Out Of The Bottle

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NISID HAJARIThe seeds of doubt are planted in the dark. We're not sure who's wrong and who's right, whispers a young man, sitting apart from the crowd that has gathered outside a schoolhouse in the tiny, moonlit town of Batu Laut. Inside Ibrahim Ali steps to the podium. Stout and authoritative, a member of the powerful Supreme Council of the ruling United Malays National Organization (UMNO), he spends more than an hour soothing the doubts of 100 local party cadres. In ringing tones he hails the achievements of Malaysia and its leader, Prime Minister Mahathir Mohamad. Then he turns to his true task, defending the arrest of Mahathir's onetime protege, Anwar Ibrahim, three days earlier. His voice rises as he mocks Anwar's pleas of innocence. If Dr. Mahathir hadn't acted, Ibrahim repeats the mantra of his leader, the nation would have been endangered. Throughout the room, heads nod in approval.Near midnight Ibrahim's shiny new Mercedes pulls out of the dirt schoolyard. Good crowd, eh? he grins, lighting a cigarette. Since the party sacked Anwar, I've been doing this every night.But it will take more than a war of words for the powers-that-be to quell the doubts of ordinary Malaysians. Dumped as Deputy Prime Minister, Anwar had been able to whip up a crowd estimated at more than 80,000 on Sept. 20, calling for Mahathir's resignation. That night, as police helicopters circled overhead, hooded commandos burst into Anwar's home in Kuala Lumpur and whisked him off to Bukar Aman police headquarters. At least 14 others--including the head of UMNO's youth wing, Ahmad Zahid Hamidi--were soon rounded up as well. Few doubt that Anwar had in the weeks since his ouster opened a Pandora's box in Malaysia. The question now is whether Mahathir and his allies have managed to close the lid for long.PAGE 1  |    |    |    |   Can Wan Azizah Ismail sustain her husband's reform movement? Should Anwar have been arrested as a threat to national security? Will the currency controls help Malaysia?
They could not be faulted for lack of trying. After prayers last Friday, riot police, some still wearing their black combat boots, stormed into the National Mosque to break up a loud, pro-Anwar rally--prompting fears of a backlash from outraged Muslims. With more protests scheduled in the coming days, an unapologetic Mahathir vowed that Anwar would not receive a trial until he tells his followers not to riot.The Prime Minister's hard line had been drawn at the beginning of the week, when the daily gatherings at Anwar's house gave rise to the largest political demonstration ever seen in Kuala Lumpur. On Sunday more than 30,000 students, workers, professionals and housewives gathered to hear Anwar rail against his former mentor from the balcony of the National Mosque. Tens of thousands more joined in after Anwar suggested that protesters take a walk with him to Merdeka Square, near where Britain's Queen Elizabeth, in town for the closing of the Commonwealth Games, attended a church service earlier that afternoon. After dark, when most of the protesters--including Anwar--had gone home, several thousand stragglers marched on UMNO headquarters and then the Prime Minister's residence, where troops and armored vehicles awaited them. Malaysians are not what they were 20 years ago, says Mahinder, a supporter who spent that evening outside Anwar's home. People will not keep quiet any more.By then, the threat that Anwar posed had become clear to the leadership that had recently expelled him. And so, as the thin, bespectacled politician prepared to deliver his nightly press briefing, masked troops from the elite Federal Reserve Unit kicked down his front door and knocked aside assembled aides and journalists. After leaving in an entourage that included Anwar's family and lawyer, the authorities switched cars and hustled Anwar into the night. By week's end, neither his wife Wan Azizah Ismail nor his lawyers had seen him again. The fact that he was being denied access to counsel and had not been brought before a court has led many to doubt the strength of the case against him, which seems to hinge on various charges of sodomy and adultery.  |  2  |    |    |   Can Wan Azizah Ismail sustain her husband's reform movement? Should Anwar have been arrested as a threat to national security? Will the currency controls help Malaysia?
The authorities' crackdown, however, has shown little other weakness. Since Monday morning, when an angry crowd at the central courthouse was scattered by water cannon, Kuala Lumpur's streets have been largely quiet. The more powerful members of Anwar's inner circle have also been detained under the draconian Internal Security Act (ISA)--including Ahmad, the four seniormost members of the Muslim Youth Movement of Malaysia and the president of the National Union of Malaysian Students. Others have gone into hiding or fled the country. A day after her husband's arrest, the soft-spoken Wan Azizah vowed to take his place. But by the end of the week she sat isolated in her home, ringed by police, unable to address crowds or even individual journalists.Anwar himself could speak only through a videotape recorded hours before his arrest and broadcast outside Malaysia on cnbc. On camera he warns darkly of corruption involving UMNO and the Prime Minister's family, and claims to know of a billion--he doesn't specify dollars or ringgit--that has been funneled into a Swiss bank account. Mahathir quickly laughed off the charges, perhaps assuming that most Malaysians would never see the tape. Malaysia is now a one-man show, says a financial analyst in Singapore. It's a completely different animal.Indeed, a smiling, newly confident Mahathir seemed to relish the chance to take on skeptics from the media. At a press conference Tuesday, an avuncular Dr. M praised police for breaking up the demonstrations and defended the decision to arrest Anwar with something akin to regret. He pledged that his onetime heir-apparent would not be denied his rights under Malaysian law. Generously, Mahathir even allowed that he appreciated Azizah's loyalty to her husband. When the truth is known, he predicted calmly, everyone, even his friends, will reject him.  |    |  3  |    |   Can Wan Azizah Ismail sustain her husband's reform movement? Should Anwar have been arrested as a threat to national security? Will the currency controls help Malaysia?
The truth, however, seems drawn from some overheated tropical potboiler. The day before Anwar's arrest, judges sentenced two men--an adopted brother of Anwar's and one of his former speechwriters--for allegedly allowing the former Deputy Prime Minister to sodomize them on several occasions (an accusation that received unusually detailed play in the prim local papers). The charges were the latest in a perplexing series that date back over a year--that Anwar had sodomized his driver, that he had seduced an aide's wife and other women, that he had leaked state secrets through his tennis partner. (The driver and the aide's sister-in-law later recanted their testimony, but now say they were pressured to do so.) Several acquaintances--including Ibrahim Ali, who shared a detention camp with Anwar in the mid-1970s--say that, until recently, they saw no signs of Anwar's alleged sexual proclivities. Many more worry that the case against him has already been so muddied that no verdict is likely to be credible.That cynicism could pose the greatest threat to Mahathir's attempts to reassert his authority over the long term. Many of the Malaysians drawn to Anwar's rallies expressed anxiety about the heavy hand of the state. Citizens in the capital now openly question the good intentions of formerly respected institutions like the police and the press, and their anger grows with each new sign of a crackdown. Anwar has gotten the Malay middle class to take a new look at their relationship with authority, says political scientist Chandra Muzaffar. People who used to be passive are becoming skeptical about what the organs of state are doing.The question remains whether anyone besides the incarcerated Anwar can forge those doubts into a true reform movement. The person Anwar has entrusted with that task, Wan Azizah, has until now won admirers more for her kindness and loyalty--even her husband's enemies refer to her as the Angel--than for her skills as a brawler. Yet fortitude alone cannot rally troops to the barricades, and thus far the devout housewife has shown more concern for her husband's well-being than she has a taste for challenging the authorities. She herself faces possible prosecution for expressing concern about a rumor that the police were planning to inject Anwar with the hiv virus to prove allegations of his homosexual dalliances. Few think she can be more than a symbol, although she plans to run against Mahathir in elections due by 2000.Yet the cause of reform could draw strength from a more unlikely source--the computers Mahathir himself seeded across the country. Before his arrest Anwar took a whirlwind tour around Malaysia; while the official media blacked out his speeches and gave full vent to his accusers, allies turned increasingly to the Internet to spread their message. No one over 45 knows how to use the Net, so that worked in our favor, says Khalid Jaafar, Anwar's former press secretary, who helped organize the flow of information on the Net. Soon the ex-Deputy Prime Minister's fiery speeches were being downloaded and distributed by civil servants and others. Until last week printouts were sold, along with videos, in street markets across the country.  |    |    |  4  |   Can Wan Azizah Ismail sustain her husband's reform movement? Should Anwar have been arrested as a threat to national security? Will the currency controls help Malaysia?
Anwar tapped into a vein of discontent that no one knew was there, says a Western diplomat in Kuala Lumpur. That sentiment won't disappear simply because Anwar does, a point he seemed to acknowledge in his last words of advice to aides--to appreciate how the distribution of tapes and faxes helped bring down the Shah of Iran nearly two decades ago. But, say aides, Anwar's true aim was to force a debate within UMNO itself over Mahathir's rule, in the apparent hope that such a rift would widen after his arrest. Party members say that argument has begun--largely between older Mahathir stalwarts and younger members incensed over the arrest of youth wing leaders--and will likely continue in the run-up to internal party polls scheduled for next year.Analysts agree that if elections were held now, UMNO would almost certainly lose its two-thirds majority in parliament. That doesn't mean, however, that Mahathir does not still command loyalty. The party hierarchy is very strong, notes Muzaffar. And in the end, what the rank-and-file understand is power. The Prime Minister has already taken steps to purge the ranks of his enemies and has even called on youth wing members to demonstrate against Anwar. Given the lack of any rivals of Anwar's stature, it's unclear in any case whom dissidents would rally behind.Unlike the military in neighboring Indonesia, whose May revolution is constantly cited by Anwar supporters as an inspiration, the Malaysian armed forces are not politicized and will not likely disobey orders. (Authorities can, however, be as aggressive as their Indonesian counterparts: the water sprayed on demonstrators last week was laced with an acidic substance that stung the eyes and skin.) In fact, the drumbeat of criticism may sound loudest abroad, where Anwar was renowned for his friendships with officials and the media: messages of support for the detained leader have arrived from Indonesia and South Africa, while countries from Australia to the United States have deplored his arrest. (World Bank economist Joseph Stiglitz even warned that Malaysia ran the risk of sanctions similar to those imposed on apartheid-era South Africa.) Such critiques, though, will likely only harden Mahathir's resolve.It's difficult to predict what will happen because we have nothing to fall back on historically, says Khoo Kay Kim, a professor of history at the University of Malaya. It could go either way. The vital difference between Indonesia and Malaysia--and between postcolonial contemporaries Suharto and Mahathir--is the vast gulf in prosperity between their citizens. Malaysians still boast an average income nearly four times that of their battered neighbors--an achievement that the PM must maintain if he is to bottle up dissent indefinitely. For now Mahathir has blasted former Finance Minister Anwar--a darling of Western fund managers--for mishandling the economy and taken radical steps to wall off Malaysia from the outside world. But if, as many expect, Mahathir's more unorthodox policies fail as well, what seem mere doubts today could become the seeds of his downfall.  |    |    |    |  5 Can Wan Azizah Ismail sustain her husband's reform movement? Should Anwar have been arrested as a threat to national security? Will the currency controls help Malaysia?
By FRANK GIBNEY JR. TokyoIt's hard to say who seemed shakier when leaders of the world's two mightiest economies met in New York last week. Bill Clinton was being pummeled by an endless stream of new details in the sex scandal that has all but paralyzed American policymaking. And Keizo Obuchi was laboring under the burden of a recession at home that threatens to bring the global economy down with it. Just before the meeting, Obuchi confided to a friend that he was concerned what the U.S. President might think of him: a Prime Minister with only eight weeks' experience already fighting for his political life. He came home with little beyond an agreement to meet Clinton again, early next year.It's a summit that probably will never take place. Obuchi's chance of political survival is even weaker than that of Clinton, who faces imminent hearings on his possible impeachment. Obuchi has the lowest approval rating of any Japanese politician since 1993, just 24.5%. On the eve of his visit to the United States, the Prime Minister hashed out an agreement with opposition leader Naoto Kan on a plan to salvage Japan's battered banking system. But that apparent breakthrough was already collapsing under a typhoon of criticism by the time Obuchi returned to Tokyo Wednesday night. Opposition leaders accused his Liberal Democratic Party of backing down on a wide range of tough bank reforms. And editorial writers slammed Obuchi for shifting blame elsewhere while offering only vague promises of an early turnaround in the economy. Concedes LDP member Ichizo Ohara, a former minister of agriculture: So far, Obuchi's leadership style has not been successful.Just when Japan needs solid guidance, its lawmakers are focused instead on the battle to control the country's shifting political landscape. In one corner is Obuchi's LDP, fighting to preserve a ruling mandate and the remains of its traditional political power base. In the other is the Democratic Party of Japan (Minshuto), whose charismatic leader Naoto Kan senses an opportunity to shake up Japan's political Establishment. The LDP has been reeling since losing a July election in which Kan's party won an effective legislative veto in parliament. Kan has loudly threatened to use it to push wide-ranging reforms. Now there is no central power in Japanese politics, says Kenji Goto, senior political writer for Kyodo News. The patient is dying on the table while the doctors argue over what surgery to perform.PAGE 1  |    |    |    |  
In the short term, any more dithering could prove disastrous. To his credit, Obuchi has pledged a permanent tax cut and funds to stimulate economic demand. Yet critics charge that Japan has already wasted far too much time with stillborn reform efforts. Each week international credit rating agencies lower the debt rating on a few more Japanese companies. And rumors fly over which of Japan's banks--whose non-performing loans total at least $600 billion--will expire first and how quickly that will set off the financial contagion that could suck the economic life out of Japan, and perhaps the world.Despite the dire warnings, there are those who view the crisis with optimism. Today's political struggles, they argue, are a precursor to the kind of tough reform Japan needs to overhaul itself. The Liberal Democratic Party, which has ruled the country almost unchallenged since 1955, is finally on its way out, goes this argument. Since the late 1980s, a wave of scandals has brought down a succession of LDP leaders. Generational fissures within the party broke into the open in 1993, when self-styled reformers like Ichiro Ozawa left to form their own groups. Now led by the uncharismatic Obuchi, the LDP faces an opposition championed by Kan, a photogenic activist who is indisputably Japan's most popular politician. Says independent political commentator Minoru Morita: It is certain the era of the LDP will soon end.If he wants an era of his own, however, Kan will have to focus on untangling Japan's banking crisis. The opposition is demanding that badly managed banks fail, and that the powerful Ministry of Finance be absolved of all regulatory responsibilities, on the grounds that the ministry's opaque decision-making process is corrupt. The agreement reached before Obuchi's U.S. trip appeared to be an LDP capitulation to some opposition demands: chiefly, that the government cancel a $96 billion line of credit. Opposition leaders concede that public funding may be necessary, but only to protect depositors and rescue viable institutions. The agreement broke down in part because some LDP leaders insisted that the biggest banks should be saved, no matter what the cost.  |  2  |    |    |  
The fate of the Long-Term Credit Bank, Japan's 10th-largest bank, has become a symbol of what's at stake. In June, word leaked that the Japanese government was so nervous about the LTCB's financial liabilities that it was planning to merge the bank with Sumitomo Trust and Banking. Opposition leaders oppose that idea, arguing that LTCB instead ought to be temporarily nationalized and, if necessary, shut down. At issue is the bank's portfolio of loans to a network of credit unions and leasing companies. Opposition politicians argue that the LDP wants to shield those local interests--which represent powerful political constituents--from their fiscal responsibilities. The LDP still insists that the LTCB is too big, and too exposed internationally, to fail.There is a tried-and-true middle ground. As Western economists and U.S. officials have endlessly argued, Japan could chart a course similar to the one American regulators followed to straighten out the savings and loan crisis of the late 1980s. Japan would provide public funds to shore up the financial system, while weeding out non-performing institutions. The problem in Japan is that its banks have traditionally lent billions on the security of a bow and, often, a promise of political loyalty. Nobody is quite sure who owes what to whom. The LTCB is a case in point: despite rumors of the bank's imminent collapse, the government so far has not publicized the scope of the bank's problems. It's incomprehensible, fumed Kan last week. He and other politicians are left to argue over principles, while the bank's finances worsen by the day.If anything, Kan is a man of high principles. An engineer by training, the 51-year-old got his start in politics by managing the 1974 Upper House campaign of the late Fusae Ichikawa, Japan's leading feminist politician who championed equality of the sexes, shunned political parties and aided the fight against corruption. By the time Kan finished his own first year in the Diet, in 1980, he had earned himself the nickname Ira-Kan for unleashing an irritating barrage of pointed questions and letter-writing campaigns over everything from garbage collection to nuclear safety.Kan established himself on the national stage after Ryutaro Hashimoto appointed him Minister of Health in 1996. In his first press conference, the lawmaker disposed of the boilerplate policy speech prepared for him by ministry bureaucrats. Instead he blustered the ministry itself. The bureaucracy exists not to control the citizens of Japan but rather to be controlled by them, he said. Barely one month later, Kan publicly disclosed that officials in his ministry had been complicit in covering up the sale of untreated blood products during the 1980s--a scandal that resulted in more than 400 HIV-related deaths. We keep hearing about accountability and transparency, Kan told TIME in May. But where is it?  |    |  3  |    |  
Kan teamed up with Yukio Hatoyama, who defected two years ago as Secretary-General of the New Party Sakigake to form the Minshuto. Few thought the party would last. Yet what began as a ragged collection of refugees from other parties has swelled to become the most influential and diverse opposition force in postwar Japan. An admirer of British Prime Minister Tony Blair, Kan says his goal is to find a Japanese Third Way, in which the free market rules, though not fully at the expense of society. Such an approach won over even the Japan Communist Party, itself a resilient political force. Party leader Tetsuzo Fuwa recently announced that in deference to the Minshuto, the jcp would temporarily ignore its traditional opposition to the defense alliance between the U.S. and Japan. (Although opposed to some elements of the alliance, the Minshuto supports it.)Kan's rise coincides with a steady decline in the LDP's credibility. Traditionally, the ruling party has run the economy by cooperating with the Finance Ministry and powerful business interests. Yet the bureaucrats have been weakened by a cascade of scandals, not to mention the country's economic downturn. Although business leaders still rely on the LDP to maintain their regulatory umbrella, many of Japan's largest manufacturing companies fear they will remain globally competitive only if broad deregulation takes hold. The government has been running what amounts to a socialist system, says Yoshihiko Miyauchi, president of ORIX Corp., an international leasing concern. Agrees a Western diplomat in Tokyo: Big Business may now view the LDP as a curse.In the meantime, the results of the election in July show that Japan's increasingly powerful urban voters are fed up. The LDP has lost its support in the big cities, says political analyst Morita. Under the current system, a party without that support cannot win an election. As Obuchi stumbles, the talk in Tokyo has once again turned to the question of calling a general election, which pundits predict the Minshuto would almost certainly win.The LDP is determined to prevent an election that might well spell its demise. And for all Kan's ambition, it is far from certain that even he would favor a general vote. Western bankers and diplomats familiar with the Minshuto argue that, for all its gusto, the opposition lacks crucial expertise in financial and security matters. Kan's lieutenants concede they would be hard-pressed to form a government any time soon. It is better to be on the outside, where we can take credit for advocating the right policies, says one Minshuto legislator. It would be risky if we had to take responsibility for their success.  |    |    |  4  |  
Still, Kan seems ready for the big time. He has shown an uncanny knack for combining public criticism of his foes with shrewd negotiation behind the scenes. He is becoming a tremendously important policy-agenda setter, says a Western diplomat in Tokyo. The question is whether the Minshuto will be able to consolidate its gains. Japanese voters still remember the last firebrand opposition coalition, which raised hopes for reform but then fizzled in 1993 under Morihiro Hosokawa. Kan has a reputation for being stubborn and impatient. (He is known for sometimes cutting off subordinates before they finish speaking.) Despite his popularity, he has made plenty of political enemies on his way to the top. He uses people and discards them like any tough politician, says Goto, adding that it will take plenty of consensus-building to hold the disparate forces of the Minshuto together.A marathon negotiation that lasted until 8 a.m. Saturday finally brought weary members of both parties to an agreement on the fate of the Long-Term Credit Bank. Under the plan, the bank will be temporarily nationalized, then merged with another institution if a willing partner can be found. The LDP agreed that, in this case, taxpayer money would not be used. For its part, Minshuto officials said they would not rule out the use of public funds in the future, provided, Kan told the Nihon Keizai Shimbun, that those responsible are held accountable.While quietly triumphant, Minshuto leaders fear the weekend agreement is only the first step in what could be a series of drawn-out battles over the fate of many of Japan's banks. With only one week left in the current parliamentary session, it is unlikely that Japan's politicians will be able to complete an overall bank reform program. One obstacle is a widening generational divide. Younger legislators on both sides generally agree on tough love for the banks--but LDP elders do not want to upset traditional political relationships with bureaucrats, bankers and their clients. Another unresolved dispute is over the bureaucracy's role in reform. This battle is not just with the LDP, says Minshuto leader Hatoyama. It is also with the Ministry of Finance.Not surprisingly, Prime Minister Obuchi declared last weekend's accord a victory of his own, telling NHK news on Saturday: I don't want to be vain, but this is thanks to my leadership. Yet Obuchi won't have long to savor the moment. Even as the details of the LTCB resolution were being hammered out, there was a familiar hint of scandal in the air. Top officials in Japan's Defense Agency have been charged in a $15 million procurement scam. Even more serious were rumblings last week that the opposition would launch an investigation into improper financial dealings by Obuchi's elder brother Mitsuhei, a small-town mayor. At issue are shares in NTT DoCoMo, the state telecom's cellular subsidiary. DoCoMo is preparing to go public, which would mean a windfall for the Prime Minister's brother and a longtime aide.Obuchi's advisers hope the current special session of parliament will end on schedule next week without their boss facing embarrassing questions over his brother's stock dealings. But Kan is unlikely to hold back for long. Kan has power to spare, says Takeshi Sasaki, professor of politics at Tokyo University. Factor in the alarming depth of Japan's economic crisis, and it's safe to say that the country's sixth Prime Minister in as many years will have to prove he can be tough--not simply accommodating--if he expects to survive long enough to see the White House Rose Garden.  |    |    |    |  5