PRIVATIZATION Privatization in Malaysia, Regulation, rent-seeking and policy failure

Notes 197directed primarily at the Chinese, and later, at the UMNO-led Alliance government(Searle 1999: 40).5 Ethnic Malay business associations largely represented medium-scale enterprisesdependent on bureaucratic patronage (Felker 1999: 103).6 Many Malay businessmen were present or past high-level UMNO officials and topcivil servants.7 This group demanded Malay as the sole medium of instruction in order to benefitfrom higher education and government employment opportunities. Not coincidentally,UMNO’s heads of branches and committee members at the time ofIndependence were mainly teachers (Ahmad 1985: 90).8 The system of ethnic recruitment which became the basis of quotas and privilegedaccess for Malays to the higher administrative positions was first introduced by theBritish for its Malay Administrative Service (Means 1986).9 Malays were also designated a ‘priority group’ which required a minimum of20 per cent of new loans be allocated to Malay individuals or Malay-controlledcompanies (Searle 1999).10 For example, loans below RM5,000 did not require collateral or a guarantor.11 Companies controlled by the government were skewed towards those with largerpaid-up capital and higher gross profits (Tan T.W. 1982).12 The government bailed out Bank Rakyat (after losses of RM65 million) in 1976and Bumiputra Malaysia Finance (RM2.5 billion) in 1983 (Ismail and Osman1991: 88; also see e.g. Daim 1990: 32).13 These were doctors, lawyers, engineers, veterinary surgeons, dentists, accountants,surveyors and architects.14 Malay managers increased from 7,400 in 1971 to over 61,000 (1985) (Ismail andOsman 1991: 39).15 This included the Economic Planning Unit (EPU), Public Service Department(PSD) and the Implementation and Coordination Unit (ICU).16 These figures are argued to have been grossly underestimated to justify continuedredistributive policies under the NEP (Jomo 1990).17 E.g. Pernas (the National Corporation), the Urban Development Authority(UDA) and State Economic Development Corporations (SEDCs).18 Protests against economic reform and liberalization by this group led to resolutionsat the Bumiputra National Economic Symposium (organized by the MalayChamber of Commerce and Industry) calling on the government to establish atrust fund to prevent the forfeiture of property used as collateral for loans and‘changing the rules of the game if necessary’ to make loans for Malays easier(Searle 1999: 53).19 This included the transfer of profitable enterprises under Pernas (headed bythe Minister of Trade Tengku Razaleigh Hamzah who contested the UMNOpresidency) to PNB (which answered directly to Mahathir).20 On the other hand, even when these proposals involved the private sector takingover the management/operation of existing state-run facilities, they were classifiedas new projects developed by the private sector (e.g. sewerage and garbage disposal,construction) (see Ismail and Lee 1990).21 Nominees were used to hide ownership identities. In 2001, the governmentstopped this practice in order to improve transparency.22 This (incomplete) list provided details of 171 privatizations between 1983 and1998, and was released at the 1998 UMNO General Assembly in response toallegations (by Anwar supporters) that privatizations were mainly awardedto supporters of Mahathir and Daim.23 Eric Chia was authorized to run the state steel company Perwaja as if he owned it,and regularly reported directly to Mahathir who had to personally approve anyproject (Bernama, 20 September 2004). Perwaja was bailed out after incurring