An economic lecturer yesterday said that while the number of bailouts of troubled companies was small, these bailouts have been very costly to the country.

Universiti Malaya associate professor Dr Edmund Terence Gomez said that the government has failed to learn any lesson from the 1997 financial crisis.

He said that financial institutions that are controlled by the government or politically well-connected businessmen, are being used to channel loans to a privileged few who are facing problems in servicing their debts.

According to him, 15 corporate groups accounted for 20 percent of Malaysia's entire bank loans during the economic crisis.

"Of the RM39 billion loaned by banks for share acquisition, almost 45 percent were given to the individuals. One company, the Umno-linked Renong, had accumulated debts constituting more than five percent of loans in the Malaysian banking system in 1998."

Gomez was speaking at a seminar organised by DAP on "Bailouts and buyouts - Are EPF, Pensions Trust Fund and Public Monies Safe?" in Kuala Lumpur yesterday.

He added that former Umno deputy chief Anwar Ibrahim has alleged that less than 10 people linked to party leaders were jointly responsible for the loans worth around RM70 billion.

Gomez also said the banks with the most non-performing loans were mainly government-owned institutions including Sime Bank and Bank Bumiputra.

The government has bought over Bank Bumiputra's non-performing loans, he said, adding that Sime Bank's debts were absorbed by the government before the takeover by the well-connected Rashid Hussain group.

Varied criteria

Gomez, who is from UM's Faculty of Economics and Administration, said that the criteria for those bailed out are based on a variety of considerations.

"Some appear to be personal like the case of (former Malaysia Airlines System chief) Tajudin Ramli, and others are to ensure Mahathir's vision of creating the Malay conglomerates is not derailed," he said.

The questions not asked when these bailouts were implemented were how these projects were conceived in the first place and whether the contracts awarded to implement these projects had been done in an open and transparent manner, said the economist.

"We know that even Mahathir's entire cabinet questioned the feasibility of his heavy industry projects, including the Proton car project. I have never heard (Finance Minister) Daim Zainuddin publicly endorsing the heavy industry projects," he said.

However, Gomez said that Mahathir has begun to be much more selective in the award of government concessions, especially during the 1990s after he had strengthened his position in Umno.

"The prime minister had a genuine belief in his ability to pick winners who could help fulfill his vision of creating Malay capitalists," he said.

Renong's huge debt

But Gomez singled out Renong as an example of how Mahathir has failed in his mission.

"Renong's huge debt were accumulated through the pattern of growth it adopted, that is through the acquisition of companies in almost all major industries.

"This also had to do with the Mahathir's desire to create huge companies that would emerge as enterprises of international repute," Gomez said.

He pointed out that the government has asked Renong to serve "national interest" by the acquisition of key companies even when it was not ready.

Gomez cited the example of the conglomerate being used to bail out the National Steel Company (NSC) in the Philippines owned by the now discredited politician-cum-businessman and former member of parliament, Joseph Chong.

""Although (Renong chief) Halim Saad may have been instructed to take over the steel plant in the Philippines, ostensibly because it was in line with Mahathir's desire that Renong expand its activities abroad, diversify its interests, was Renong qualified to move into this business? Was the viability of the venture adequately assessed given the problems that Perwaja Steel faced in the same industry in Malaysia?" he asked.

"I feel that the issue of 'national interest' was a convenient ploy to justify Mahathir's mistake," he said.

Renong's takeover of NSC, with loans from a number of government-owned banks, has led to a severe debt problems for the company following the 1997 crisis.

Last year, Pengurusan Danaharta Nasional (Danaharta), Malaysia's national debt restructuring agency, took over the multi-billion ringgit loan of Hong Kong's Hottick Investment, the company used by Renong's Halim as a vehicle to take over NSC.

This steel company is on the brink of liquidation, rendering the RM3 billion loan to near scrap value, as the lending banks had only the worthless scrips of NSC but not its assets as security.

The lending banks for the takeover are Malayan Banking, RHB Bank, Bank Bumiputra and Commerce Asset-Holding Bhd.

National interest

Gomez questioned whether companies like Renong should be bailed out because they were used to undertake projects in the "national interest".

"Is it really necessary to have a company the size of Renong as a symbol of the development of Malay capital, especially when it is clear that this private company does not represent the interests of all bumiputras?

"Who remains accountable for the pattern of growth undertaken by Renong that contributed to its debt problem, and should the public, state-owned enterprises and institutions be used to bail out Renong?"

Gomez added that the same problem was seen in a number of other major companies in the country, including Malaysia Airlines System, which have important assets but are or were led by the people without the expertise to develop such companies.

In the case of Renong, Gomez suggested that it could have reduced its debt by divesting its interests in a number of companies which were still quite profitable, particularly in non-core activities, which would have forced Renong to be more focused.

He added that such divestment, which other companies were forced to undertake to reduce the debts, indicated to them the need to reassess their style of business and rationalise their operations.

"This was not the case with Renong, with the government trying to institute all sorts of bailouts which have been a burden to the public, and not in the interests of the minority shareholders," he said.

He said that it is widely believed that many of the companies that have been bailed out are linked to proteges of Daim.

"However, among the wide range of corporate assets owned by Halim Saad, Wan Azmi Wan Hamzah (left) and Tajudin Ramli, it is difficult to distinguish between assets belonging to them and those being held in trust for Daim or Umno," he said, adding that former deputy premier Anwar has revealed the documents signed by Halim, Wan Azmi and Tajudin confirming that they owned such corporate assets on behalf of Daim and Umno.

However, Daim has strongly denied the allegations.

Cut link

Gomez added that while Mahathir's intentions might have been noble when he selectively distributed government concessions to develop domestic, especially bumiputra, capital, the outcome has been costly for the nation.

"If the selection process had been transparent and based on criteria different from that of political or personal affiliations, this need not have been the case," he said.

He stressed that the close link between politics and business is contributing to the government's inability to institute proper and much needed corporate reforms.

"Unless there is greater attempt to delink politics from the business, as our history has indicated, we will continue to see the abuse of the government institutions, like Employees Provident Fund (EPF), to protect the interests of a small group of people," he said.

The EPF has been recently criticised for investing RM269.28 million in Halim's Time dotCom. The initial public offering of the firm last month saw its shares plummeted by almost half at the Kuala Lumpur Stock Exchange.