Mahathir Mohamad, Emerging Markets, October 2007

Emerging Markets, October 2007

Putrajaya is a curious place. Though few outside of Malaysia have heard of it, it is the country’s federal administrative centre, founded in 1995 to take the government departments out of nearby Kuala Lumpur. It’s a place of resplendent architectural daring: mosques, palaces, convention centres, and five extraordinary bridges over a 650-hectare man-made lake. But the most striking thing about it is this: there’s no-one there.

Arriving on the train from a gridlocked rush-hour in Kuala Lumpur, it’s common to see perhaps half a dozen cars on the wide boulevards that link the station and the town centre. It is an infernal place to try to find a cup of coffee. Nobody walks the streets.

And in a particularly isolated corner of Putrajaya, reached by taking a road past an uncompleted bridge opposite an uncompleted Mosque, one finds the Perdana Leadership Foundation, “dedicated to leadership and national development by studying Malaysia’s past leaders.” And upstairs in this building sits the past leader who commissioned this pristine, empty city, and who ran Malaysia for 22 years, half its modern history: Tun Dr Mahathir bin Mohamad.

Now 82 and with several heart attacks behind him, Mahathir is a frail figure in person, but with none of his mental sharpness lost. In fact, what impresses about Mahathir is the sheer range of issues he is simultaneously angry about. He is angry about the removal of capital controls he put in place during the Asian financial crisis. He is angry about the handling of national car manufacturer Proton – an iconic venture whose creation he was initially responsible for. He is angry about the behaviour of Khazanah, the state agency tasked with improving the performance of government-linked companies; about gradual shifts away from affirmative action policies to protect ethic Malays; about the return of his former deputy and now nemesis, Anwar Ibrahim, into Malaysian political life. And in particular he is cross about the failure to pursue the so-called mega-projects that characterised his time in office.

Which makes Putrajaya, the ultimate mega-project, a suitable place to be meeting him, since the place’s apparent redundancy reflects his malaise at a government (led by a man he appointed but has since turned against, Abdullah Ahmad Badawi) that has taken some quite different directions to those he had hoped for. They are the first thing he mentions when asked what his successor has done wrong.

“The initial thing he did was to stop what they called the mega-projects,” he says, although he doesn’t like the term, considering the projects perfectly ordinary. “But when the government stops spending money, lots of people suffer: contractors will suffer, subcontractors will suffer, suppliers, the chap who peddles food on the roadside. You will slow down the economy.” Badawi’s Ninth Malaysian Plan does appear to be putting many big infrastructure plans back on the agenda, notably the Iskander Development Region in Johor, in Malaysia’s south, but it hasn’t appeased Mahathir. “Now they have changed their minds and decided we must have these mega-projects again, but to start them is very difficult: you have to acquire land, go through legal processes, pay out compensation, there will be protests. You have a five year plan which gives out a very beautiful picture of what we are going to do. But after three of the five years nothing is done.”

Mahathir’s influence is stamped all over the country through these projects, from icons like Putrajaya and the Petronas Towers to key infrastructure like the North South Highway, the vast (and underused) Kuala Lumpur International Airport and the Multimedia Super Corridor, to say nothing of the nation’s educational, media and even judicial institutions, for better or worse. Critics say Malaysia under Mahathir grew at the expense of freedom of speech, independent judiciary and true democracy. But grow it most certainly did, particularly in the pre-crisis golden era from 1988 to 1997 when growth averaged over 10 per cent and standards of living improved considerably, for most citizens at least.

Today there is regret at what has happened since. “It has regressed a bit, I’m afraid,” he says. “Before, foreign direct investment into Malaysia was always bigger than to most other Asean countries. I was shocked to find Indonesia attracted more foreign direct investment than Malaysia. We need to reposition ourselves in the context of China and Vietnam, and other developing countries, India for example. Unless you do that, you are going to go backwards.”

Outside of Malaysia, Mahathir will always be known best for his response to the Asian financial crisis. This was, depending on your perspective, Mahathir at his absolute best or worst: bloody-minded, facing down a crisis, shouting at the world and doing what he thought was right no matter how many people were telling him it was wrong (and pretty much everyone was). This was the era of blaming the ringgit’s devaluation on a Jewish conspiracy, with George Soros coming in for especial contempt.

A decade on, there doesn’t appear to be a thing he would have done differently. “I learned a lot, because I knew nothing about finance,” he recalls. “I had to read up, I got people to brief me. I had to understand how banks work, how their accounts are kept, so it was a good learning experience.” And was his approach – characterised by a peg to the dollar and a range of capital controls – the right one? “Yes, I think it was. It still is.”

Today, almost all of those restrictions are gone: even short selling has been introduced, in a limited sense, to Bursa Malaysia, and foreign exchange restrictions were axed in March. “I still believe there is a role for fixed exchange rates,” he says now. “When we allow it to float, today the ringgit is stronger but we are not getting any benefit from that… we have no means of ensuring the strengthening of the ringgit benefits people.” He adds: “Floating is all right provided you restrict these people who manipulate the market.” Short selling, he still says, “is manipulation. It is something that, because you have power and a lot of money, you can go in and buy and buy and push up the value of shares and then dump them.” And even today he considers Asian countries in danger. “They are more sophisticated, more knowledgeable, but still if there is another concerted attack against their currencies some of these countries could go down again, and that may happen to Malaysia even.”

Another of Mahathir’s lasting effects on his country is the New Economic Policy, the controversial affirmative action approach that sought to put 30 per cent of the national economy in the hands of Bumiputras, or ethnic Malays. This was passed in 1971 so was not Mahathir’s policy, but he was around to keep it in place and to oversee the implementation of the similar National Development Policy that succeeded it in 1990. Badawi appears to have made the first steps away from the policy by saying that it will not apply in the Iskander development, and this too has drawn Mahathir’s ire.

“We have not achieved the target we set for ourselves,” he says. “I believe the NEP target of affirmative action needs to be restudied. But if you want to do away, you can do away after proper study.” Mahathir points out that he did repeal several previous NEP decisions, notably quotas on admissions to universities, where he eventually concluded that admission should be based on merit rather than race. “But there are other areas where there is a role to be played by Bumiputras, and you have to give them consideration. You can’t just say I don’t care.”

It is widely argued, even by some Malays, that the approach has created an uncompetitive Malaysia, a generation that hasn’t needed to be competitive because it knows it will be helped, thus impeding the group it was intended to protect. “There is some truth,” says Mahathir. “Like all plans to improve anything, it’s not 100 per cent perfect. [But] Bumiputras are much better off than they were before NEP.” Notably, the percentage of Bumiputra doctors has gone from 2 to 40 through the policy. “I always believe that when you want to get a thing up straight, you overstretch, and then when it rebounds it comes to the correct position… Affirmative action notwithstanding, we can still perform.”

There are many other things on Mahathir’s list of grievances. At Proton, which at the time of interview was clearly in crisis and becoming more and more likely to need a foreign acquiror to survive, he bemoans the removal of a successful CEO where “they put in an accountant who apparently couldn’t understand the automotive business, and his idea of running an automotive industry is to have meetings every day.” He believes foreigners can come in to Proton, but not control it. “Otherwise it will not be a national car. A national car must be owned by the nation.” He complains about the expansion of Khazanah’s role into corporate life. “Khazanah was set up to be a repository of shares. It’s not supposed to be involved in management.” He calls for more transparency in all GLCs and even takes on the one great success story of GLC reform, Malaysian Airlines: “I know some routes where they were carrying full loads but they stopped. So why were they stopped?” He sees little need for the new free trade agreement signed between the US and Malaysia.

Asked about Anwar, who fell from being Mahathir’s most likely successor to being incarcerated on corruption and (subsequently overturned) sodomy charges before being released and recently making a tentative return to politics, Mahathir is curt. “There will be some people who might be entranced by him. His party might pick up a few seats. But he’s not going to become prime minister of Malaysia.” Does he feel he dealt with Anwar fairly? “I dealt with him very fairly. In fact I restrained myself quite a lot, until I reached a stage where I cannot put up with it anymore. It’s not because of politics, it’s his personal behaviour.”

It is time to go, and in concluding Mahathir returns to his concerns about the leader who he appointed to continue his visions but who has failed to follow the plan. “Any new government will want to start its own policy and be recognised for what it is doing. But the idea that you should take a 180 degree turn in order not to be identified with previous governments, that idea is wrong. If you have new ideas that are going to yield better results, by all means. But so far I have not seen any.”

He gestures towards the window, to this custom-built city that wouldn’t exist without him, and one is struck by the opportunity that must be presented by running the same country for 22 unbroken years. “Everything we do, the intention is long term,” he says, the present tense still firmly in use. “We never do things only for tomorrow. We built an airport for 100 years. One has to be able to see quite far ahead.”