The old management which caused the mess is then changed, and new managers are appointed to eliminate the causes of the loss. This is prudent, since maintaining the old management is but a guarantee that the same abuses will be continued. This approach, changing the management, is generally successful, and in time the enterprise regains financial viability.

When the old management is retained, the problems generally get worse. More and more money is required to sustain the enterprise, until eventually the entire country enters a period of extreme risk. This is caused by the mountain of debt that accumulates, and the huge sums necessary to service this debt. The timely interest payments alone become too burdensome, and the eventual collapse is many times greater than it might have been if more stringent measures had been taken earlier.

In Malaysia there is a conglomerate known as UEM-Renong-Time, which has combined debts said to exceed US$3 billion. The government has close ties to the company, in the form of highways, tolls, and rail facilities. The government has placed this company among those "too big to fail," and the continuing drama is to watch it fail anyway. It is to be a long and excruciating death. Better to do it with a sword.

The major figure in the conglomerate has previously issued a guarantee of a high stock price in the form of a put option expiring next month. The UEM component of the conglomerate has given notice that the put option is now exercised, and the agreed shares must now be purchased at a loss. The option is now "put" to the buyer. The buyer, however, says he has not the money. Alas, what to do? Ahhh ... more time, that will do it. So, the put option is both exercised and not exercised.

This is because the major figure controls the conglomerate, and he has been generous to himself. More time is allowed, though with stipulations. He will find US$26 million by February 14, two months away, and deliver it over. He will find and deliver another US$26 million after another five months, and the third payment of US$26 five months later. At that time, the balance will be due and payable. Since the extension of time is at 9.4% interest, the full amount of the original put will again be due, and we are back to the beginning, having bought nothing but delay.

During the period of the extension, which may be seen to approximate a personal unsecured loan given by a conglomerate to its major shareholder, the management will not change. That is not part of the agreement that the major figure has made with himself. During the period of the loan, the conglomerate will attempt to spin off various assets to the market place as IPO's. One is to be an internet service provider with a customer base approaching a million subscribers. Another is to be the largest toll road system in the country, with a toll booth around every corner.

In an earlier column the dangers of shifting debt from subsidiary to parent in order to enhance the offering price of an initial public offering were highlighted (June 26, Following the pea). A caution against such creative financing was given. At that time UEM shares were around RM7.50. Apparently no one was watching as the liability of the PLUS bonds was shifted to UEM. Today UEM stock is available in size below RM4. There have been no improvements in the net tangible assets, and the public is now asked to watch quietly as the toll concession is transfered to a profit-oriented entity.

Totally privatizing the roads in any country is generally not a good idea. Some things, such as water and other utilities require careful regulation to ensure that the interests of the public are served. The collection of fees and taxes is historically a source of government operating funds. In Malaysia the transfer of automobile-related fees such as drivers licences and annual operating fees to a private concern is in progress. The collection of various utility bills is being transfered to private billing companies.

The public, then, instead of dealing with a government from which redress may be sought, is faced with the prospect of dealing with private companies where any dispute can result in a termination of services or rights. The resolution of differences and errors must be sought in the courts, and no representation of elected representatives is available. Dealing with disputes in the current atmosphere is too terrible a nightmare to imagine, and the advantage clearly lies with the service provider. The Malaysian public is thus held hostage to these private companies, and the government cannot then be held to account.

In both cases, that of the "too big to fail" enterprise and the transfer of public services to private bill collectors, the government is derelict in its duty. In one case supporting enterprises with a management history of failure, and in the other of transfering the lucrative sources of taxation to profit-centered private companies.

It is time for new management. This is true for both private and public sectors.