliance Bank, Malaysia's eighth-largest bank, the first time Temasek has been allowed to make such purchases.

In terms of domestic issues, Abdullah has taken a decidedly cautious approach. The premier set up a royal commission to help reform the police force. And, rather than order a complete revision of Malaysia's Islamic education syllabus, which might prompt opposition from conservative Muslims, Abdullah introduced a modest pilot scheme to revamp religious education. Under the plan, emphasis is placed on understanding religious texts rather than on rote learning.

Such steps aren't dramatic. But, says Musa Hitam, a former deputy prime minister who is close to Abdullah, "he's tackling fundamental things that have been rotting away."

Perhaps one critical problem for Abdullah is his shrinking public presence compared with Mahathir's. Malaysians may have grown accustomed to being led by someone who made decisions quickly for them without significant public debate or dispute. Mahathir got things done. Abdullah often speaks of concepts and intangible barriers, which at times makes him seem long on rhetoric but short on substance.

Nor does Abdullah seem decisive with implementing the details of his own reform plans. When asked about the slow progress toward making bidding for government contracts based upon an open-tender system, for example, Abdullah replies vaguely: "Some of these projects happen to be projects for which a letter of intent has been issued, which is something that has given me a problem."

The premier's caution is a by-product of trying to change the deeply ingrained decisive but nonconsultative way things were done under Mahathir, says a close family member: "We can't take on the whole system-that's too hard. But we are hoping for a demonstration effect." The danger is that Abdullah's soft-spoken, consensual style projects a seeming lack of forcefulness.

Some Malaysians appear prepared to give him more time. Karim Raslan, a lawyer and political commentator, says this: "If you want a prime minister who is more responsive and respectful of democracy, you have to do away with authoritarian efficiency."

For transcript of interview, click here >>>