Cronyism threatens Malaysia's economic recovery, Muhyiddin warned

A slew of political appointments to top jobs in government-linked companies could compromise Malaysia's recovery from the economic ravages of the coronavirus, analysts warn.

In recent weeks, 15 politicians have been appointed to government-linked companies - or GLCs - under the Finance Ministry, while a further two have been appointed to statutory bodies under the same ministry.

Critics say the appointments are aimed at shoring up support within Prime Minister Muhyiddin Yassin's fragile Perikatan Nasional ruling coalition, pointing out that the politicians are replacing technocrats put in place by its predecessor, the Pakatan Harapan.

With many of these technocrats only halfway through their tenure, critics say the effect has been to undermine the companies' policies.

However, Finance Minister Zafrul Abdul Aziz has defended the appointments, telling parliament they would "act as a check and balance mechanism, to ensure [the companies] are in line with government policies and aspirations".

"Political appointments are expected to balance out corporate needs, which are more profit-oriented while fulfilling the [people's] expectations," he said. He declined to disclose their salaries.

The appointments come amid efforts by Perikatan Nasional to shore up support among the electorate and within its fractured informal coalition.

The coalition is still reeling from a decision by its key component party Umno (the United Malays National Organisation) not to contest future elections under its banner.

Perikatan Nasional came to power in March after turfing out Pakatan Harapan in a political coup less than two years after Pakatan Harapan won a historic general election against the Umno-led Barisan Nasional. Prior to that vote, the Umno-led regime had been in power for more than six decades.

Members of Perikatan Nasional include former Umno stalwarts who joined Muhyiddin's nationalist Parti Pribumi Bersatu Malaysia (PPBM) after he fell out with Umno leaders.

Now, with talk of snap polls on the horizon and Muhyiddin confronted with a slim two-vote majority in the 222-member parliament, analysts believe political appointments to plum, well-compensated jobs are being used as rewards for political loyalty rather than made on merit.

"GLC appointments are used to shore up support for this fledgling government," said political scientist Azmil Tayeb of Universiti Sains Malaysia.

"The idea is that these appointments will appease the Umno warlords [and prevent them] from destabilising the government. It's a temporary strategy but I doubt it'll work for the next general elections since Umno and its ally [conservative Islamist party] PAS know that they have the upper hand [over PPBM]."

This was echoed by Lee Hwok-Aun, who coordinates the Malaysia Studies programme at Singapore's ISEAS-Yusof Ishak Institute.

"It is far-fetched to believe that these organisations need a politician on the board to align their strategies to national agendas ... For the most part, it is hard to be convinced that political leaders will so assuredly enhance the operations of GLCs and statutory bodies, as Zafrul implies," he said.

He added that the most outstanding feature of the recent appointments - which happened swiftly after the political coup - was how they were concentrated amongst Perikatan Nasional allies and non-cabinet elected representatives, "firmly indicating that the primary objective is to reward or induce political loyalty".

The claim that political appointments were a "check and balance" was unfounded, said Wong Chin Huat of Sunway University.

"Check and balance is for members of parliament to check and balance the executive, not to be the executive's proxies. Perhaps the unelected finance minister has a very different understanding of parliament's role," he said.

Wong suggested that rather than appointing backbench politicians to corporate roles, they actively take part in parliamentary committees to carry out "real check and balances on government-linked companies from the position of their parliamentary committee, not from their boardroom".

A large portion of corporate Malaysia is controlled by the government, with key fund-management company Permodalan Nasional Berhad (PNB) and sovereign wealth fund Khazanah Nasional owning eight of Malaysia's top 10 listed companies.

The recent appointments have involved key state-linked corporations such as airport operator group Malaysia Airports Holdings, national water, transport and electricity companies, and PNB. The corporate figures previously heading the companies have either been removed or resigned, some under circumstances that have prompted claims of outside pressure.

Most publicly discussed was the resignation in June of Jalil Rasheed, the former PNB CEO who, upon his appointment, was touted in business circles as the man who would "repair" corporate Malaysia after years of mismanagement and leakages under the previous government run by then prime minister Najib Razak, who was recently found guilty of graft and abuse of power in relation to the 1MDB global corruption scandal.

Najib Razak, Malaysia's former prime minister (in light-coloured suit), leaves the Kuala Lumpur Courts Complex during his trial on charges linked to 1MDB. Photo: Bloomberg alt=Najib Razak, Malaysia's former prime minister (in light-coloured suit), leaves the Kuala Lumpur Courts Complex during his trial on charges linked to 1MDB. Photo: Bloomberg

A former Singapore-based fund manager, Jalil was appointed by the Pakatan Harapan government to the role last year and tasked with overhauling the organisation after it had been implicated in the 1MDB scandal. However, he stepped down just a month after Perikatan Nasional took over, saying that though he would not "waver in his principles", he had been "harassed by abusive phone calls from private numbers [and] hacking of my other [non-PNB] corporate account". His resignation came after the Securities Commission claimed there were discrepancies in Jalil's academic credentials.

"This level of harassment made me worry for my family's well-being. In the end, it was not worth the effort when my family was unfairly being dragged into this unfortunate situation," said Jalil on Twitter at the time.

Insiders have suggested that movements against Jalil were due to his attempts to course-correct and restructure at-risk entities such as the debt-ridden oil and gas outfit Sapura Energy, of which PNB is the largest single shareholder.

Despite a large global presence, Sapura Energy's market capitalisation has fallen to 1.5 billion ringgit (US$357 million) with a current share price of 13 sen, compared to 30 billion ringgit in 2014.

According to documents seen by This Week in Asia, PNB had proposed Sapura Energy undergo independent valuation exercises to assess its ongoing projects, formulate a restructuring plan and review the composition of its board of directors - requests that Sapura Energy shot down.

Industry insiders have said that Sapura Energy has been reluctant to dispose of assets - and instead has been jockeying for debt refinancing opportunities.

These insiders, who declined to be named, cited concerns over the health of Sapura Energy, citing its significant debt levels, and outsized salaries for executives even as the company mulled over retrenching some 800 personnel.

In an unreleased report prepared by Boston Consulting Group, Sapura Energy was listed as being at risk of insolvency and in need of immediate turnaround due to its overleveraged balance sheet, loss-making projects and liquidity constraints.

Sapura Energy has not replied to This Week in Asia's requests for comment. In July, its CEO Shahril Shamsuddin told business publication The Edge that Sapura was "not a company in trouble", denying strained ties with PNB and Jalil in the same interview.

Political economist Edmund Terence Gomez has been critical of the moves by Perikatan Nasional, saying that questions of governance, transparency and clear management will arise if the trend continues, and that over time "the poor will suffer".

"With parliament so deeply divided and party-hopping rampant, using a system of patronage is key in gaining support from rival camps and factions. Giving out directorships means that elected representatives get a second salary and can give out contracts," he said, warning that this was a "short-term solution" to right political instability.

"What we really need is professionals to manage these government-linked companies as an interventionist state can be a good thing, given that the pandemic has hamstrung the private sector following the national lockdown and economic shutdown."

Others have defended the government's moves, saying Pakatan Harapan also appointed its own preferred names to top roles.

"I think Pakatan Harapan also failed to hire professionals when it comes to GLCs," said Kartini Aboo Talib, who teaches public policy at the National University of Malaysia.

"Perikatan Nasional also inherited a similar dilemma. If we have to benchmark ourselves, the Koreans, Taiwanese and Japanese are very successful [economies] with businesses and corporations run by family and friends' networks," she said.

Pakatan Harapan figures have denied indulging in cronyism, saying that business roles at GLCs were left to professionals during its spell in power.

Economist Yeah Kim Leng warned against politicians taking these roles.

This article originally appeared on the South China Morning Post (SCMP).

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