The Asian Wall Street Journal 20th April 2001

By LESLIE LOPEZ, Staff Reporter of THE WALL STREET JOURNAL

KUALA LUMPUR, Malaysia -- Malaysian Prime Minister Mahathir Mohamad said that Finance Minister Daim Zainuddin will take an unprecedented two-month leave of absence, fueling speculation of a widening rift between two of Malaysia's most powerful politicians.

Dr. Mahathir, speaking to reporters Thursday, declined to say whether Tun Daim's plans were a prelude to his retirement. But coming at a time when Malaysia's economy is bracing for a slowdown, the finance minister's long absence could cloud the country's economic outlook.

That is because it will give 75-year-old Dr. Mahathir -- the strong-willed leader who has relied heavily on Tun Daim's advice throughout his almost 20 years in power -- sole control of Malaysia's economic management.

"Apart from Daim, there are very few who would dare challenge Mahathir over economic policy," says the chief executive of a publicly listed company who knows the two politicians well. "With Daim out of the way, Mahathir will very much decide on everything."

News of Tun Daim's long vacation plans hurt sentiment on the Kuala Lumpur Stock Exchange Thursday and dashed hopes of a rally on the back of a cut in U.S. interest rates overnight. The benchmark composite index barely moved, falling 0.01 point to 570.01 points. Brokers and investment analysts say that the Malaysian market -- especially companies linked to conglomerate Renong Bhd., which is closely associated with Tun Daim -- is likely to face selling pressure in coming days.

In remarks to reporters at a resort outside Kuala Lumpur, Dr. Mahathir confirmed growing speculation that Tun Daim planned to take a lengthy leave of absence. "Daim is tired," Dr. Mahathir said, adding that Entrepreneur Development Minister Nazri Aziz will stand in for the finance minister at cabinet meetings. When asked whether the vacation was a prelude to 63-year-old Tun Daim's leaving office, Dr. Mahathir replied: "If you ask me and I answer, he might get angry."

Tun Daim declined to be interviewed for this article, and aides to the finance minister dismissed talk that he is planning to retire. They noted that rumors of differences between Dr. Mahathir and Tun Daim have circulated in Kuala Lumpur for more than a year.

But several political analysts and businessmen close to the government believe that the likelihood of Tun Daim leaving Dr. Mahathir's cabinet appears to have increased. They note that the rift between the two men has deepened in recent months over policy issues. One sore point is Tun Daim's role in decisions affecting Malaysia's corporate sector.

Several analysts point out that Tun Daim, a longtime confidant of Dr. Mahathir who is serving his second stint as finance minister, may have become a political liability to his boss by supporting controversial rescues of politically connected Malaysian companies and businesspeople. State-backed bailouts of businessmen close to Tun Daim -- particularly the government's 1.8-billion-ringgit ($473.7-million) rescue of Malaysian Airline System and the purchase of shares in a telecommunications unit of the Renong group with public pension funds -- have angered many Malaysians. Among them are many ethnic Malays who have soured on Dr. Mahathir's government in recent years.

Several government officials also say grumbling within Dr. Mahathir's political party that Tun Daim has favored close business associates in the award of government contracts has grown louder in recent months, forcing Dr. Mahathir to distance himself from his finance minister.

"To win back support ... Mahathir knows he can't afford to ignore the sentiment on the ground about all these bailouts," says a senior politician in Dr. Mahathir's ruling United Malays National Organization, or UMNO.

Should Dr. Mahathir and Tun Daim finally part company, it would mark a personal and political watershed for the two men. During Dr. Mahathir's nearly two decades in power, Tun Daim has been Malaysia's most-influential economic-policy maker and was long considered Dr. Mahathir's most-trusted aide. As UMNO treasurer since 1984, Tun Daim also collected and managed the political funds that helped keep the prime minister firmly in power. Tun Daim's clout expanded significantly after Dr. Mahathir sacked his onetime heir apparent and then-Finance Minister Anwar Ibrahim in 1998, accusing him of sexual misconduct. Dr. Mahathir then reinstalled Tun Daim -- who had served as finance minister from 1984 to 1991 -- in the finance portfolio.

Most Malaysian businessmen view Tun Daim as the second-most-powerful figure in the country because of his sweeping ministerial powers and his UMNO fund-raising role.

But over the past year or so, talk of a falling out between Tun Daim and Dr. Mahathir has spread. Such speculation has been periodically dismissed by UMNO officials. However, several people close to Tun Daim say that, in recent months, the finance minister has privately

acknowledged having policy differences with Dr. Mahathir. During a private dinner with several editors from local news organizations in late February, for example, Tun Daim lamented over Malaysia's political malaise, which he blamed on Dr. Mahathir's failure to put a leadership succession in place. According to people familiar with that meeting, the finance minister was also critical of some of the prime minister's children's business interests.

Some UMNO officials say that Dr. Mahathir, too, has displayed irritation with his finance chief, particularly over Tun Daim's repeated failure to attend meetings of the UMNO Supreme Council, the party's top policy-making body.

The latest indicator of tension between the two men appeared early this week when Dr. Mahathir appointed former central-bank governor Ali Abul Hassan Sulaiman as his special economic adviser. Political analysts and businessmen close to the government say the move is widely seen as a bid by the premier to seek independent counsel on economic matters and wean himself from his dependence on Tun Daim.