Malaysia: Clean-up man gets to work on the finances
Malaysia’s new finance minister thinks the country’s recent elections were a Berlin Wall-style moment for the country. If Malaysia is to make a fresh start, does Lim Guan Eng have the tools he needs?
In today’s new Malaysia, time in prison seems a career rite of passage for the powerful such as the country’s prime ministers – and finance ministers too.
This is the country where the recently deposed prime minister, Najib Razak, now seems to be heading for prison, where the anointed next premier, Anwar Ibrahim, has just been released from one, kept there by Najib but first put there by his now ally, the country’s current leader, Mahathir Mohamad. And Mahathir himself only barely dodged doing time after a confrontation early in his career with then prime minister Abdul Razak, Najib’s late father.
And then there’s Malaysia’s new finance minister, Lim Guan Eng, the first ethnic Chinese Malaysian in four decades to hold a job that’s been the domain of Malay influence-peddlers such as, well, Mahathir, Anwar and Najib, who have all held that portfolio. A former banker, Lim too has had his fair share of prison gruel.
But not for him a one-time character-building stint in the clink for his beliefs. As he is quick to remind Asiamoney during one of his first interviews since taking office in May, he has been imprisoned twice – for 18 months in the late 1980s and for a year in 1994 – and both times jailed by Mahathir.
“Not only did he put me in jail twice,” Lim says cheerily, “he also put my dad in jail twice.”
Indeed, such is the battlefield of modern Malaysia that the new Mahathir 2.0 cabinet, as Lim describes it, is littered with reminders of politicians who were jailed during Mahathir’s first 22 years in power: Lim at finance; twice-detained Mohamad ‘Mat’ Sabu, who is now running defence; economy minister Azmin Ali, who was sentenced to 18 months in prison for being an Anwar aide; and communications minister Gobind Singh, son and political heir of the late Karpal Singh, the lawyer who was also detained with the Lims by Mahathir in 1987. Wan Azizah, though never jailed herself, is now deputy prime minister to the wily 93-year-old Mahathir; her husband Anwar also served as Mahathir’s deputy before he was put in jail by his former boss.
So, is Lim bitter about his past treatment by his new boss, once long-time foe?
Lim Guan Eng
“No, I think it’s time that we look forward,” he says, generously. “I can’t change the past. He [Mahathir] can’t change the past. If we dwell in the past, you cannot escape. We need to escape so that you can create a better future for everyone. And both of us can change the future for Malaysia, for the better.”
The election on May 9 that swept Najib from power ended 61 uninterrupted years of rule by his United Malays National Organisation-led coalition, the only government Malaysians had known since independence. It was Malaysia’s “Berlin-Wall moment,” Lim says. “In a Malaysian context, it is that seismic for us.”
However, the real work has only just begun. State finances are a mess and the civil service is politicized. Three months into the job, the schedule is nearly 24/7, which Lim says he is loving. Asiamoney sees him at 9.30pm on a Thursday, and we are not the last to do so that night.
“You are now seeing a new Malaysia,” Lim says, “that is passionate about transparency, accountability, competency. This is a different Malaysia from the global kleptocracy at its worst. This is a new Malaysia that wants to free itself from the past of corruption and abuse of power.”
So far, the market broadly likes what it sees.
“Lim does get it,” says a Kuala Lumpur-based executive at a foreign bank. “We like what we see so far. It’s clear that transparency is going to happen and I don’t think you’re going to see all these old (Mahathir) cronies back, or new cronies emerge.”
The ringgit slipped marginally to 3.99 to the dollar in the immediate days after the May 9 poll, strengthened to 3.97 upon the new government’s swearing-in on May 21, and steadily weakened to 4.12 by early September as international trade tensions and wider emerging market concerns, especially over Argentina and Turkey, spooked markets.
“Some of the locals are saying the currency’s down, the market’s down, and I’m saying: ‘You go to any market in the emerging markets, they’re all down’,” says the foreign banker.
‘The ringgit has lucked out because most of the emerging market currencies are down against the dollar. So, it [the ringgit] has actually outperformed. And the equity market is down, but it’s not that much. And again, it’s probably outperformed a lot of the surrounding emerging markets as well.
You are now seeing a new Malaysia that is passionate about transparency, accountability, competency... This is a new Malaysia that wants to free itself from the past of corruption and abuse of power. - Lim Guan Eng
“I honestly believe, it might be a naïve comment, this might be something new. And there might be a meritocracy going forward. You might see contracts really being awarded on a genuine basis. And the clean-out at the top of the GLCs [government-linked corporations] was long overdue.”
What are the downsides? A logistical one, notes a frustrated Standard Chartered executive whose business has long revolved around profitable dealings with Malaysia’s state-sector firms such as Khazanah Holdings and the various state pension funds, many of which have been stripped of UMNO-crony senior management by the new government. “We don’t yet know who to call,” he says.
When Asiamoney relates this anecdote to Lim, he is unapologetic about the carnage across the GLCs. “Ah, yes, the gravy train; that era is over.”
Lim says he’s been pleased with how the markets responded to his new government, given that these are unchartered waters in thoroughly UMNO-ised Malaysia.
“We did a stock take of the last few months and of course the whole region has been affected by [Donald Trump’s threat of] a trade war” between China and the US, he says. “But if you look at Asian countries, Malaysia compared at least to other countries, we are not the worst performing. And our currency has actually performed quite well. I think the market has taken us in [its] stride.”
The election result was certainly unexpected.
“Of course, there was shock initially, and there was also shock again when (after the new government was sworn in) we decided to be truthful rather than tactful. And finally, when they saw that we mean business in promoting transparency, I think they are willing to give us a chance,” Lim says.
As for how to deal with the previous regime, he is a firm believer in pursuing justice through the courts.
“We have to forgive sometimes, but we won’t forget. If you don’t forgive, it will eat you up.”
What Lim says he can’t forgive is the destruction wrought upon the national finances by the corruption that plagued and ultimately sank Najib’s government, most notoriously at the finance ministry-owned 1MDB fund.
“1MDB was the catalyst,” Lim says. “It’s the tip of the iceberg in a sense, a catalyst that actually uncovered more 1MDBs and more mini-1MDBs that we didn’t know about.”
While it’s a political rite of passage for every new government to claim that the books are even worse than they claimed during the campaign, Lim says that in Malaysia’s case, it’s graphically real. “I wish it wasn’t that bad,” Lim says. “But it is really bad. The first thing is the falsification of accounts. Number two, there were hidden files, only accessible to one or two persons, hidden files where information was not made available. And then there were secret files. We are looking at RM400 billion in misappropriations, $100 billion.”
I wish the government’s financial position wasn’t that bad. But it is really bad - Lim Guan Eng
“He knows what he has to focus on first.
“There’s much to do, and when I talk about much to do, it’s basically cleaning up the finances, detoxifying some of the assets,” he says. “What we have seen here is that he [Najib] practically stole our children’s future. If he was able to do what he did for one more term, RM1 trillion debt would easily be RM3 trillion.”
In order to defeat Najib, Lim’s centre-left Democratic Action Party made a pragmatic pact with Lim’s old adversary, Mahathir.
“Yes, it’s a culture shock,” Lim says. “But at the end of the day, we are left with no choice. It’s that you are left with no choice that whatever resentment, whatever suspicions or even hesitation about Mahathir, if you don’t remove Najib, you have no country. Najib united us. If we don’t beat him, Malaysia will be a basket case.”
So, are there more nasty surprises in store?
“I think this is probably it,” he says.
After five months in the political capital of Putrajaya, Lim feels he is across the extent of the damage to state coffers, which he likens to “the ogre in the dungeon.”
“We’ve got the hang of it and are now trying to tie it down,” he says. “It’s just that you have discovered that ogre there, you know where it is, and before that he is probably slithering around the room in the dungeon. But now you have got him down, but how do you deal with it, how do you tie him down? That’s the challenge.”
The new government was sworn in on May 21; in the days that followed, Lim set the tone when he took aim at 1MDB and its chief executive Arul Kanda.
A suave banker-cum-civil servant who owed his job to Najib, Kanda had openly campaigned against Lim and his party colleague – now key ministerial aide, Tony Pua – who had long been investigating Kanda and 1MDB.
On May 22, Lim told Malaysians they had been deceived by Najib’s government, which had misrepresented Malaysia’s debt position. The deception was “especially” acute at 1MDB, which had been bailed out to the tune of an undeclared $1.8 billion since the middle of 2017, Lim revealed.
The next day, Lim summoned Kanda to his Putrajaya office to further explain the situation at 1MDB and what he did at the fund. Kanda, who had suddenly decided to go on “gardening leave” after his patron Najib lost the poll, showed up to tell Lim that he was unaware of the fund’s financial situation.
Lim then issued a public statement describing Kanda as “utterly dishonest and untrustworthy.” He said Kanda was “singing a completely different tune” to the pre-election statements he had made about 1MDB’s viability. Kanda’s remarks were “utterly shocking and preposterous,” Lim said, adding that “it is completely unbelievable that a highly paid and ‘experienced’ investment banker can be so irresponsibly clueless as to not know whether RM9.8 billion-worth of investments are even real.”
This was followed by Najib-friendly media commentary that Lim had been intemperate and could come to regret that his remarks might spook the financial markets, particularly with investors still unsure about the new government, and perhaps spark a deeper crisis. Kanda said he was considering legal action against Lim, to which Lim replied “bring it on.”
But Lim’s remarks dispelled any lingering doubts Malaysians may have felt about what a change in government would mean. As one investment banker put it: “He was perfectly in tune with the national mood for a full and proper reckoning of the Najib era.”
As ministry aide and member of parliament Pua made clear: “You have got to make sure those who are guilty are punished for it, the people want blood within the rule of law.”
Lim tells Asiamoney: “It’s a paradigm shift, and at the same time they’ve got to reset. It’s a reset of the way the government operates. The way the government operates is different now, it’s not about personal benefits, but it’s about what is good for the country.”
Asiamoney asks Lim if he regrets the exchange with Kanda. To the contrary, he doubles down.
“He’s utterly dishonest,” Lim replies. “To call him utterly dishonest is to be very kind to him. My God, he’s the one that caused us, that caused the country to have to pay RM50 billion until 2039. And we’ve paid RM7 billion. Imagine what we could do with RM50 billion? I could probably call him worse names. I’ve got no money to spend and, I’ve said this, I’m likely going to be the most unpopular finance minister in history because I’ve got no money to spend.”
Malaysia’s civil service has known nothing other than UMNO-led governments ever since the country’s independence. Asiamoney asks Lim how he is dealing with a politicized civil service that was notorious for corruption and favouritism, and which treated the opposition – now government – as the enemy. Or as Pua describes it “the old normal that wasn’t normal at all.”
“It’s a challenge: how to normalize them?” Lim says. “I think that it’s just not for me but also the prime minister because he keeps on stressing and trying to pound into them the importance of the rule of law, the importance to follow regulations, the importance to do the right thing, be professional, be clean and not be corrupt. We keep on pounding these things day in, day out.”
Finding evidence of graft can be difficult.
“It’s all done by hand phones, surreptitiously, secretively and of course for their own benefit. And they probably complete the deals overseas,” he says. “We remove those officers which we feel are not up to the mark. I think that sends a message, that the time for hanky panky is over. Better do the job right or we’ll make sure that you get it right where you deserve.”
Since 2014, when the 1MDB scandal started percolating through the online community, Malaysia has slipped from 51st to 62nd place in the corruption perception index of global graft watchdog Transparency International, putting it on a par with Cuba this year.
The message is slowly getting through, Lim says.
“I think we still need some time, but the point is that at least they are cooperating. But of course there are certain things that are still very slow.”
He complains that his directives sometimes take weeks to be enacted, or else are just lost in the bureaucracy. “We don’t know what is going on, whether there’s some sabotage in the process, or it’s just that’s how the system works.”
Lim says that once his staff started working in the ministry, some of the existing civil servants came clean.
“These people came and told us they had no access to read files. And that there were some hidden from us. We went to the accounts and there was falsification. Incredible.”
Lim may be new to Putrajaya but he is no administrative neophyte. A former banker and trained accountant who graduated in economics at Melbourne’s Monash University, Lim was chief minister in his adopted home state of Penang for 10 years until his appointment as federal finance minister. His time running one of Malaysia’s most economically important states is generally seen as a success, acknowledged in official reports from the federal auditor-general. Financially, Penang and Selangor were the two best-managed states in the 13-strong federation, the auditor-general noted, and Penang had no debt due to the federal government. Lim has described his move from Penang to Putrajaya as sailing from a sea of black ink to one of red ink.
“I managed to turn the ship around because we were not doing very well,” Lim says of his time running the Penang state government. “We doubled our asset reserves, more than doubled. Reduced our debts by 90% and we had annual surpluses, budget surpluses every year, best record in the country. That’s why I won.”
The economic fundamentals are strong... Even though we have fiscal issues, we’ve still got a lot going for Malaysia.. - Lim Guan Eng
He is optimistic he can apply the same rigour to the Malaysian economy.
“I hope I can do the same here. I think we can. The economic fundamentals are strong. We are lucky that the monetary sector is stable, there’s high liquidity. The banks are well-capitalized, non-performing loans are low,” he says. “Even though we have fiscal issues, we’ve still got a lot going for Malaysia. We’ve got lots of experience and at the same time the middle class is growing. So, we have good consumption. We have good investments, good street cred internationally. Now we need fiscal discipline.”
Lim’s task has been made all the tougher by his government fulfilling an election pledge to abolish Malaysia’s 6% goods and services tax, the second-largest contributor to state coffers after corporate taxation. Lim has said a replacement sales and services tax will yield around half the $11 billion previously provided by the GST, but believes less state wastage and accelerated consumer spending will offset losses.
So, is there also room for privatization and opening up of that state sector to raise money?
“These options can be on the table,” says Lim. “But why should I sell when it’s toxic. Sell it when it’s detoxified. You get a better price. I’m not saying that we are considering it, but if we do consider it, I want to sell it at its best value. It doesn’t make sense to have a fire-sale.”
The son of long-time opposition leader, Lim Kit Siang of the Chinese-heavy Democratic Action Party, Lim is the first ethnic Chinese to run the finance ministry since 1974; that was when Tan Siew Sin of the Malaysian Chinese Association, UMNO’s coalition partner, left office after serving for 15 years, the longest term of any Malaysian finance minister. Lim waves away any suggestion that his Chinese ethnicity in Malay-majority Malaysia matters.
“For me what’s important is what is in us. I don’t feel myself as a first Malaysian Chinese. I’m just another Malaysian,” he says. “I was born here, my whole life is here, my whole culture, my whole habits, my attitude, my whole entity, my whole thinking is here. I may have studied in Australia, but I’m Malaysian through and through.”
Ethnicity, he says, still matters for many Malaysians, “but for the younger generation, for my generation, we are Malaysians through and through. If there’s anything wrong with this country, we want to stay there and fix it because we’ve got no other country in the world to go to.”
Lim’s time at the ministry in Putrajaya is so recent that no one has yet put up his photo in the expansive ministerial foyer. The framed portraits of ministers-past are all displayed; Najib, his predecessor as prime minister, Abdullah Badawi, Mahathir before him, and his ministers Anwar and former banker Daim Zainuddin.
The last of these, Daim, has been one of the five economic advisers on Mahathir’s so-called Council of Eminent Persons (dubbed the ‘Jedi council’ by local wags) since May, together with former central Bank Negara governor, Zeti Akhtar Aziz.
The lack of an official portrait of Lim adds to an air of urgency and industry and, for some, even a lingering disbelief that the ancien régime has been toppled.
“I’m still finding it a bit hard to take in,” says Pua, “when I get the time to stop and think about it.”
An Oxford-educated tech tycoon who turned to politics, Pua is a big reason why the Mahathir-led Pakatan Harapan, or Alliance of Hope, got elected against the odds. For more than a decade, Pua has relentlessly chipped away at successive UMNO administrations, calling for accountability and transparency in state finances and highlighting suspected electoral slush funds drawn from state coffers. Since 2010, his focus has been 1MDB, revealing scam after scam and clashing frequently with 1MDB’s management as well as with Najib, who was 1MDB’s chairman while also serving as finance minister and prime minister. Tipped as a possible finance minister in what was long regarded as the unlikely event that UMNO would ever lose power, Pua was often threatened with arrest.
Pua’s 1MDB investigations proved electoral suicide for UMNO and manna for him, when he was re-elected to his greater KL seat of Damansara with 89% of the vote. (Lim has an 86% share in his Penang seat, and Mahathir 55% in nearby Langkawi).
“I think the big challenge is putting in place policies and procedures to prevent the previous excesses from happening again,” says Pua. “If you don’t take the state’s money and put it in your own pockets, you won’t go far wrong.”
What will success look like for Lim? Re-election, he says.
“So far, the people of Malaysia are willing to give us their support and let us have a go at it because they know that the country’s economy is in trouble and they need us to fix it up,” he says.
“If we can fix it up, we’ll be here for the long haul, because the other side is waiting to come back. It’s waiting to see us slip and fall. And gloat over it and come back triumphantly. We want them to know that their game is over.”
The new (and not so new) key figures in Malaysian finance
Anwar Ibrahim and Wan Azizah
Anwar Ibrahim and Wan Azizah are the power couple in Malaysia. Anwar holds no official position in the new Malaysian government though there is little doubting that he is one of the country’s most powerful figures and the man widely expected to take over from his former boss-cum-jailer, Mahathir, as prime minister, probably by 2020.
Whether that actually happens will, in large part, be influenced by Anwar’s wife Wan Azizah, who reluctantly inherited Anwar’s political mantle in 1998 when he was jailed by Mahathir and who is now Mahathir’s deputy prime minister.
The 93-year-old prime minister, or ‘Dr M’ as he is known, may be chairman of the Pakatan Harapan, the pragmatic Alliance of Hope coalition that unexpectedly won power this May, but Anwar is its real leader.
First Anwar has to find a seat before he can be prime minister; he was serving his ninth year in jail and was ineligible to run in the election that his party won. His wife took over his safe seat when Anwar was jailed the first time; his daughter, an emerging political star in her own right, took it on the second time around.
A firebrand Islamist as a student, Anwar was Mahathir’s finance minister in 1998 when they fell out over how to manage the contagion from the Asian financial crisis; Anwar supported IMF intervention, while Mahathir backed isolation for the economy. Anwar then confronted Mahathir by launching the anti-corruption reformasi, or reform, movement, a move that put Anwar in jail for years.
Twenty years later, reformasi has spawned the careers of many in today’s government, ironically with Mahathir, its former sworn enemy, as its leader.
One reformasi career belongs to Azmin Ali, 53, who is the new economy minister. He was Anwar’s personal secretary through the 1990s, having been installed by Mahathir, who was then – as now – prime minister. That power dynamic has confused Azmin followers in Malaysia as to whether his loyalties lie with Mahathir or with Anwar. The answer is probably neither and both, and as his own influence grows, with whomever can help deliver Azmin his own power.
Azmin didn’t break with Anwar in 1998 when Mahathir’s then-finance minister was arrested; instead, Azmin joined Anwar to form Keadilan, the Justice Party that is the dominant party in the new ruling coalition. For his troubles back then, Azmin was arrested and harassed by Mahathir.
After Mahathir retired and while Anwar was in jail, Azmin progressed through the opposition ranks. In 2014, he became chief minister for Selangor, the economically important state surrounding Kuala Lumpur, a job that he held and, by most accounts, did successfully until winning federal power this year.
This time around, Mahathir has installed Azmin in one of his government’s most sensitive posts, a new portfolio for economic affairs that, critically, involves reforming Malaysia’s moribund state-owned enterprises. Azmin is very much one to watch.
Attorney-general Tommy Thomas is the man entrusted to restore confidence in Malaysia’s legal system after its battering during the UMNO years.
Rule of law has been a mantra of the new Mahathir regime and Thomas, 66, set down his intentions the very day he was sworn in by re-opening the 1MDB investigation; that probe had not only been shut down by Mohamed Apandi Ali, his predecessor in the Najib era, but had concluded that the then-prime minister, Najib, was cleared of any wrongdoing. Najib has subsequently been charged with money-laundering in connection with 1MDB.
Thomas’ democratic credentials were underlined in 2011 when, in defending the anti-corruption mass movement Bersih (Clean), he railed against the “police state” and the “incompetence” and “fascist elements” of the Najib government.
An ethnic Indian and a Christian, Thomas is the first non-Malay and non-Muslim to be appointed attorney-general in Malaysia since colonial times. He has been targeted by some Malays who fear that he will wind back both the special economic status for bumiputera [indigenous people] and the primacy of Islam in Malaysian society, fears that Thomas dispelled after becoming Malaysia’s top legal official.
Daim Zainuddin is one of the five members of Mahathir’s Council of Eminent Persons, and this octogenarian is famed for his exquisite timing.
Daim is a long-time Mahathir acolyte. They both hail from the same town, Alor Setar, in the northern state of Perak. But such claims undersell Daim, who is very much his own man with his own successful career adroitly spanning the oft-treacherous terrain between politics and business, and becoming very wealthy in the process.
Daim trained as a lawyer in London in the late 1950s, but found his metier back home in business, and in banking in particular; he took control of Banque Indosuez’s Malaysian operation in 1982, a deal that perfectly suited the pro-Malay nationalism of Mahathir, who had seized power a year earlier.
By 1984, Daim was Mahathir’s finance minister, a post he held until resigning in 1991 to return to business – banking again – briefly returning to the portfolio as Mahathir’s trouble-shooter in 1999 in the wake of the Asian financial crisis and Anwar’s sacking.
Since then, Daim has maintained a presence in public life that’s part eminence grise, part-counsellor and part back-channel mediator. His reputation for timing was evident again this year when, a few days before the election, he was expelled from UMNO for appearing alongside Mahathir at an anti-government rally. Less than a week later, Mahathir was prime minister again and Daim was by his side, again.
If Malaysians could thank anyone for their hard toil in unseating Najib, it would be Tony Pua. Since 2010, Pua has been a thorn in Najib’s side over the controversial state-owned investment fund 1MDB that Najib chaired as finance minister.
Elected in 2008 as the member for the greater KL seat of Damansara, Pua boasts one of democracy’s biggest margins, winning this year with 89% of the vote. Pua has relentlessly interrogated Najib and 1MDB management in parliament, airing revelation after revelation about the fund’s mismanagement.
Because of that work, he has been repeatedly arrested, sued and threatened with both defamation and death, at one point receiving a live bullet in the post. And 1MDB is not the only focus of Pua’s crusade on government waste and corruption.
From 2008 to 2009, Pua demanded that the UMNO-led government reveal the workings of another state corporation, ValueCap, which he suspected was an electoral slush fund.
Ironically, as finance minister Lim Guan Eng’s most senior adviser, Pua is now responsible for both 1MDB and ValueCap.
Oxford-educated Pua, 47, represents the new generation; he is one of Malaysia’s first tech tycoons, who sold his Cyber Village group in 2007 to enter politics.