Malaysia's Chosen One

Bui

lding Kuala Lumpur's Islamic Arts Center, an Arabian gem replete with white marble, rippling fountains and sky blue onion-shaped domes in the middle of Malaysia's tropical capital, was a labor of love for two men. One of them is Malaysia's Prime Minister, Mahathir Mohamad. Prior to the four-story museum's completion in 1998, Mahathir would regularly show up at the construction site, often after his weekly equestrian sessions. At his side was a skinny, balding businessman named Syed Mokhtar al-Bukhary. The two men would pore over blueprints, tour the site to monitor progress and, according to one witness, decide together on changes, usually at the suggestion of the Prime Minister.

Shared passion for that $27 million treasure, largely paid for by Mokhtar's Islamic charity, the Al-Bukhary Foundation, has evolved into something much bigger in recent years. The bond now constitutes what is Malaysia's most important economic partnership. Mokhtar, a reclusive, 51-year-old multimillionaire, has in recent years gained the trust of the Prime Minister and been awarded a deluge of government contracts. Mokhtar now holds the reins of several key publicly listed companies previously controlled by the government, swelling his empire to include container ports, mines, hotels and oil palm plantations. The publicly traded companies he controls have a combined market value of $1.3 billion; an informed Mokhtar associate estimates his total holdings at more than $1.5 billion.

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Mokhtar now administers his far-flung holdings entirely through nominees: associates say his name hasn't appeared in Kuala Lumpur's Registry of Companies since he progressed beyond his first cattle and rice trading ventures in the 1980s. Still, there is no mistaking that he is the 76-year-old Prime Minister's new favorite son, and to many of those following his sudden rise, the story sounds all too familiar. (Mahathir did not respond to TIME's interview requests; Mokhtar declined to be interviewed.) Since the 1997 financial crisis, Malaysia has been treated by the international financial community as a pariah, perceived by critics as a country where outsiders can't win because the game of commerce is rigged by the government to favor a few powerful men. But in the past 18 months or so, Malaysia's image has been rejuvenated by its efforts to restructure the corporate sector, impose discipline on the stock market and weed out questionable characters. Malaysia has suddenly become the darling of financial analysts. "Laws and regulations are being applied impartially," enthuses P.K. Basu, who is chief Southeast Asian economist for the merchant bank Credit Suisse First Boston in Singapore. "Some previous transgressions are even being punished."

But to many observers that argument is harder to believe because of the Mahathir-Mokhtar connection, which looks very much like the so-called "crony capitalism" that stained Malaysia's economic credentials in the first place. In the 1990s, Mahathir's administration showered huge government contracts and favorable loans on a select few businessmen. The policy, which was designed to create a group of model entrepreneurs among the country's majority ethnic Malays, was criticized at home and abroad as opaque, unfair, hugely wasteful and largely ineffective. The 1997 crisis hit Mahathir's handpicked favorites particularly hard; their inefficiently run and deeply indebted companies such as Halim Saad's Renong, a government-controlled conglomerate, and Yahaya Ahmad's DRB-Hicom needed huge government bailouts just to stay afloat.

But after the departure a year ago of Finance Minister Daim Zainuddin, Mahathir put the country on a different track. "There was clearly a divergence of views on how to deal with the corporate sector," says Basu. "Dr. Mahathir decided Tun Daim's views were deeply flawed and has moved to a much more professional and open approach." Respected figures have been given critical regulatory posts in the central bank, at the debt recovery agency set up after the Asian crisis to dispose of repossessed corporate assets, at the securities commission and elsewhere. Stock market regulations were also changed requiring earnings reports to be filed every three months instead of twice a year, a major step forward in transparency. Directors of publicly traded companies are even being compelled to attend annual two-day courses at the stock exchange on their obligations under corporate governance regulations.

Meanwhile, former highflyers have been falling from grace, signaling to some that Malaysia's crony system was on the way out. Halim Saad of Renong and Tajudin Ramli, who piloted the national carrier Malaysia Airlines to record losses during his eight-year tenancy as CEO, have been replaced by professional managers. In January, the new management of Malaysia Airlines filed a police report alleging irregularities in the management of the airline's cargo division during Tajudin's tenure. Police are remaining tight-lipped about the continuing investigation, but according to local press reports they have to date interviewed a dozen senior airline executives.