HALIM SAAD LOAN SCANDAL:
CRONYISM RUNS UNABATED
 

21.09.2000

The stunning revelation of Halim Saad's 3-billion ringgit bad debt scandal by
the Asian Wall Street Journal (AWSJ) on 19th Sept gives a clear example of a
massive bailout of political cronies by Mahathir’s Government.  It is a slap on
the face of Mahathir, who has cheekily denied time and again that his Government
is involved in any bailout of cronies.

Pengurusan Danaharta Nasional Bhd (Danaharta), Malaysia’s national debt
restructuring agency, has taken over the 3-billion ringgit loan of Hottick
Investment Ltd of Hong Kong, a company used by Halim Saad solely to take over
Philippines’ National Steel Corp. (NS).  This steel company is on the brink of
liquidation now, rendering the 3-billion ringgit loan to near scrap value, as
the lending banks had only the worthless scripts of NS but not its assets as
security.  The lending banks are Malayan Banking, RHB Bank, Bank Bumiputra and
Commerce Asset-holding Bhd.

What is most disturbing is not so much the enormity of the loss by Halim,
who is generally regarded as a proxy for the financial fortunes of the ruling
clique, but that the taxpayers as well as shareholders of these banks (many of
whom are ordinary citizens) are made to pay for the folly and greed of
politicians.

In the light of Mahathir’s latest move to deprive the Terengganu State
Government of its traditional oil royalty, the news of this bail out rattles the
Country.  It riles Malaysians to realize that while Mahathir does not bat an
eyelid over the government arranged write off of this 3-billion ringgit losses
by favourite son Halim, Mahathir should have found the payment of 0.8 billion
ringgit oil royalty to the newly PAS controlled Terengganu so unbearable that he
decided to tear up an Agreement that has been honoured by Petronas (owned by
Federal Government) for the past 25 years.  What kind of a leader would possess
such skew sense of fair play and justice?  Is such a leader fit to continue to
lead Malaysia?

The AWSJ revelations have thrown up a whole lot of questionable practices by the
Barisan Nasional (BN) Government, which strike at the root of the ills that have
plagued the Malaysian economy.  Among others, they show up Mahathir  as ever
determined to protect and promote his crony “entrepreneurs” who have failed, no
matter how high the salvaging bill to the Country amounts to, and no matter how
reckless and inefficient these “entrepreneurs” have been.  They also indicate
the presence of political manipulations in the dishing out of mega loans to
investments of dubious viability, the prevailing practice of which nearly caused
the collapse of the Country’s financial system in the recent Asian Crisis.

In carrying out imprudent bail out of failed crony entrepreneurs, Mahathir has
missed a vital lesson from the recent Financial Crisis.  It is that in a
competitive economy, the inefficient and the scum must be allowed to make way
for the new and vigorous, so that the process of self-cleansing and self-renewal
can take place in the economy.  By providing blanket protection to the failed
weaklings, particularly when these are captains of industries dominating major
sectors of the economy, the stifling effect on the economy is stupendous.  As
large sectors of the economy would then continue to be manned by the
incompetents as happened in the past, while new entrepreneurship is restrained
from emerging to re-invigorate the economy.  Worse, this policy of maintaining
the status quo vis-à-vis the last failure is an open invitation to a recurrence
of the previous crisis.

Agreed that many of these entrepreneurs in jeopardy are Bumiputras, and therein
arises an important racial dimension, should nature be allowed to run its full
course in the weeding out of the weak; surely, even among the Bumiputra
entrepreneurs in distress, there is a distinction between those who are worthy
and those who are not worthy, having amassed assets illegitimately (through
improper political conduits) and having managed them recklessly.  Has the BN
Government been exercising prudence and impartiality even among its rescue of
Bumiputras? Public perception is that the entire debt restructuring exercise is
heavily weighted (in ringgit terms) in favour of crony enterprises, with scant
regards to sound management criteria. It is a pity that Malaysia has missed the
golden opportunity to carry out meaningful corporate restructuring through such
an exercise.  Instead, it has been abused into an instrument to perpetuate BN’s
past tradition of corruption and cronyism.

Mahathir often justifies government bail out of conglomerates by saying that
when a big company falls, many people will loose their jobs, hence these big
companies must be rescued.  But this argument is only an excuse to cover up his
extensive plan to bail out his cronies, as shown in the case of Halim’s
3-billion ringgit loan scandal.  If Danaharta had not stepped in to take over
the bad loans, the lending banks would be bound by law to pursue Halim to
recover the debts, as the latter would have been customarily a personal
guarantor to these loans.  And that would deplete or bankrupt Halim but would
not cause the collapse of his conglomerate Renong.  So, how would that cause
mass unemployment as alleged by Mahathir?  Then, in the Mahathir logic,
Danaharta would have lost the justification to intervene in the debt recovering
process on Halim.  By buying over Halim’s loans at nominal values from the
lending banks, Danaharta has saved Halim’s skin by transferring his 3-billion
ringgit losses to the lending banks which are owned by the Government (meaning
the taxpayers) and the public investors.  This means that the ordinary people of
this Country have been made to carry an unnecessary loss of assets to the
staggering amount of three thousand million ringgit through an unjustified act
by Danaharta in freeing one Halim Saad from the liability of the same amount.
Danaharta would not have either the justification  or the courage to have acted
as it did. This act of intervention by Danaharta must have originated from the
top leadership of this Country.

Mindful that Halim is but a proxy to the powers that be, this scandal takes on
grave criminal implications.  As Anwar was accused of and later jailed for
corruption for allegedly having interfered with police investigation, so too
must  the ultimate culprit of the present Halim bailout scandal be subjected to
the same legal process, except the crime this time is many times more serious.

Keeping in view the present lethargy of our economy, particularly in respect of
new foreign and domestic investment, it is imperative that an independent
inquiry must now be carried out to cleanse this Country of corrupt political
manipulations in our financial system, as exemplified by the current Halim loan
scandal, so that investor confidence can be regained and our economic health
restored.

Starting with the Halim loan scandal, there are many serious ethical questions
crying out for answers, in respect of the conduct of Danaharta as well as the
conduct of the lending banks in issuing these dubious loans in the first place.

ON DANAHARTA

What is Danaharta’s rationale for taking over the 3-billion ringgit loan?

Who has given the directive or the authority for taking over this loan?

What are the criteria and guiding principles on which Danaharta makes its
selection of loans to be taken over?

Who are the real decision makers in the taking over of very large loans?

What is the scope of freedom given to Danaharta to conduct its works
professionally?

ON LENDING BANKS

Calculating from the figures published by AWSJ, it seems Halim has paid a price
four times the net asset of National Steel at the time of take over in 1997.
And this company, which had been making marginal profits in the preceding years,
was then an ailing concern, facing serious financial difficulties.

Why should the banks lend out such enormous sums to a customer to buy a company
of doubtful prospects, at a price several times its real worth, and accepting
such grossly overvalued shares as the only collaterals?

These huge lendings were obviously made in serious violation of all fundamental
banking practices and banking rules, if AWSJ figures are correct.
Who have authorized these lendings?

Were there any directive from the ruling politicians to give out such atrocious
loans, keeping in mind that these banks are wholly or partly owned by the
Government, and hence subject to direct or indirect control by the BN
Government?

Was there any monetary impropriety in these transactions, in view of the fact
that these loans are grotesquely prejudicial to the banks’ interests and
immensely favourable to the borrower?
 

Kim Quek

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