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

It became Malaysia's largest and richest corporation, and the country's biggest source of tax revenue and foreign exchange, with an international reputation for being a savvy industry operator. But with an assured income stream and an accumulating pile of profits, including large cash deposits with banks around the world, Petronas, too, was sometimes called upon to do duty above and beyond its original charter. Not required to disclose its financial accounts, Petronas reported by law to the prime minister, rather than the finance minister as might be expected. It was Dr. Mahathir's favourite piggy bank, to be raided in emergencies and on other special occasions.

While Bank Bumiputra was being used to buy tin on a grand scale in London, a wholly owned subsidiary of the bank was being abused in even more breathtaking fashion for personal gain in colonial Hong Kong. Bumiputra Malaysia Finance Ltd. (BMF), a deposit-taking company, got involved in what a Hong Kong prosecutor called one of the biggest fraud cases in history. It was a remarkable tale of murder and suicide, false accounting, illusory profits and bankruptcy of an order not previously seen in Hong Kong. The mastermind was a Singaporean named George Tan, whose Carrian group rode a Hong Kong property boom to dizzying heights between 1980 and 1982. Bursting on the scene, Carrian diversified rapidly into transport, shipping, tourism, insurance, finance, catering, hotels and entertainment, spreading its tentacles to Taiwan, Singapore, Malaysia, Thailand, the Philippines, Japan, Australia, New Zealand and the United States. Almost overnight, it counted more than 200 interlocking companies in the group.

Previously unknown in business circles, Tan wrapped himself in mystery and assumed a facade of respectability by hiring prominent advisers and industry professionals. He was the centre of Asia-wide speculation as investors, analysts and journalists tried to figure out the source of his apparently bottomless wealth. The answer: He was a bankrupt civil engineer living illegally in Hong Kong and had no money, but bluffed major banks into lining up to lend to him after persuading neophyte BMF to provide Carrian with free-flowing funds. In early 1980, BMF loaned the then-obscure Carrian about RM310 million without collateral to buy a landmark building in Hong Kong's Central business district, a purchase that put the company on the map as an aggressive property player.[20]

Prime Minister Mahathir inherited the BMF affair and could have chosen to step in and clean it up. No doubt it would have been a severe embarrassment for UMNO and the government, but Malaysians surely would have appreciated a strong statement that the new premier was not prepared to tolerate blatant misuse of public funds. Instead, he opted to try to conceal the mess while endorsing a barely-legal secret plan by Bank Bumiputra to recover loan losses at the expense of other stranded creditors. With the benefit of hindsight, Dr. Mahathir said the bank was mismanaged by people who did not understand banking — "not always crooks, but quite incompetent" — who thought having a branch in Hong Kong was a status symbol. "But trying to find out who actually mismanaged it is not easy, you see."[21]

Dr. Mahathir's priority with government-controlled banks, after taking office in July 1981, was to put his appointees in charge. In the shuffle, Nawawi Mat Amin, a senior partner in an accounting firm and a member of UMNO's Supreme Council, took over as executive chairman of Bank Bumiputra in April 1982. He replaced Kamarul Ariffin Mohamed Yassin, a lawyer by training and one of Malaysia's best known bankers, who had steered the bank through six years of rapid growth. Kamarul also had excellent UMNO affiliations, having served as the party's legal adviser and headed its investment unit, but he was removed because he was close to Finance Minister Tengku Razaleigh Hamzah, a political rival of Dr. Mahathir and Deputy Prime Minister Musa Hitam. Dr. Mahathir wanted his own man running a major financial arm of the government.[22]

The details of BMF's deepening troubles were disclosed piecemeal by the regional press, digging and reporting from Hong Kong, from late 1982.[23] It emerged that BMF had not only played the property market in betrayal of its mandate, but concentrated its lending to just three borrowers, each of which ran into difficulties and could not repay. By the final accounting, BMF had loaned US$800 million to George Tan's Carrian empire, about US$123 million to companies controlled by speculator Kevin Hsu, and US$40 million to Eda Investments Ltd. and associated concerns.

This was dynamite in Malaysia. Bank Bumiputra was considered the flagship of the Malaysian financial system and a source of ethnic Malay and national pride after overtaking Thailand's Bangkok Bank in 1981 as the largest bank in Southeast Asia. Almost everyone wanted to know why an institution set up expressly to help Malaysia's bumiputras was lending extravagantly to ethnic Chinese real-estate developers in Hong Kong. Why was BMF in property at all? When the subsidiary was licensed in 1977, executives had said it aimed to complement Bank Bumiputra's participation in internationally syndicated loans, engage in foreign-exchange trading, and finance Malaysia's trade with Hong Kong and China.

A closer look revealed more cause for concern. BMF had persisted in a lending blitz as the Hong Kong property boom turned to bust, tripling its long-term loan portfolio. Moreover, BMF's lending for the most part was not from deposits or loans generated in Hong Kong. The money had been obtained from Bank Bumiputra in Malaysia and from other international branches, and included Petronas funds on deposit overseas. The market value of property and shares used to secure loans, when they were secured at all, was being eroded seriously by the downturn, exposing BMF to such large losses that the financial health of Bank Bumiputra itself might be at risk. With BMF operating almost autonomously, the lines of responsibility led back to Kuala Lumpur.[24] BMF's lending decisions were made by its own two-man board: Chairman Lorrain Esme Osman and Mohamed Hashim Shamsudin were both prominent directors of the parent bank. Lorrain was a member