Oleh/By : DATO' SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : SHANGRI-LA HOTEL, KUALA LUMPUR (K.L)
Tarikh/Date : 07/09/90
Tajuk/Title : THE ANNUAL DINNER OF
FINANCIAL INSTITUTIONS
Encik Ahmad Mohd. Don,
Chairman of the Association of Banks of Malaysia;
The Honourable Dato' Daim Zainuddin,
Minister of Finance;
Tan Sri Jaffar Hussein,
Governor of Bank Negara;
Excellencies;
Ladies and Gentlemen.
I would like to thank members of the organising commit-
tee of this Annual Dinner of Financial Institutions of
Malaysia for inviting my wife and I.
2. This is the ninth time I am attending this august gath-
ering of the bankers and insurers of the nation. I must say
that I feel much flattered and a great deal gratified that I
have been asked again to talk to a very specialised group of
people in society, the money people.
3. As you know quite well I have no training in economics,
much less in finance. Any training that I had was in at-
tending to the frailties of the human body, the physical
frailties and perhaps the mental frailties. The latter
might come in handy in the treatment of all groups of people
but I do not think you want to hear me discuss such a sub-
ject here, even if it might be relevant.
4. Not being an economist or a financial expert, I always
feel inadequate when dealing with this subject. I am sure
you will find me quite naive. But being a politician, the
only profession that needs no diplomas or degrees, the idea
of speechifying is always irresistable. Even if one may
sound absurd, one feels that an opportunity to speak must
not be allowed to pass.
5. Since I am without formal training in economics and fi-
nance I have to fall back on the oldest logical approach to
understanding a subject or problem i.e. by reductio ad
absurdum. It has always proven, at least to me, a formida-
ble weapon of logic and almost never fails.
6. It is a means of reducing things to basics in order to
understand and to extrapolate from there. There is a saying
in Malay "Jika sesat jalan, balik ke pangkal" -- if you are
lost, return to the beginning. My economics is consequently
very basic and I hope you will excuse me if sometimes I
state the obvious as if it is some new-found and original
discovery.
Ladies and Gentlemen,
7. By any measure Malaysia has done very well. The Gov-
ernment would like to claim that we are the sole cause of
the remarkable economic recovery and performance. But we
would like to admit though, that Government policies and di-
rections alone would not achieve results. It would be like
clapping with one hand.
8. I am not saying this out of modesty. It is to avoid
and to discourage "the Government should do something" kind
of mentality. The Government can do something but the vari-
ous sectors of the economy must do something also, or at
least, respond positively to Government policies and initi-
atives.
9. When we experienced the severe recession of 1985-86 the
public did not panic. Indeed, in the 1986 elections held at
the height of the recession, the Barisan Nasional Government
was returned with much more than two-thirds majority. As a
result the Government dared to formulate policies directed
at turning around the economy.
10. If the Government had been returned with a marginal ma-
jority it would not have dared to do anything. It would be
too busy trying to stay in power as the defections of a few
could bring it down. The economy of the country would have
been left to fend for itself. But the people helped them-
selves and the Government by giving it a resounding victory.
11. The first thing the Government had to tackle after be-
ing reelected was the ongoing recession, the most severe ex-
perienced since independence.
12. The old approach of increasing public sector spending
in order to sustain economic growth had not worked. The
only thing that happened was growing Government indebt-
edness. And so a policy of reducing Government spending was
adopted. Intake of Government servants was brought almost
to a standstill while development projects were postponed.
Only projects which could help revive the economy were given
any allocation of funds.
13. At the same time structural adjustments were made. For
long there had been talks of letting the private sector make
the major contribution to growth. But little was done to
induce the private sector. Now new incentives for the manu-
facturing sector were offered and bureaucractic red-tape re-
duced. The highest policy-makers and implementors
agressively courted investors. Restrictions and red-tape
were reduced considerably.
14. By 1987 the results began to show. Growth at 5.4% was
registered despite the world economy not having fully recov-
ered. Growth accelerated to almost 9% in 1988 and 1989. It
is worth noting that growth was not entirely due to external
factors. Domestic sources of growth began to play a more
dominant role. Now, one can say with some confidence that
all the elements are in place for sustained growth which
even the Gulf crisis is not likely to dampen.
15. The Banking sector generally reacted with sensitivity
to the recession. As can be expected, a great number of
people went bankrupt. Many companies were in grave trouble
and some were bankrupted.
16. You may remember the Government urging the banks not to
foreclose and bankrupt their clients. After all when banks
lent money they are in a way investing. They must accept
the risks and the losses that can occur in any business
transaction. But a few banks not only imposed penalties but
exacted their pound of flesh.
17. The Government is not asking the banking system to save
spendthrifts who misused their loans. But in cases where
failures were due to the recession, entrepreneurs and busi-
nessmen should not be penalised forever by being made bank-
rupts. Bankrupts are not only unproductive but are also a
burden to society.
18. I think there are still debtors who can be rehabili-
tated by the banks. I believe in banking prudence but being
self-serving is not synonymous with prudence. Banks must be
good corporate citizens too. After all banks are more re-
silient than other businesses. In the first half of this
year alone, banks made nearly 900 million ringgit in pro-
fits. Banks are much better placed to take advantage of an
economic recovery.
Ladies and Gentlemen,
19. We are witnessing interesting changes in the Malaysian
corporate scene. In the past practically all local compa-
nies were family-owned. They seldom survive after the de-
mise of the founders.
20. Public limited companies on the other hand are not
meant to vanish with their founders demise. They are more
permanent and survive the loss of their founders.
21. Recently Malaysian family companies have started to
seek public listing. Apparently everyone has become aware
that through listing public funds can be tapped and rapid
growth achieved. Unfortunately the founders of these compa-
nies are loath to part with the personal control they have
over their companies. They consequently seek majority con-
trol.
22. Perhaps this is a good thing, for the drive and the
astuteness of the founder is after all what made one's en-
terprise succeed and another fail. But the fear is that it
will follow the fate of the family companies with the demise
of the founder and family squabbling undermining the running
of the companies.
23. The need now is to develop skillful professional manag-
ers, responsible directors and knowledgeable shareholders.
The Government has taken steps to ensure that banks are not
controlled by any one group. By limiting single share
holdings in banks to 20% it is hoped that a more reliable
and durable corporation is created. In such a set-up it is
the best interest of the bank that will be upheld, not the
best interest of the majority shareholder.
24. While the Government is not proposing to force non-
financial companies to break up majority share holdings, it
would be wise for the culture of the Malaysian public lim-
ited companies to change. The reliance on founders and ma-
jority shareholders should be gradually replaced by proper
and truly corporate management structures based on responsi-
ble internal or external directors, professional managers
and knowledgeable shareholders.
25. The banks can contribute here. Banks have been allowed
to take up shares in non-banking business. They have more
clout than others when they sit on company boards, and they
should use this clout to ensure that majority stakes do not
lead to absolute domination.
26. Unless a public limited company culture is developed,
there is a very real danger of the corporation
disintergrating with the demise of the founder, just as fam-
ily companies do. The phenomenon of family companies gain-
ing listing and becoming public listed companies is still
new and we have as yet not seen them grow old enough for
their founders to fade away. But it is important that we
anticipate this happening and prepare for it. In any case,
public limited companies must be just that -- public listed
companies run by the shareholders through professional man-
agers. Listing should not be looked upon as a way of get-
ting access to cheap capital and capital gains while still
remaining effectively private companies.
Ladies and gentlemen,
27. The share market has been quite active lately. The
listing of a number of attractive companies has drawn added
interest not confined to the usual market players.
Oversubscription by large multiples has again become the
norm.
28. An active stock exchange is indicative of the health
and sophistication of a country's economy. Speculations in
stocks and shares are normal in any share market. But, like
everything else, excesses are bad for the health.
29. We are seeing once again excessive speculations which
push up prices to unrealistic levels where there will be
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