International Herald Tribune, DEC 27, 2000

KUALA LUMPUR - The government plans to take over key parts of Kuala Lumpur's unprofitable mass-transit system in a US$1.6 billion (S$2.8 billion) bail-out, dealing another blow to its hopes of using private funds to build a 21st-century public infrastructure.

The rescue has been criticised by opposition leaders, who call it the latest attempt to help prop up politically well-connected businessmen.The cost of the bail-out is the equivalent of about 7 per cent of the entire government Budget for next year. The Finance Ministry will pay for the bail-out with bonds.

The announcement was made late last Friday, two days after a separate agreement in which the government agreed to pay a politically linked businessman US$470 million for his controlling stake in Malaysia Airlines (MAS), the debt-ridden and unprofitable national carrier.

The airline buy-out deal was done at twice the price at which the MAS stock is trading on the Kuala Lumpur stock exchange.

Taken together, analysts say the twin bail-outs and others risk straining the country's finances when Malaysia is running an annual Budget deficit of more than US$4 billion and when its economy is projected to slow down.

Critics of such bail-outs have become more vocal in recent months. They include some members of the governing party, who say the bail-outs reflect the failure of Malaysia's privatisation policy of the past two decades.

'From Day One, we knew it wasn't going to be a profitable project,' said Mr Shahrir Samad, a former government minister, referring to the mass-transit rail lines built for Kuala Lumpur.

'In the end it will be the government that will assume the debts,' said Mr Shahrir, who holds a top post in the governing party but has become increasingly critical of government policies.

The administration of Prime Minister Mahathir Mohamad built its reputation on an economic model in which such things as roads, ports, light rail systems and stadiums were built - and paid for - by a hand-picked group of tycoons.

Now, most of those businessmen are mired in debt and economists say many will need government assistance.

The scale of future bail-outs is difficult to calculate, but unless their businesses are broken up, the total rescue package is likely to run into billions of dollars.

The government blames residual effects of the 1997 economic crisis in Asia for the failure of the rail project to make a profit.

'The economic crisis has made it difficult for them to inject new capital or to pay back their loans as the development and upgrading costs for a light rail system are very high,' the Finance Ministry said.

The bail-out of the mass-transit system includes just two of the light-rail lines. There are at least two others under construction.

What has angered many Malaysians is not only the fact that failed projects are being re-nationalised but also that the government seems to be paying top dollars to the failed business tycoons.

In the case of MAS, the government bought back a controlling stake in the airline last week at the price for which it sold it in 1994.

But the carrier, which had a light debt load then, is now nearly US$2.5 billion in debt and headed for a fourth consecutive year of losses.--International Herald Tribune