History of GLICs

Abstract

This chapter provides a historical review of the evolution of the GLICs. This study traces why these seven GLICs were incorporated and how they have emerged as major actors in Malaysia’s corporate sector. Each of the seven GLICs was incorporated at a different point in Malaysian history, with the earliest ones being the pension-based funds, KWAP and EPF. MoF Inc., the government’s holding enterprise, was created in 1957 to hold the corporate assets of the British colonial government. LTH was in created in the 1960s, in particular to help poor Muslims save funds for the hajj pilgrimage, while LTAT was incorporated to protect the well-being of armed forces staff after they retired from service. The role of these GLICs in the development of Malaysia’s economy as well as domestic enterprises, specifically those owned by Bumiputeras, is reviewed here. This chapter also outlines how the GLICs differ in terms of their economic and social roles, as well as how they have been employed by Malaysia’s six Prime Ministers since Independence in 1957.

Epochal moments that had a bearing on how these GLICs were employed by these Prime Ministers are identified and analysed. These include the riots of 1969, after which the 20-year, affirmative action-based New Economic Policy (NEP) was introduced in 1970. The NEP justified extensive government intervention in the economy, seen primarily through the creation of some GLICs and a large number of GLCs. During this period, PNB was formed to acquire corporate assets on behalf of the Bumiputeras, as a mechanism to redistribute wealth more equitably among all ethnic groups, while Khazanah was created in 1993 to serve as a sovereign wealth fund. The privatization of the GLCs from the late 1980s to the mid-1990s is reviewed, as through this policy the government transferred state-owned assets to Bumiputeras in order to create a new Malay capitalist class.

The second defining moment was the 1997 Asian currency crisis which led to the bailout of a number of companies owned by well-connected Bumiputeras by the GLICs. Following these bailouts, the GLICs and GLCs emerged in the early 2000s as key actors in the economy and the corporate sector. The government’s introduction of the GLC Transformation Programme in 2004, to improve the financial performance and governance of the GLICs and GLCs, is the third critical historical juncture. Following these reforms, the presence of politicians in the GLICs and GLCs declined appreciably, an interesting outcome as this concentrated even more power in the office of the executive.

Appendix 2.1 History of GLIC-Linked Controversies

All the GLICs have been involved in national controversies, including asset-shifting between them, bailouts of well-connected companies, loan or investment provisions to government-related assets considered sub-standard, as well as allegations of abuse of funds for vested interests. This non-exhaustive table lists notable controversies involving the GLICs in Malaysian history.

Table 8 GLICs—Controversial Corporate Actions