Islamic leaders show way

Business Asia, March 3, 2000 by Ganesh Sahathevan

Bitter political battles are brewing between Malaysia's Mahathir Government and popular Islamic governments. GANESH SAHATHEVAN suggests that investors have little to fear from Islamic economic policies

Some investors have been wary of the Islamic governments now in control of the states of Terrengganu and Kelantan in Malaysia.

However, those same market players might be surprised to discover that these governments share similar likes -- a preference for small government and relatively free enterprise.

The Islamic PAS party swept into power in the oil- and gas-rich state of Terrengganu in general elections last November. At the same time, it retained control of Kelantan.

In Terrengganu over the past two months, PAS -- led by the religious teacher Ustaz Hadi Awang -- has taken steps that would gladden any advocate of small government.

Based on the Islamic principle of simplicity in living, he has ordered that state government officers relinquish their BMWs for the Malaysian-made Proton. That's an annual saving of about 100,000 to 150,000 ringgit (US$26,385 to US$39,577) per vehicle when maintenance costs are included.

He then ordered the retrenchment of 420 civil servants employed in a largely irrelevant state body that was supposed to promote inter-communal harmony.

The PAS's policies, however, have raised some concerns among foreign and domestic investors. Among these is a proposal for a tax on non-Muslim businesses -- a plan that has been put on hold as a result of protests.

Hadi Awang has been accused of attempting to force Muslim law on non-believers.

However, there is some reasoning behind the tax proposal because Muslims are currently required to pay tithes -- a fixed amount of money or goods that people give regularly to support churches or charities -- on their earnings.

Indeed, the State Government has attempted to explain that its proposal is meant to make the tax system more neutral.

Business people in general seem to agree that benefits have arisen in states administered by Islamic principles.

That Islamic governments seem to, have to bend over backwards for business may seem unfair given the fruitful partnership that has existed for years between the ruling National Front Party and business.

The latter partnership has been to the detriment of many small- and medium-sized businesses. They have often borne the brunt of high costs incurred because of public services monopolies handed out by the government to its partners in "Malaysia Inc".

It's not surprising, then, that PAS has promised to rescind or limit national privatisation contracts should it win control of the Federal Government.

This is a promise quite dangerous to the prospects of the National Front.

PAS's performance in administering the states of Kelantan and Terrengganu will determine whether they improve on their strong performance in the last general election.

* Ganesh Sahathevan is a Malaysian journalist based in Sydney.