Malaysian Maverick: Mahathir Mohamad in Turbulent Times Barry Wain (grave mercy .TXT) 📖

to pay a fine and avoid having to purchase tin from the mystery buyer at steep premiums. The move helped sink the Malaysian plan, but it was likely to fail anyway. After taking a close look at Zaidner's books, Marc Rich fired him and began to dump its tin, sending the spot price tumbling by 1,700 pounds a tonne in a single week.

The fallout was a disaster for the tin industry worldwide.[10] Compelled to intervene to defend the artificially high floor price set when Malaysia was driving up the market, the Tin Council buffer stock manager also had to sop up the additional tin attracted by the higher prices. Although producer members agreed to restrict exports according to a quota system, they and consumers were forced repeatedly to kick in additional funds to support the buffer-stock operations. When the money finally ran out in 1985, the manager controlled a stockpile valued at about US$700 million. As the International Tin Agreement disintegrated, the market collapsed completely and prices hit record lows.[11]

In Malaysia, dozens of mines closed with heavy job losses.[12] Maminco held thousands of tons of expensively acquired tin it could sell only at a loss, and it was unable to repay Bank Bumiputra. Dr. Mahathir said later the Malaysians had to honour Zaidner's purchases, even though he had exceeded his "limited" authority when buying.[13]

Unwilling to acknowledge its part in the catastrophe, the Malaysian government devised a way of making money available to Maminco, so that the large losses would not show up as bad debts on the bank's books for lending made at the government's request. The novel solution was to create another shadowy company, Makuwasa Securities Sdn. Bhd., which again was ostensibly private but held by nominee shareholders on behalf of the government. For two years, Makuwasa was allocated new issues of shares in public companies normally reserved for bumiputras at preferential prices. The transfers were made through Malaysia's Employees Provident Fund, a national pension plan, at no profit.[14] Makuwasa was then free to sell the shares at a profit on the Kuala Lumpur Stock Exchange to repay tin losses. In his investigations for the Journal, Pura uncovered another likely back-door channel to help Maminco settle with Bank Bumiputra: a "secret service vote" in the country's annual budget. Usually used for security and intelligence-related activity the government tried to shield from public view, this item contained funds that could be spent at the discretion of the finance ministry. By effectively transferring Maminco's losses to the national budget deficit, the government made it almost impossible to detect them.[15]

Dr. Mahathir's admission in 1986 of the government's role, after five years of denials or deliberate silence, staggered the business world. He almost certainly went public at the UMNO General Assembly because the Democratic Action Party had served notice that it intended to pursue the matter in Parliament. Dr. Mahathir disclosed the parts played by both Maminco and Makuwasa, but he was far from contrite. Rather, he defended the government's actions and blamed "massive cheating" by the London Metal Exchange — allowing the short-sellers to escape — for depriving Malaysia of trading profits. "If not for the cheating by the LME, changing the rules to protect its members, the government would not have lost and the question of the government's involvement in maintaining the tin price would not have been raised at all," he said. No government official had profited, he added. "What was done by the government was aimed at saving the tin industry."[16]

Dr. Mahathir's new primary industries minister, Lim Keng Yaik, tallied up the damage a few months later. He said Maminco had ended up about RM660.5 million in the red, consisting of actual trading losses, interest paid to Bank Bumiputra, foreign-exchange losses and administrative costs.[17]

But the cost to Malaysia's reputation was incalculable, not least for having repeatedly lied. Indonesia, Thailand and other members of the Association of Tin Producing Countries, formed on Kuala Lumpur's initiative in 1983, privately thought the Malaysians brazen and hypocritical to turn up to the next meeting after Dr. Mahathir's disclosures talking about reform. Among other things, Malaysia advocated the worldwide use of the new Kuala Lumpur Tin Market as "a natural corollary of the London collapse".[18] As a non-producer of tin, Singapore had reason to feel especially aggrieved by Malaysia's shenanigans. Before Kuala Lumpur's plotting was known, the Malaysian government had persuaded the producers' group to take the moral high ground and criticize Singapore for allegedly undermining their export-control programme, by exporting tin refined from ore smuggled out of neighbouring countries.[19]

The BMF affair

Bank Bumiputra and Petronas, glimpsed in contact on the edges of the tin saga, proved a highly combustible combination during the Mahathir era. When they were brought together by the dictates of domestic politics, it was not always a comfortable or happy association.

Incorporated in 1965, Bank Bumiputra was assigned a central role in Malaysia's affirmative action programme. Specifically, the bank was to channel credit and financial services to the countryside, where the vast majority of Malays lived and worked in traditional pursuits such as farming and fishing. Bank Bumiputra was also to familiarize Malays with banking and train some of them to become bankers. A preferred repository of state funds, the bank grew rapidly, though its socio-political function inevitably caused its profitability, in terms of return on shareholders funds, to lag behind rivals. Some loss of commercial competitiveness resulting from forgone lending to non-bumiputra customers was implicitly accepted. To operate and keep watch on such a politically sensitive institution, the government usually appointed ranking UMNO officials or civil servants closely linked to the party, rather than professional managers. That left Bank Bumiputra a sitting target for well-connected business interests looking for cheap loans, the cheapest of which more accurately could be described as handouts or donations. The bank found it hard to say "no", ending up dispensing a constant flow of funds to favoured recipients in the Malay establishment.

As for Petronas, established under the Petroleum Development Act of 1974, it fared considerably better.