Meet Mahathir, The Populist

Rocked by crisis and unrest, he's trying a voter-friendly stance

When the Asian economic crisis hit Malaysia back in 1997, Prime Minister Mahathir Mohamad came out with guns blazing. In notorious outbursts, he blamed foreign speculators and Jews for his country's woes. He imposed currency controls in September that set off reverberations worldwide. Then the crackdown that led to the firing, arrest, and trial of his deputy, Anwar Ibrahim, upset even Malaysia's usually reticent neighbors and set off the worst street violence in Malaysia's recent history--which Mahathir quashed with harsh police tactics.

Now, a troubled Mahathir may be changing his tune. The 73-year-old Prime Minister is required to call a parliamentary election by April, 2000. Before his ruling party, the United Malays National Organization (UMNO), can clinch a victory, Mahathir needs to generate enough good economic news to secure public support. While there are no real opinion polls, many in UMNO feel opposition is growing to Mahathir's tactics and his failure to halt a deepening recession. Says a local political scientist: "Everyone is looking beyond the Prime Minister now, he has been so damaged."

Feeling pressure from UMNO insiders, Mahathir made several policy changes in January to secure his leadership and improve his public perception. To show a willingness to share power, Mahathir has given up three posts he held himself--Deputy Premier, Finance Minister, and Home Minister--and appointed younger men to those positions.

In a move toward financial populism, he has cut back on loans to the overbuilt property sector and encouraged more loans for the little guy. Also, Mahathir plans to tour the countryside to explain to a skeptical public why he had Anwar tried on corruption and sexual misconduct charges--which were amended Jan. 13 when prosecutors had trouble proving their case. "It shows something is happening at the grassroots level that he wants to arrest and reverse," says Mohamed Ariff, executive director of the Malaysian Institute of Economic Research. "He's on the hot seat."

The economy's effect on the middle-class electorate is key to any political victory, and planners are worried that the economy isn't improving quickly enough. Since pegging the Malaysian ringgit to a fixed rate last September, the government has been trying a mixture of low interest rates, mandatory bank lending, and recapitalization of debt-ridden banks. Those moves have allowed a modest recovery in the stock market and kept the currency stable. But production slumped 11.5% in November, and nonperforming bank loans still threaten to grow to 25% of banks' portfolios this year.

NO MALL LOANS. So the central bank has prohibited new loans to commercial property developers--who are often Mahathir cronies. The government hopes to halt any new building of shopping malls and hotels, which are in oversupply. Banks are instructed instead to lend to the middle class for construction of homes costing under $66,000, job-producing manufacturers, and small businesses.

The government is also modifying a rescue plan for troubled infrastructure giant Renong. Hoping to avoid a backlash among voters, the new bailout proposal would force Renong to pay $2.2 billion in short-term debt to creditors with bonds backed by proceeds from tolls on the North-South Expressway. A previous proposal would have given the politically connected company government-backed bonds to pay debts.

But even if the government's latest policy shifts improve the mood, the embarrassing Anwar trial could eventually prove Mahathir's undoing. Malaysians were jolted by the revelation that the police beat Anwar in jail and by the subsequent resignation of the police chief, who took responsibility. Mahathir's decision to give up the portfolio of Home Minister, who oversees the national police, appears partly aimed at distancing himself from the messy trial. With the latest trial development, prosecutors may find it easier to convict Anwar on corruption, but not sexual misconduct. "People have been turned off. Those who have followed the trial just have very little sympathy for the government's position," says K.S. Jomo, a political economist at the University of Malaya. Fact is, Mahathir is on trial, too, and he has to defend his record to the rest of Malaysia.

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