Cover Story: DR M Blunt & Frank on race relations, BR1M, Umno, 1MDB, Petronas and Proton

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AS we were seated and just about to start the interview, Tun Dr Mahathir Mohamad startled us by saying, “You (The Edge) don’t have a very good opinion of me. Do you think I am one of those racists?”

Caught off guard, one of us replied, “Not at all”, to which he said, “So, you don’t think I am a racist … publish that.”

Having put us in our place, so to speak, he then laughed and said, “So, what do you want to ask me?”

Clearly, Mahathir was making the point that he did not take too kindly to articles The Edge had published that were critical of him, although we do not recall ever calling him a racist.

But it was vintage Mahathir.

Like him or loathe him, he will always speak his mind, whether taking on his domestic political opponents, world leaders on the international stage and, yes, journalists as well.

Now 89, the former prime minister has not slowed down and, indeed, has been especially vocal in recent months about the government and leadership of Umno.

While the 45-minute interview was too short for The Edge to raise many other issues we wanted with him, Mahathir was his usual blunt self, talking about Umno, BRIM, 1MDB, Petronas and Proton.

The interview follows:

RACE RELATIONS

The Edge: We are 57 years old. As a nation, we are still young. Are you not okay with our progress?

Tun Dr Mahathir Mohamad: We have made considerable progress if you compare with other nations which became independent after World War 2. Compared with them, we have made progress, but we are special, in that we are a multiracial nation.

Managing a multiracial population — actually multiracial, multi-religious, multilingual, multiculture — is a very difficult thing. But we managed because we cling to the principles enunciated by the first prime minister — that in Malaysia, all races must share in politics as well as in the economy.

But now, what we are seeing is that the races are getting further and further apart, there are racist remarks being made and the demand is for the elimination of a system that has served us very well all these years — namely, that we should work together and share this country’s wealth and power among ourselves.

 It seems that because of racist elements, both parties, Malays as well as Chinese, attack the government’s policy on sharing, such that it results in parties replying in a very racist fashion [to each other].

So, instead of coming together to form the Malaysian race, Bangsa Malaysia, we are actually growing apart.

On specifics, Tun, on the scale of importance, what are the things that you think the nation can improve upon?

Most important thing is still stability, and stability can only come about if there are no attempts by any single race to grab power for itself.

You think the present government is not doing enough on this?

The present government thinks that because the Chinese do not seem to support [the government], it must support the Chinese at the expense of the Malays. So, the government has now put on the back burner the New Economic Policy (NEP), for example, at a time when the distribution of wealth is still uneven. This has caused a lot of unhappiness among the Malays, and of course, the extremist [Malays] take advantage of it.

Can the government do better?

I think the government can do better, we should not favour one race over another.

For a long time, for 50 years, the sharing went on quite well and this country grew, we were stable, [there were] no attacks against religion, no attempt to degrade anybody or to say nasty things about each other.

During my time [as PM] and before my time, we didn’t take potshots at each other, we accepted that this is a multiracial country and it must have a multiracial government. The sharing, of course, must be, if possible, as equitable as possible.

But since it is not possible for the bumiputras to catch up, according to their percentage [of the population], they have agreed to only a 30% share of the economy. But in politics, we are already sharing, we support each other.

But there is some feeling among the DAP extremists, why should they care about the distribution of wealth [to] the bumiputras …and it should all be based on meritocracy. Of course, if it’s based on meritocracy, they will get everything.

It’s always based on an expanding cake, so since the economy is doing fine where have we gone wrong in terms of achieving and executing the NEP target?

Now, the NEP is not being implemented, and in some instances, using the word Melayu or bumiputera is regarded as wrong or racist, and therefore, we should only concentrate on eradicating poverty. But [that] would be much more to the benefit of those who are capable than those who are culturally less progressive.

You think the new economic model doesn’t take into account the NEP?

I think not, it doesn’t take into account [the NEP]. The government wants to please the Chinese community at the expense of the Malay community. So, it’s not good.

What are your suggestions?

I think we have implemented the NEP over a period of time. To a certain extent, it has managed to correct the imbalance, but it is not enough … it’s not permanent enough.

 We need to sustain it (the NEP) for some time yet, not in all fields, but in certain fields, otherwise, you will see Malaysia still showing the pre-independence scenario of the Chinese dominating the urban areas, the Malays in the rural areas and the Indians … well, they feel they are neglected.

BR1M & UMNO

You have said that you have advised the prime minister on certain issues before, but it went unheeded.

Well, I used to meet the prime minister once in a while, I didn’t want to bring out my views about things publicly, so I tried to tell him, for example, don’t give money to people, give them a way to make money, but don’t give money directly, and that is almost like bribery.

Create an environment where people can earn a good living. You want to have higher wages. [It is] okay to have higher wages, but higher wages must be accompanied by higher productivity. You don’t stress high income only.

I tried to explain that it is not going to win over people, and I had expected him to do better than Tun Abdullah [Ahmad Badawi], but he has done worse than Tun Abdullah.

So, it must be because his strategy is wrong, but he still continues to this day to apply the same strategy, which is wrong.

Giving money to people doesn’t mean they will support you. This BR1M thing and all that … help the poor, yes, by all means help the poor, but to give to how many million people and spending RM4 billion giving it out. It’s the government’s money, government money must be judiciously controlled and spent, not just given to people.

I don’t know ... but he didn’t do anything about it (my advice), he is still talking about BR1M. Whenever there is a by-election, [we] start giving money.

BR1M is not sustainable. It is a wrong way to run a country, to spend government money [by] giving it to people.

But Tun, BR1M could be a stop-gap measure, as inflation is setting in, to create a conducive environment for the poor as to create job opportunities actually takes a while.

Yes, but you are making people dependent on the government. For five years, they become totally dependent on the government [and] if you don’t give money to them, they become very unhappy.

Governments do not give money to people, governments create an environment where people can live well, they can get jobs, etc.

 If you spend money, for example, RM4 billion on giving scholarships to people, it will give them education. If you help them with some work they are doing or if you manage the tax so the rich will pay while the poor will not pay, all these things can be done to prevent costs from going up too high.

But this is not done at all, the idea is just giving money.

Not only for BR1M. I have noticed that, for example, the village head is being paid an allowance because he is an Umno branch chief. He will not give it up, so you can’t change things.   

Because of this system where you reward people, they will not give up their places and [in turn] people with ability cannot join Umno.

Now, Umno is so short of leaders. If you ask people, if Umno wins in Selangor, who will be the MB (menteri besar) … nothing. Even at the central level, if [Datuk Seri] Najib [Razak] is not there, who will succeed him? Very few people can be considered as qualified.

People with ability are prevented from joining Umno because those already in Umno want to preserve their places. This is because the government pays money.

Of course, not directly, but pay money because you are jawatankuasa kampung or something like that. This is wrong, you shouldn’t make people dependent on the government.

You are saying Umno is not attracting the young and the bright to the party?

Most of the professionals are now joining Pas. People who otherwise would have joined Umno have joined Pas as there is no place for them in Umno.


Giving money to people doesn’t mean they will support you, says Mahathir

PETROL SUBSIDY

You support the government’s move to reduce subsidy for petrol.

The price of petrol in this country is very low. It is low even compared with some oil-producing countries.It results in people not knowing the real cost of their business. For example, people who manufacture goods, they buy fuel at a subsidised rate.

Government subsidies have become unsustainable.

Of course, if the price of petrol goes down, say, to US$80, one should remember also that that we produce petrol, so we [will be selling] at a lower price. So, government revenue will become less.

1MDB

Among the things you have been unhappy about is 1MDB (1Malaysia Development Bhd). Can you comment a little on that? Your take on 1MDB.

 Well, it (1MDB) is regarded as a sovereign wealth fund. It is not … it is not, it is not because it is borrowed money.

Sovereign wealth comes from excess funds [for example], a country producing petroleum, it cannot spend all the excess funds like Qatar, Kuwait and Saudi [Arabia]. So that [excess]is invested in some other projects like buying property or whatever.

But when you borrow money, you have to pay the debt. Even if you buy certain things which have assets worth so much, assets are not liquid. You cannot always sell your assets in order to pay off loans.

It is not the right thing to do.

And it must be transparent. We talk about transparency in the government, but it is not quite transparent [with 1MDB].

Why should [it] buy the power plants at a higher price. Their (the power purchasing agreements) contracts are about to finish or expire anyway.

This kind of things doesn’t bear scrutiny.

It (government) should be very transparent. From whom did you borrow? What is it that the government does? [If] the government stands guarantee, it is equivalent to government borrowings. Then, of course, the (budget) deficit will increase.   

There is no necessity for you to borrow money to invest. If you have excess money, by all means invest in something, but when you borrow, you have to pay a charge for borrowing.

And governments should not be in such businesses at all. Governments should leave such things (businesses) to the private sector and collect tax from the private sector. Now, you are collecting tax from yourself.

Buying the assets from the private sector, what do you gain? And that too at a higher price … what do you gain? You have to run it, now you have more people on your payroll, and you are not good at managing.

The reason why we privatised before was because government companies are notorious for being unable to manage well.

The mindset of a government servant and the mindset of a businessman are quite different. For a government servant, you do anything good also you get the same thing, maybe you get some bonus. But for the private [companies], they make profit then, of course, the owners make a lot of money, and their employees also earn better.

Tun, you are saying that with the government having other investment arms like Khazanah [Nasional Bhd], 1MDB is actually not necessary.

1MDB is not necessary. It has not contributed anything to the country, even to the government’s finance.

But since we already have 1MDB, what would be the right thing to do going forward to stop things from going sour or damage the economy?

I think you should stop it, just stop it … stop it means you sell off all the assets that you have bought and maybe realise some income or returns.

You sell it to the private sector, they will run it and they make profits, but the government collects 26% (the current corporate tax is at 25%), that is far better than the government running the company and bearing the cost of running the company. The government is not good at running companies.

So you believe that the return on investment would be higher if you just close 1MDB now?

Then you wouldn’t have to pay the interests [on the debts]. It is not your money. When you borrow money, please remember it is not your money … it is not your money, it is money that is lent to you but belonging to the banks or whatever.

Tun, did you speak to the PM about 1MDB?

I asked him, ‘Why do you do this’ [and he replied,] ‘When the value of the assets appreciates, we will sell’. But that is not the business of government to buy and sell companies.

And the debts are too high. It is too high, it is not very transparent, you don’t know how much money is being borrowed, who is lending, what is the rate, what are the things (assets) invested in, and these accusations that money is being kept in the Caribbean and all that.

The government either denies or admits it [and] if it is true, why is it kept in the Caribbean? It’s not the usual thing that government does.

Tun, what is the risk 1MDB poses to the country and to the economy if things turn bad?

You have to pay interest on that debt, it’s not our money, you have to pay interest on that debt. It’s not free. Eventually, you must pay the loan, you can’t keep the loan and invest it and just pay the interest to the bank. The bank will want you to pay back the loan you have taken, so how do you pay back RM42 billion.

The assets are said to be about RM30 billion [but] you still have to pay [for them]. If the assets don’t earn enough money to pay, not just the interest but also the loan, you’ll be in trouble.

Could it be that we don’t understand 1MDB fully yet? Even under your tenure, there were some decisions you made that were not fully understood like the double tracking [project], which was reversed. Could it be that we don’t know enough yet about 1MDB, or we don’t understand the importance?

The double tracking [project], the asset is there, also it needs to be done because we need to improve transport by rail. And you can see that it is a growth investment, over time more people will use rail.

We built the LRT (light rail transit), remember nobody was using it, now, we have to increase the number of carriages. This is a long-term project where you will earn more and you will be able to repay.

But for transport, there is always an element of government support. In any country in the world, there is always an element of government support, at least for a certain time period. So, that expenditure is justified.

This 1MDB is buying assets all over the world (and) I don’t know why it buys these power plants. The power plants were running and they (the previous owners) were paying taxes to the government. It is better to collect taxes because it’s clean, you don’t have to pay salaries or whatever … you just collect taxes.

It’s better to collect taxes than to run a business by yourself because then you have to carry overheads, you have to manage, and government servants are not trained to do business, they are trained to administer.

So, it is not the business of the government to be in business?

I have said it over and over again, it is not the business of the government to be in business. Let the business people do it.

 The government is in a fantastic position, you don’t spend one sen by way of capital, somebody else raises capital, invests and you collect 26% of their profits. You don’t put one sen and you collect 26% of their profits … isn’t it better than if you buy the assets, you have to spend money to buy the assets, then you have to manage and quite often you lose money. What for?

The private sector has a vested interest in the success of the company. They manage it better because they know if they lose money, they will go bankrupt, so they train hard how to manage the company.

I know this because I have run government companies before. I was in charge of the pineapple cannery of Malaysia. It was started by the government simply because people were planting pineapple and they had no way of processing. So, it wasn’t a business proposition, almost a charitable proposition, but it lost money all the time.

The management didn’t know how to deal with workers [and] workers sabotaged the company. They put lizards in the cans. You have to manage workers also, and managing people is the most difficult part of management.

PETRONAS

What do you think about Petronas now, compared with those days when you were the PM?

Petronas is a national company, it does not belong to any one community, the revenues from Petronas goes to the government and Petronas spends it on the whole country, not for any one community.

But Petronas creates opportunities for people to go into certain new businesses which they were not familiar with before.

Of course, these new businesses must begin small, and by Petronas being their patron or giving them business, some of them grow big. Some of them, of course, don’t depend on Petronas, but depend on others, but largely, Petronas is there not just to produce oil and collect royalty, it is there to increase Malaysian business in oil and gas.

They begin very small, maybe they produce small parts for the industry … you have to support them.

While you say that these are small businesses, they should close down … the small businesses are the ones that became the big businesses because they were allowed to grow, but Petronas wants to do away with the small businesses and only support the big businesses.

This is not okay in distributing wealth. The big companies are already able to be on their own, in fact, Malaysian companies now do not only do business with Petronas, they supply things all over the world. But the small ones must be nursed to become big.

But Petronas has thrown out almost 100 small businesses, a lot of them [owned by] Malays, but, of course, there are also non-Malays there.

Opportunities for Malays to go into business are not very many. For example, most Chinese companies would not give contracts to a Malay, for whatever reason, I don’t know.

The fact is that the government has to support, as the private sector will not support the growth and development of Malay businesses.

But now, Petronas decides no, we will deal with the big companies, SapuraKencana and all that.

But the small companies will close down as they have no opportunity to grow. About 100 of them, dependent on Petronas, give them a leg up, help them grow.

What about Petronas’ contention that the companies are not competitive?

Well, for example, MMHE (Malaysia Marine and Heavy Engineering Holdings Bhd), in the past, Petronas gave contracts to MMHE, but now it gives the jobs to Technip, and Technip subcontracts the jobs to MMHE … If they (MMHE) are so bad, why do they subcontract to them? Why can’t Petronas give directly to MMHE? And they say MMHE is not competitive? Maybe they are not, but small businesses find it difficult to compete simply because they are small. But you help them, they grow big and they will compete.  

And to say that all of them are not competitive is wrong. Give them a chance [and] they can do things. You must also take into consideration that when you buy from other companies outside this country, money flows out, we don’t want money to flow out too much.

So, you are of the view that as a successful government company, Petronas should continue to support small players.

Petronas should remember that it began small also. It grew big because of government support.

Suppose we had given the petroleum concessions to  foreign companies and asked Petronas to compete with the foreign companies for the concessions, you think Petronas can compete?

They (Petronas) must remember they were small once. They must also help others who are small.

It (Petronas) is a national company, we gave all the reserves to Petronas, we gave (it) power to decide who should get jobs, and what the conditions to award are. Without all those powers we gave them, Petronas will be nothing.  

You look at other countries. They have even bigger reserves, they have national oil companies, they have not grown simply because they are bent on collecting royalty only. We instructed Petronas not only to collect royalty but to go into the business. I remember telling the Petronas CEO, go to Vietnam, go and work with the Vietnamese, they have oil there, and since then, they have been going all over the world.

Petronas has been paying big dividends over the last three to four years, what is your view on this? If we remember correctly, dividends were not big during your tenure.

During my time, the price of oil was also not US$120, so obviously, the margin is more. But we were satisfied with the performance of Petronas.

We had their money, but we also had other sources of income, and Petronas contributes to the consolidated fund that is then used for the development of this country, which in turn gives permanent returns.

The amount was quite good at that time but, of course, nowadays, Petronas can earn much more because the price of oil went up to US$120 [a barrel, but] the cost of production hasn’t gone up that much.

So, the margin is very big and Petronas is involved in the oil business, they also produce oil elsewhere. So, they are making money out of that, but supposing you reduce the price of oil to US$50 [a barrel], I think Petronas won’t be able to pay anything.


Mahathir: The fact is that the government has to support, as the private sector will not support the growth and development of Malay businesses

Do you think there is an overdependence on Petronas?

When you get so much money from one source, you tend to believe that it is going to be forever, but it is not going to be forever, it depends on the price of oil.

Now, shale oil is being produced by the US and they don’t have to buy from outside.

If the price of oil goes down, Petronas will suffer because what oil it has — about 650,000 barrels a day — is mainly used in the country and is sold at below market price, so it won’t be profitable for Petronas.

If Petronas can sell more outside at market price, then it (Petronas) will make a lot of money. Petronas has a lot of gas, more gas than oil, they make some money from there, this all depends on the demand for oil. If the demand goes down — for example, the US produces all the oil that it needs — then, of course, the price of oil will go down.

Qatar produces a lot of gas and they were expecting to export the gas to the US, but now, the US has its own gas and oil from shale. Because new technology enables them to produce on their own, so why should they buy, they may even export.

PROTON

How about Proton? Tun, there have been moves made by Proton for Petronas to assist it … that is one of the ‘dependence’ we were looking at.

 There was a time when the government decided that Petronas should take over Proton, but it didn’t work out, so we told Petronas to sell out, to leave Proton.

Proton then belonged to Khazanah, the government basically, through Khazanah. [But] Khazanah has a lot of companies and it was not able to pay attention to Proton.

 Now, Proton has been sold to the private sector (DRB-Hicom Bhd), now the concentration by the private sector is on making Proton a viable company.

There was a time when they said that Lotus should be sold because it is not profitable and all that.

The new management has managed to turn around Lotus …  in two years, it should be profitable again. Now, the cost [of Lotus] to Proton is much less, it’s doing very well, selling a lot of cars.

And now, we have to look into Proton. What is ailing Proton? Basically, it is government policy. Government policy is to satisfy consumers, consumers want cheap cars and high-quality cars which are brand new.

Their preference is for foreign makes, even if they are expensive, they think foreign makes are much better.

Now, we have to compete with foreign makes. We are a small company trying to compete with the likes of Toyota or Nissan. They produce millions of cars.

So, it’s very difficult for us to compete with them. They can lose money here and make money elsewhere. We cannot afford to lose money here [as] we produce only 150,000 cars a year.

We should be producing about 300,000, but because of the encroachment of foreign cars, we cannot increase our volume.

From 80% [share] of the local market, we are now down to 18%. Why? Because foreign cars are selling well even though they are more expensive.

People have this perception that the local car is not good. So, now, we want to produce cars that can be sold worldwide. Of course, there is a cost there, but people do not want to pay, as they think that Proton cars must be cheap because it is not so good. But when you make it good, of course, it’s not cheap anymore.

Proton still needs a crutch after so many years?

What crutch?

Help from the government.

What help from the government? The reason why we (Proton) pay less tax is because government policy is for localisation. If you localise more, then you get less excise duties. Perodua also is given concessions because they produce a lot of things locally.

When you produce things locally, you get reduced excise duty, but otherwise, we pay the same tax. It’s not just us, it’s Perodua, it’s all the other companies.

If you produce anything locally, you are exempted from paying excise duty, to the amount … if it is 10%, you get 10% less. But we are 90% local, so we get a bigger reduction in excise duties as we are local. If any company wants to produce locally, they will get the same.

We don’t get any money from the government, we don’t get any support from the government. If at all, the government is supporting imports.

The government says it wants environmental-friendly cheap cars … then you are saying that local companies can go to hell.

The policy of government now is to please consumers, not to encourage local industry. If you go to Japan, [South] Korea, China, not a single foreign car is allowed in unless they meet certain very stringent conditions.

We want to sell in China [but] we cannot get a licence to sell in China.They can come in here freely, but we cannot go there.

We cannot go to [South] Korea, if you go to [South] Korea, until now, you don’t see any foreign cars. Koreans prevent foreign cars from coming in, they have a tax-free agreement, but despite the tax-free agreement, foreign cars cannot go in.

We open our doors wide, I mean Japanese cars built in Thailand are known as Thai national cars, because they have 40% local content, and they can come in. Next year, of course, they can come in with 5% tax or no tax. We have 90% local content [while] they have 40% and are already considered national cars.

But the argument is that Proton has been around for over 20 years, but quality-wise, it is still lacking.

That was the perception before … we agree Proton produced cars that are not of world standard. That was simply because people wanted cheap cars.

But now, we conform to international standards, we can send our cars to London because we meet their standards.

 It’s no longer the old Proton cars.

Since the Prevé was launched, we have upgraded our cars until they are of the same standard as the rest of the world, but you are still asking for cheap cars.

The Japanese and [South] Koreans have economies of scale because they protected their car industry [and] so does China.

We are not protected. Ever since I stepped down, everything is lifted.

During my time, there were no Korean cars, now they are coming in in huge numbers, cars from Europe, from everywhere, they are all coming here because the market is good and people have a preference for foreign cars.

Do you see Proton’s sales improving now with the new models, and going abroad maybe?

Well, we will fight, we will fight, even without government help, even if the government policy is actually against the local industry, we will still fight, but we have produced good cars. We launched the Iriz recently.

Iriz is not like the old Proton cars, drive it, find out if it has quality.

This article first appeared in The Edge Malaysia Weekly, on October 06-12, 2014.