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Malaysia in transition

Malaysia warns foreign contractors as Chinese deals draw scrutiny

Mahathir adviser welcomes foreign investment but hits out at inflated bids

KUALA LUMPUR -- Malaysia welcomes foreign direct investment but wants no part of lopsided contracts that bring no transfers of technology, a top adviser to Prime Minister Mahathir Mohamad said as China-led infrastructure projects come under scrutiny

In an interview with the Nikkei Asian Review, Daim Zainuddin said FDI had propelled Malaysia's transformation from an agricultural economy into a manufacturing- and export-oriented country since the 1980s.

"What we don't welcome is, under the pretext of FDI, tenders negotiated at inflated prices," said the former finance minister, who now heads the influential Council of Eminent Persons. 

Mahathir established the five-member council on May 12 to take a fresh look at all big-ticket contracts signed under the previous government of Najib Razak. Some of the deals with foreign partners were sealed in a secretive manner with terms that critics deem questionable.

An example is the 55 billion ringgit ($13.8 billion) Chinese-built East Coast Rail Link. Payments are tied to a timeline stipulated in the contract, not based on completed work. 

Daim, who came out of retirement to help the new government, suggested contracts that do not benefit the country will be renegotiated.

China, which has become an important investor in Malaysia in recent years, has not officially responded to the idea of renegotiating contracts involving some of its state-owned companies. But the Global Times, a government mouthpiece, said in an opinion piece that Chinese companies have a right to compensation if contracts are reviewed. 

"Chinese-funded projects are not a gift that Kuala Lumpur can refuse without compensation," the newspaper wrote on Thursday.

The council, which is operating within a 100-day time frame through late August, is expected to make "unbiased" recommendations on how to proceed with the projects. Council members, which include former central bank Gov. Zeti Aziz and businessman Robert Kuok, are all volunteers. They are even working through weekends, Daim said.

The council is also proposing institutional reforms, aimed at rooting out corruption and restoring confidence in the government and the vast web of companies controlled through sovereign funds. 

"The world is looking at us to see if we can get rid of the corrupt system and improve our reputation comprehensively"

Daim Zainuddin, head of the Council of Eminent Persons

The government said recently that politicians should not sit on the boards of state-linked companies -- beginning with former Prime Minister Najib and an ex-cabinet minister who tendered their resignations from the board of Khazanah Nasional, a state investment fund. 

"We must bring back confidence immediately," said Daim, referring to the multibillion dollar cross-border financial scandal linked to state fund 1Malaysia Development Berhad. He said the government and government-linked companies should ensure no waste, and that contracts must be awarded through open tenders. 

Malaysia slipped to 62nd place in Transparency International's graft ranking in 2017, compared to 55th in 2016. It was the country's lowest position since the index was created in 1995.

"Surely we can do better," Daim said. "The world is looking at us to see if we can get rid of the corrupt system and improve our reputation comprehensively."

On the suggestion that state oil company Petroliam Nasional, better known as Petronas, should be considered for listing to raise funds for the government, Daim said this is not necessarily the answer. He stressed that Petronas, the only Malaysian company on the Fortune 500 list, should be run properly to ensure profits. "The quality of the management is more important."

He cited the example of Malaysia Airlines, which was once listed and failed to achieve profitability. The national flag carrier has since been privatized and is undergoing a major overhaul. 

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