To be sold to the government to the tune of RM4 billion, Renong's UEM is not going for a song. In this final part of a two-part interview, political economist Prof KS Jomo gives malaysiakini the lowdown on the deal and the ramifications of the Mahathir-Daim falling-out.

Malaysiakini: Who actually benefits from these massive bailouts?

Jomo: When the 1997 financial crisis began and the Renong group's debt became a problem, the early steps taken were probably intended to save the group as a whole under chief executive Halim Saad's control. Renong's interests were portrayed as synonymous with Halim's interests, but in many ways, the efforts taken gave priority to helping Halim save and retain the Renong empire under his control.

But more recently, with Daim Zainuddin's departure as finance minister and Umno treasurer, the emphasis has shifted back to saving the Renong group itself rather than ensuring Halim's continued control of the group.

They say Umno has no more assets, but everyone knows - and Halim has admitted time and again that he was Umno's trustee. But Halim probably no longer commands the trust of Umno's leader because his patron (Daim), who was Umno treasurer, has gone. Since Umno's finances are not transparent, perhaps even Supreme Council members do not know what is going on.

Many of those who were not happy with Daim's influence welcomed this step and some hope this would mean that market forces will take over without government interference. But the takeover clearly indicates that eventually, it is the government that decides.

Media reports indicate that some appreciate the government's move to take over Renong. What is your comment?

Many market analysts believe that for a long time, the Renong group's problems were an albatross around the neck of the stock market. Therefore, these people welcomed the government move. There are two major reasons.

One, Renong's financial problems were massive, involving some RM30 billion. Recent foreign media reports state that the amount of Renong group debt is about RM13 billion. However, according to more knowledgeable local media sources, RM20 billion to 24 billion in debt remains outstanding.

This is not a small figure and involves 11 companies listed on the Kuala Lumpur Stock Exchange, including private companies, some of which are among the largest on the KLSE. Therefore, as long as these companies' problems are unresolved, this is a stumbling block.

Before the 1997 financial crisis, many foreign investors invested in Renong companies. When they became worried about Malaysia or about Renong's future, including the 10 companies linked to it, it dragged down the market as well.

This is the reason why, despite his own anti-Western rhetoric, Prime Minister Dr Mahathir Mohamad is trying to improve investor confidence, especially among foreign investors, to get them to come and invest in the country. Except for the currency peg and some remaining currency controls, they are trying to restore the status quo ante without putting in place any real safeguards against future capital flight, as in early 1994 or late 1997.

Remember, Malaysia was exposed to the 1997 to 1998 crisis primarily not because of foreign debt (as in Thailand, Indonesia and Korea), but because there were many foreign investors holding shares in the KLSE. When they lost confidence, they quickly sold their shares and withdrew their capital, which lead to the collapse of the share market.

Among all the economies affected by that crisis, our stock market was the worst hit. It fell by more than 80 per cent between February 1997 and September 1998, i.e. over a period of 18 months. No other share market was as badly hit as ours.

Mahathir likes to give the impression that we are nationalists, we are against the West, we are not in favour of globalisation, foreign investors and so on. But the truth is that the government's main focus now - just as it was before 1998 - has been to attract foreign investors, both direct and portfolio, the very people he warns against. Hence, we are caught in the consequences of his rhetoric, and hence, not really succeeding; though to be fair, international circumstances are not too helpful as well.

The question now is: What do the analysts and investors believe? Are they carried away by the local media reports who always applaud whatever the government does, including U-turns? Initially, it seems the move impressed a few foreign analysts. This seemed like a success for Mahathir. But since then, there are few indications that investors, foreign or local, were truly impressed.

Do you see the conflict between Mahathir and Daim as similar to the former's conflict with ex-deputy premier Anwar Ibrahim?

Up till now, in my opinion, the conflict between Mahathir and Daim is not similar to Mahathir's anger towards Anwar. This may be because Daim knows more of Mahathir's secrets, and vice-versa. Therefore, I do not expect them to criticise or confront one another publicly. If that happens and the confrontation goes out of control, then the situation will be very different, but that has not happened, as far as I know.

It seems, at this juncture, that Daim is willing to withdraw and not raise any problems openly. If this continues, Mahathir may not take any further action. But if Daim's people begin to react, perhaps the situation may get out of control. There was speculation that Halim was going to resist the takeover, but there is little evidence of that happening, probably because he knows that he stands to lose more.

And if Halim did not even put up token resistance, people will say "this is really a sandiwara (charade)". So maybe, he really needs to protest like Tajudin Ramli did when MAS (Malaysian Airlines System) was purchased at a price more than double the market price; he said "Oh, I have to sacrifice so much" and so on.

True, Halim is not getting his way this time, but do not forget how much has gone to him so far. So he will not get all he wants, but this can still be considered a 'golden handshake'. His fate will not be as bad as that of those close to Anwar, for example.

There may be another sandiwara . But if it is not handled well, especially when many people around Mahathir are angry with Daim and his men, the conflict can spin out of control. And the stakes are very high too. They are scrambling for the golden peaks of Malaysia's economic mountains.