20 March 2014

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The New York Times

At a coffee shop in Bangsar, an affluent Kuala Lumpur suburb, the lunchtime crowd gossips and checks the news on their smartphones. Making the rounds is a YouTube video in which a bomoh — a local shaman — and two acolytes, sitting on a “magic carpet” in Kuala Lumpur International Airport, perform a ritual to find Malaysia Airlines Flight 370, missing since March 8.

At any other time the video, a perfect example of Malaysian self-mockery, would be a good-natured affirmation of our eccentric shortcomings. But these aren’t ordinary times. The search for Flight 370 has spotlighted the tensions beneath one of Asia’s success stories, and the video is an uncomfortable reminder of Malaysia’s troubled reality.

A British colony until 1957, Malaysia now has a G.D.P. per capita of over $10,000, roughly twice that of Thailand and three times that of Indonesia. Cesar Pelli’s glorious Petronas Twin Towers, briefly the tallest buildings in the world, illuminate the Kuala Lumpur skyline. In the adjoining mall, Western luxury brands are peddled to a booming middle class. Malaysia Airlines, whose fleet boasts the gigantic Airbus A380 and is one of a handful of 5-star-rated airlines, is central to the branding of this “New Malaysia.”

Yet confidence in our leadership is brittle, and it takes little for frustrations to boil over. A coalition known as Barisan Nasional, or BN, led by the United Malays National Organization (the country’s ethnic-Malay governing party), has held power since independence, presiding over both economic growth and controversial policies that confer significant advantages in education, business and government on ethnic Malays, who make up some 60 percent of the population. The BN’s dominance has prompted allegations of corruption, cronyism and complacency, particularly regarding government-owned companies, such as Malaysia Airlines, which posted losses of over $350 million in 2013. Kuala Lumpur and Penang have seen dramatic rises in crime over the past decade. Some critics fault the BN’s policies for alienating minority groups and point to its seeming inability to manage a police force widely viewed as corrupt and ineffectual.

Support for the government is eroding, but critics say that attempts to effect change are frequently stifled. A day before Flight 370 disappeared, Anwar Ibrahim, Malaysia’s opposition leader, was convicted on the rarely used charge of sodomy and sentenced to five years in prison. Many see the decision, which overturns a previous acquittal, as politically motivated. It leaves him ineligible to run in an approaching election in Selangor, the country’s richest and most populous state, where victory would have afforded him considerable national influence.

Most people I speak to here acknowledge that an incident like the disappearance of Flight 370 is unprecedented and say they appreciate the monumental task facing the government. For many, however, the authorities’ ponderous response and mishandling of information mirror the way Malaysia is run. The offhand, sometimes defensive nature of the early press conferences, coupled with occasional attacks on the foreign media, are widely perceived as the arrogance of a government unaccustomed to global attention and accountability.

In addition to showcasing the country’s internal vulnerabilities, the disappearance of Flight 370 has underlined China’s increasing influence on Malaysia. That two-thirds of the passengers on Flight 370 were Mainland Chinese underscores the strength of current ties.

The impact of China’s economic rise is striking. Last October, a treaty signed by China’s president, Xi Jinping, elevated relations between the two countries to a “comprehensive strategic partnership” aimed at increasing military cooperation and tripling bilateral trade to $160 billion by 2017. Today, China is Malaysia’s largest trading partner; Malaysia is China’s third most important Asian market after Japan and South Korea.

This is a marked reversal of the longstanding distrust of the People’s Republic. From 1948 to 1960, Malaysia waged a bitter struggle with communist insurgents, many of them ethnic Chinese, and the conflict deepened racial tensions. Beijing, widely seen to be supporting the rebels, was regarded with suspicion as the specter of communism haunted relations long after the insurgency ended. Travel to China was restricted until the early 1990s.

These days the picture looks very different. Tourists from Mainland China are encouraged to come spend their cash in the shopping malls of Kuala Lumpur and Penang. Young Malaysian filmmakers are finding Chinese financing for their projects. Rich Malaysians are adding works by Chinese artists to their collections.

But some people fear Malaysia’s handling of the Flight 370 tragedy will damage blossoming socioeconomic ties. Two days after the jetliner disappeared, the frustrated Chinese government tersely demanded that Malaysian authorities “step up their efforts” to find the missing plane. How China, caught between anger and grief, exerts its considerable influence in the days and weeks to come will hint at its long-term strategy in the region.

In Malaysia, the expression “Malaysia Boleh,” which translates roughly to “Malaysia Can Do It,” or “Go, Malaysia,” is invoked to celebrate even the tiniest national achievement. It reflects a fragile self-confidence, revealing Malaysia’s sense of itself as superficially advanced but secretly lacking. It tacitly acknowledges that skyscrapers and luxury malls cannot mask the gap between rich and poor (the widest in Southeast Asia), persistent ethnic tensions, a fraught democracy, and a wave of high-profile violent crimes.

Like many in Kuala Lumpur, I scrutinize every scrap of information relating to Flight 370. I am gripped by the story, not only because hundreds of lives are involved, but because of what its outcome will mean to perceptions of Malaysia. As Malaysia navigates this tragedy in the glare of the world’s gaze, I anxiously await news of the plane and its passengers, and clues to the country’s evolution in the years ahead.

20 March 2014

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Amanpour.blogs.cnn

Zaharie Ahmad Shah, the pilot of missing Malaysia Airlines Flight 370, is not an extremist, Malaysian opposition leader Anwar Ibrahim told CNN’s Christiane Amanpour Wednesday.

“He supports our multi-racial coalition. He supports democratic reform. He is against any form of extremism,” Anwar said of Zaharie, whom he said he has met “on a number of occasions.” “And we take a very strong position in clamoring for change through constitutional and democratic means.”

Pilot was ‘against any form of extremism’

With frustratingly few answers about the fate of Flight 370 nearly two weeks after it disappeared, some have starting probing the possible political inclinations of crew members.

Anwar, who has been the target of ongoing attacks from the ruling government, constitutes the main Malaysian opposition.

Some have tried to tie Zaharie to Anwar as a family relation.

Anwar’s press secretary told CNN that Zaharie is the opposition leader’s – wait for it – son’s wife’s mother’s father’s brother’s son.

“What my daughter-in-law told me is that he is a family member, not too close, but she calls him ‘uncle,’ which is quite common here,” Anwar said. “But I know him… basically as a party activist.”

There have been reports in Malaysian media that just hours before the plane took off on March 8, Shah attended a hearing for Anwar, who was sentenced to five years in jail after a court overturned his 2012 acquittal on a sodomy charge.

“He was not in the court,” Anwar said. “He may have been outside in the premises of the court, because the court has a limited capacity. But from what I gather, from many of our colleagues, nobody actually saw him in the premises of the court.”

Could Zaharie have had a particularly strong reaction to the sentencing of the party leader to which he was a devotee?

Did pilot react to court ruling?

“I gathered later from many of his colleagues and from what is written about him that he was disturbed – many others were disturbed. I mean, we were shocked and appalled by the speed of the process of the court of appeal.”

“But I think that’s quite normal. I don’t think it’s something that would trigger a person of his expertise, caliber, to do any unwanted activity. I am absolutely certain of that.”

Most theories about the fate of Flight 370 now point to the plane turning back over the Malaysian peninsula after its initial heading northwest towards its final destination, Beijing.

Malaysian officials should have been able to detect the plane if it flew back west, Anwar said.

Malaysia radar ‘had the capability’

“When they procured that Radar Marconi system in that Northern corridor, I happened to be the finance minister,” he told Amanpour. “They had the capability to detect any flight from the west – or from the east to the west coast, from the South China Sea to the Indian Ocean.”

The Malaysian government has become the target of passionate anger from the families of the missing passengers, who have gotten few answers about the fate of their loved ones.

“I find it shocking that (the government officials) are not able, that they were not able, or they give some very scanty sort of information.”

“The problem is credibility of the leadership. They are culpable because there is a general perception that they are not opening up, that there is an opaque system at work.”

Malaysian officials have defended their handling of the crisis, stressing that the situation is unprecedented.

“This is not a normal investigation,” Hishammuddin Hussein, the country’s defense and transport minister, said last week.

19 March 2014

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19 March 2014

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US News

Attempting to link opposition leader Anwar Ibrahim to the disappeared plane is shameful.

The disappearance of Malaysian Air Flight 370 is a tragedy and a mystery. It is in the process of becoming part of a political smear campaign as well.

Shortly after midnight on March 7, the Boeing 777 vanished, prompting a multination search in the waters of the South China Sea and the Gulf of Thailand. On March 15, Malaysian Prime Minister Najib Razak announced that investigators believe the aircraft was deliberately flown in the opposite direction. The last radar contact with the craft was a ping recorded by a Malaysian air force station about an hour and a half after takeoff, about 200 miles off the nation’s westernmost coast.

Now, in a twist that few observers might have foreseen, Malaysian authorities are attempting to use this tragedy as a weapon against opposition leader Anwar Ibrahim. A British tabloid quoted Malaysian police as saying the captain of the aircraft was a political activist supporting Anwar, and cited unnamed figures describing him as “obsessive” and “fanatical.” The Malaysian press has since been running hard at this angle, including the revelation that the pilot was a relative of Anwar’s son’s in-laws.

It is possible that the pilot, Zaharie Ahmad Shah, will turn out to have been responsible for the diversion of Flight 370. Whether Zaharie’s role in this mystery is that of a villain, a failed hero or an uninvolved victim remains unknown. Also unknown is what factors contributed to his mindset as he sat in the cockpit. Political frustration may have played a part (Zaharie is reported to have attended a court trial for Anwar the afternoon before the flight), but there are any number of other potential elements.

What should not be considered within the realm of possibility is that Anwar Ibrahim or his political party had any role in the plane’s disappearance.

The governing party in Malaysia has conducted a vendetta against Anwar since 1998, bringing repeated criminal cases against him on what many Malaysians believe are trumped-up charges. Anwar was convicted of sodomy (a crime in Malaysia under a statute that dates to British colonial times), and served several years in prison before the sentence was overturned. The court case that the pilot of Flight 370 is said to have attended was the latest in a series of trials for sodomy that the political leader has endured. (Anwar has always denied the charges.)

Why might unnamed sources, in the police and elsewhere in Malaysia’s political establishment, try to link Anwar to a potential hijacking of an aircraft carrying 239 passengers? Possibly to divert attention from the government’s ineffective management of the search in the days since the plane’s disappearance. Possibly to weaken the political threat posed by Anwar, whose opposition Parti Keadilan Rakyat came very close to unseating the ruling Barisan Nasional coalition in last year’s general election. And possibly, given the level of venom in Malaysia’s politics, just because they could.

When asked whether his most recent court setback might have caused the pilot to snap, Ibrahim replied, “I believe 90 percent of taxi drivers support me and are not happy with the (court’s) decision. But they did not hijack their taxis.” No one knows where Flight 370 is, or who caused its disappearance or why. But it should be obvious that Anwar Ibrahim is not responsible.

19 March 2014

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BloombergBusinessWeek

The Malaysian government probably has done more over the past week to undermine the international image of Malaysia than anyone in the country’s nearly 60 years as an independent nation.

For most of those six decades, until the disappearance of Malaysia Airlines Flight 370, the country received little international attention. If Malaysia made the news at all, it tended to get relatively favorable notice as a peaceful, multiethnic nation that had enjoyed some of the strongest economic growth in Asia. The government capitalized on this image as a welcoming and wealthy nation with an effective tourism campaign, launched in the late 1990s, called “Malaysia Truly Asia.” This campaign helped make Malaysia a leading destination. (The latest tourism push, dubbed “Visit Malaysia Year,” included scores of events, a monkey mascot—and tragic headlines unrelated to the missing plane.)

The 10-day period since the mysterious disappearance of Flight 370 has seen the Malaysian government present to the world a concoction of false leads and conflicting answers, alongside seemingly evasive behavior. Nearly a week after the start of a multinational search off the waters off Malaysia’s east coast, the government revealed it had data suggesting the plane had flown in the other direction. Malaysia also released conflicting stories of when the plane’s communication with the ground was turned off, who turned it off, vague information as to who might be a suspect, and uncertain details about evidence collected.

Malaysia’s official spokespeople seem oblivious to the fact that the vanished plane is a global news story, and the hundreds of reporters who have descended upon Kuala Lumpur aren’t going to accept bland missives. At a recent briefing in Kuala Lumpur, a spokesman told reporters that the prime minister would be making a statement without taking any questions. When reporters pressed for more access, the reply came back: “Go watch a movie.”

Even the Chinese government, hardly a model of transparency, is spitting angry at Malaysian officials’ stalling and obfuscation. China’s deputy foreign minister last weekend blasted Malaysia’s response and insisted that Kuala Lumpur provide China, whose nationals comprised the majority of passengers on the plane, “more thorough and accurate information” about the flight and the current search efforts. Some Chinese officials privately have wondered whether Malaysia is being less than candid about how its armed forces did—or did not—track the plane so as not to give away details of Malaysia’s radar coverage of contested areas of the South China Sea.

As I wrote last week, Malaysian leaders’ poor response to the disappearance of Flight 370 isn’t that surprising. The country has been ruled by the same governing coalition since independence, its leaders normally shun independent journalists, and state-controlled domestic media rarely push top ministers to answer tough questions.

Can Malaysia turn it around, regaining the trust of neighboring states, the international community, aviation experts, and, most important, the relatives of passengers from the missing flight? It’s not impossible, and restoring trust will be critical for the multinational search effort to be successful. Kuala Lumpur needs to immediately—and I mean immediately—take several steps:

1. Malaysia’s government needs to speak with a single voice. Start by designating a senior minister—ideally, Prime Minister Najib tun Razak—as the primary point of information about the search for Flight 370. That senior minister would handle briefings of both press and officials from other countries and would not be contradicted by other ministers talking in public about the situation.

The designated minister would have daily question-and-answer sessions with reporters—and not only with the compliant domestic media. (The government-controlled New Straits Times recently published a story headlined, “Stop bashing [Malaysia’s] Search and Rescue efforts, says Swede FB user,” which featured quotes from an anonymous Swedish Facebook commentator impressed with the government’s response.) To take an example from a nearby country, Malaysian officials could review videos of the Philippine government’s lengthy Q&A sessions with reporters in the wake of last year’s Typhoon Haiyan.

2. Get over the dislike of open cooperation with Western governments. The attitude has been a characteristic of Malaysian politics since independence. Kuala Lumpur should allow foreign aviation and police agencies to cooperate with it in investigating the backgrounds of the passengers, crew, and pilots of the missing plane. So far, even as it claims it is cooperating with everyone, the Malaysian leadership has reportedly rejected extensive help from the U.S. Federal Bureau of Investigation and the U.S. National Transportation Safety Board, as well as from several other foreign agencies.

18 March 2014

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I cannot express enough my disgust to those who are so ready, in the absence of any proof whatsoever, to pin the blame on Captain Zaharie. I would like to express my deepest sympathy to his wife and children and his family too and to tell them to remain strong in these most trying times. The same goes for all the passengers and crew of flight MH370.

Casting aspersions on his character and making unfounded insinuations about Captain Zaharie’s support for my political cause being a probable reason for the disappearance of flight MH370 is not only reckless and insensitive but in the absence of any proof, is highly defamatory. In relation to me, these insinuations and innuendoes are of course part of the routine character assassination campaign carried out against me by government and UMNO-controlled media.

Meantime, many questions have been raised regarding not just the competency of the authorities in the investigations but also the sheer lack of transparency. What is it that the authorities are hiding that is making them so paranoid about letting others help in the investigation? It should be noted too that the Opposition’s attempt to move a motion in Parliament to discuss MH370 was flatly rejected.

Anwar Ibrahim

18 March 2014

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Malaysiakini

Opposition leader Anwar Ibrahim has asked the media and the authorities not to “cast aspersions” on Malaysia Airlines Flight MH370 pilot Captain Zaharie Ahmad Shah without concluding investigations in the first place, insisting that the experienced pilot was a “good family man”.

Anwar admitted in a press conference at the Parliament lobby today that Zaharie was related to Anwar’s daughter-in-law and that he had personally met the pilot, who worked for MAS since 1981, at several PKR functions.

“He is someone who has passion for justice,” Anwar said today.

He also ridiculed the idea floated around that the pilot could have hijacked the plane in protest at the Sodomy II conviction against Anwar on March 7.

“I think 90 percent of taxi drivers are our supporters. But I don’t see all the taxis being hijacked to Kajang,” he said.

18 March 2014

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Malaysiakini

The Indonesian media has taken aim at Umno-owned Utusan Malaysia for its report accusing the republic of being in cahoots with the US to hide the missing Malaysia Airlines Flight MH370.

Indonesian online news portal Merdeka.com quoted the senior officer for foreign affairs at Indonesia’s Defence Ministry, Sumardi Brotodiningrat, as saying the allegation was “funny”.

Sumardi said Indonesia was already doing what it could to assist Malaysia to find the missing aircraft, with which radar communication was lost over the Gulf of Thailand at 1.30am on March 8.

“Aren’t we one of the 25 countries that have been helping them out up until now?” he is quoted by Merdeka.com as asking.

Sumardi stressed that the republic has no knowledge about the plane’s whereabouts and that the allegation by the Malaysian newspaper had to be explained.

The Merdeka.com headline, “Funny, Indonesia blamed for working with US to hide MH370″ was subsequently picked up by Yahoo Indonesia.

Utusan last Sunday quoted Cabal Times as claiming that Flight MH370 was hidden by the US at its base in Diego Garcia.

The report added that if this were true, Indonesian radar would have picked up the plane.

“But the question is, Indonesia is believed to be part of the ‘secret globalisation’ movement or Western alliance with certain agenda and would certainly remain silent about whatever they detected on their radar,” Utusan quoted Cabal Times as saying.

Cabal Times is a conspiracy portal, with the Eye of Providence that sits on a pyramid as its logo, which is often associated with Freemasonry and is similarly found on the US one dollar bill.

More bizzarely, a brown cow is superimposed on the symbol to complete the logo.

This, however, did not raise a red flag with the Umno-owned newspaper for citing the story.

17 March 2014

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The Telegraph

Allies and neighbours concerned after prime minister discloses flight MH370 crossed its territory without being picked up by military radar

Malaysia has rejected questions over its air defence systems following the seizure and disappearance of flight MH370 and claimed the lessons learned from the crisis could “change aviation history”.

The disclosure by Prime Minister Najib Razak that the Malaysia Airlines plane was seized shortly after taking off from Kuala Lumpur, turned around over the South China Sea and flew back over Peninsular Malaysia without alerting the country’s defence forces has caused alarm among neighbours and allies.

After the September 11 2001 attacks on the United States, air defences across the world were tightened and new procedures adopted to speed the detection of rogue aircraft and intercept them before they could be used as weapons of terrorism.

But the apparent failure of Malaysia, which has a defence agreement with Britain, to notice that the plane had changed direction, fallen off the radar and then flown towards and through its air space has identified serious loopholes in its air defences.

Most countries with advanced air forces would detect an incoming hostile aircraft 200 miles from shore and scramble fighter jets to challenge it.

There has been strong criticism of the failure in China, India and in private by Western diplomats and defence analysts.

A Western security source said while the current focus is on helping Malaysia locate the missing plane, “there are a lot of questions – how did it get to the point where it came back and went wherever? You would have thought [planes] would have been scrambled and the Malaysians would have acted.”

Sugata Pramanik, an Indian air traffic controllers’ leader, said a plane can “can easily become invisible to civilian radar by switching off the transponder … But it cannot avoid defence systems.”

One senior Indian Navy commander, Rear Admiral Sudhir Pillai, however said his country’s military radars were occasionally “switched off as we operate on an ‘as required’ basis”.

The Royal Malaysian Air Force is widely respected and has a fleet of Sukhoi S30 and F16 fighter jets and does regular training exercises with their British, Australian, New Zealand and Singapore counterparts.

Malaysia’s Transport Minister Hishammuddin Hussein however dismissed the concerns and said the disaster was an “unprecedented case” with lessons for all.

“It’s not right to say there is a breach in the standard procedures … what we’re going through here is being monitored throughout the world and may change aviation history,” he said.

His comments were supported by Azharuddin Abdul Rahman, Malaysia’s Director General of Civil Aviation, who said “many will have lessons to learn from this. I’ve been in aviation for 35 years and I’ve never seen this kind of incident before”.

Neither elaborated on the loopholes exposed beyond Malaysia by the seizure of MH370 and stressed that Kuala Lumpur would not focus on the issue until it had found the aircraft and its passengers on crew.

Anifah Aman, Malaysia’s foreign minister, told The Telegraph the world was “missing the point” by focusing on security implications and that he still hoped for a ‘miracle’ in finding the passengers and crew alive.

“The focus must be on finding the plane. I don’t want to support any of the theories at this juncture. This involves a lot of lives. My worry is where is the plane and what little chance that people are safe so that they can come back … we believe in miracles and like to think they’re safe and can return to their families,” he said.

The prime minister confirmed on Saturday that the Boeing 777 had been flown from close to Vietnamese air space over the South China Sea, back across the Malaysian peninsula to the Strait of Malacca, close to Penang, and then took two possible navigational corridors.

Search operations, now including 25 countries, are now focused on a northern corridor from the Turkmenistan-Kazakhstan border to northern Thailand and a southern sector from Indonesia to the vast southern Indian Ocean.

The investigation into what happened to the plane is now based on four theories – all of which follow from Mr Najib’s acceptance on Saturday that the plane had been deliberately seized or hijacked.

Police Inspector General Khalid Abu Bakar said those who had taken the plane were either hijackers, saboteurs, someone with a personal vendetta or a psychological problem.

His investigation had been launched under a Malaysian law which covers terrorism offences, he said.

Until now the government has been reluctant to refer to the seizure as a hijacking or act of terrorism because they have yet to find any evidence on the motive of whoever seized the plane on Saturday March 8th.

The minister and the police chief’s comments however marked a freer use of the terms following the prime minister’s confirmation that the plane had been deliberately taken and re-routed.

Malaysia has not suffered terrorism on the scale of neighbours Indonesia, Thailand, and the Philippines, although several Malaysian nationals are known to have received training from al-Qaeda.

 

17 March 2014

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The Economist

The countries where politically connected businessmen are most likely to prosper

AMERICA’S Gilded Age, in the late 19th century, saw tycoons such as John D. Rockefeller industrialise the country—and accumulate vast fortunes, build palatial mansions and bribe politicians. Then came the backlash. Between 1900 and 1945 America began to regulate big business and build a social safety net. In her book “Plutocrats”, Chrystia Freeland argues that emerging markets are now experiencing their first gilded age, and rich countries their second, with the world’s wealthiest 1%, who benefited disproportionately from 20 years of globalisation, forming a “new virtual nation of Mammon”.

Inventing a better widget, tastier snack or snazzier computer program is one thing. But many of today’s tycoons are accused of making fortunes by “rent-seeking”: grabbing a bigger slice of the pie rather than making the pie bigger. In technical terms, an economic rent is the difference between what people are paid and what they would have to be paid for their labour, capital, land (or any other inputs into production) to remain in their current use. In a world of perfect competition, rent would not exist. Common examples of rent-seeking (which may or may not be illegal) include forming cartels and lobbying for rules that benefit a firm at the expense of competitors and customers.

Class warriors and free-market devotees alike are worrying about rent-seeking. American libertarians fear an elite has rigged their country’s economy; plenty of ordinary Joes reckon the government and Federal Reserve care more about Wall Street than Main Street. Many hedge-fund managers sniff that China is a house of cards built by indebted cronies.

To test the claim that rent-seekers are on the rampage, we have created a crony-capitalist index. Our approach builds on work by Ruchir Sharma of Morgan Stanley Investment Management, Aditi Gandhi and Michael Walton of New Delhi’s Centre for Policy Research, and others. We use data fromForbes to calculate the total wealth of those of the world’s billionaires who are active mainly in rent-heavy industries, and compare that total to world GDP to get a sense of its scale. We show results for 23 countries—the five largest developed ones, the ten largest developing ones for which reliable data are available, and a selection of eight smaller ones where cronyism is thought to be a big problem. The higher the ratio, the more likely the economy suffers from a severe case of crony-capitalism.

We have included industries that are vulnerable to monopoly, or that involve licensing or heavy state involvement (see table 1). These are more prone to graft, according to the bribery rankings produced by Transparency International, an anti-corruption watchdog. Some are obvious. Banks benefit from an implicit state guarantee that lowers their cost of borrowing. When publicly owned coal mines, land and telecoms spectrum are handed to tycoons on favourable terms, the public suffers. But the boundary between legality and graft is complex. A billionaire in a rent-heavy industry need not be corrupt or have broken the law. Industries that are close to the state are still essential, and can be healthy and transparent.

A galaxy of riches

Billionaires in crony sectors have had a great century so far (see chart 2). In the emerging world their wealth doubled relative to the size of the economy, and is equivalent to over 4% of GDP, compared with 2% in 2000. Developing countries contribute 42% of world output, but 65% of crony wealth. Urbanisation and a long economic boom have boosted land and property values. A China-driven commodity boom enriched natural-resource owners from Brazil to Indonesia. Some privatisations took place on dubious terms.

Of the world’s big economies, Russia scores worst (see chart 3). The transition from communism saw political insiders grab natural resources in the 1990s, and its oligarchs became richer still as commodity prices soared. Unstable Ukraine looks similar. Mexico scores badly mainly because of Carlos Slim, who controls its biggest firms in both fixed-line and mobile telephony. French and German billionaires, by contrast, rely rather little on the state, making their money largely from retail and luxury brands.

America scores well, too. The total wealth of its billionaires is high relative to GDP, but was mostly created in open sectors. Silicon Valley’s wizards are far richer than America’s energy billionaires. It is one of the few countries where rent-seeking fortunes grew only in line with the economy in recent years, which explains its improved position since 2007. Despite concerns about vampire-squid financiers, few of its billionaires made their money in banking. Even including private equity as rent-seeking, on the grounds that it benefits from tax breaks and cheap loans, would make little difference. Compared with Larry Ellison of Oracle, Stephen Schwarzman of Blackstone is a pauper.

Countries that do well on the crony index generally have better bureaucracies and institutions, as judged by the World Economic Forum. But efficient government is no guarantee of a good score: Hong Kong and Singapore are packed with billionaires in crony industries. This reflects scarce land, which boosts property values, and their role as entrepots for shiftier neighbours. Hong Kong has also long been lax on antitrust: it only passed an economy-wide competition law two years ago.

Another surprise is that despite its reputation for graft, mainland China scores quite well. One reason is that the state owns most natural resources and banks; these are a big source of crony wealth in other emerging economies. Another is that China’s open industries have fostered a new generation of fabulously rich entrepreneurs, including Jack Ma of Alibaba, an e-commerce firm, and Liang Wengen of Sany, which makes diggers and cranes.

One of the most improved countries is India, which moved from sixth place in our ranking to ninth. Recent graft scandals and a slowing economy have hurt many of its financially leveraged and politically connected businessmen, while those active in technology, pharmaceuticals and consumer goods have prospered. Turkish billionaires in rent-seeking industries have been hit by their country’s financial turmoil. By contrast most countries in South-East Asia, including Indonesia, Thailand and the Philippines, saw their scores get worse between 2007 and 2014, as tycoons active in real estate and natural resources got richer.

Who are you calling a crony?

Our crony index has three big shortcomings. One is that not all cronies make their wealth public. This may be a particular problem in China, where recent exposés suggest that many powerful politicians have disguised their fortunes by persuading friends and family to hold wealth on their behalf. Unreliable property records also help to disguise who owns what.

Second, our categorisation of sectors is crude. Rent-seeking may take place in those we have labelled open, and some countries have competitive markets we label crony. Some think America’s big internet firms are de-facto monopolies that abuse their positions. South Korea’s chaebol, which sell cars and electronics to the world, are mainly in industries we classify as open. But they have a history of bribing politicians at home. China’s billionaires, in whatever industry, are often chummy with politicians and get subsidised credit from state banks. According to Rupert Hoogewerf of the Hurun Report, a research firm, a third are members of the Communist Party. Sectors that are cronyish in developing countries may be competitive in rich ones: building skyscrapers in Mumbai is hard without paying bribes, and easy in Berlin. Our index does not differentiate.

The third limitation is that we only count the wealth of billionaires. Plenty of rent-seeking may enrich the very wealthy who fall short of that cut-off. America’s subprime boom saw hordes of bankers earn cumulative bonuses in the millions of dollars, not billions. Crooked Chinese officials may have Range Rovers and secret boltholes in Singapore—but not enough wealth to join a list of billionaires. So our index is only a rough guide to the concentration of wealth in opaque industries compared with more competitive ones.

Despite the boom in crony wealth, there are grounds for optimism. Some countries are tightening antitrust rules. Mexico has many lucrative near-monopolies, from telecoms to food, but its government is at last aiming to improve regulation and boost competition. India’s legal system is trying to jail a minister accused of handing telecoms licences to his chums.

Encouragingly, there are also hints that cronyism may have peaked. The share of billionaire wealth from rent-seeking industries has declined in developing countries, from a high of 76% in 2008 to 58% (see chart 4). That partly reflects lower commodity prices. But now that emerging markets are slowing, investors are becoming pickier. More are steering clear of firms in opaque industries with bad governance. The price-earnings ratio of firms in crony sectors is now at its biggest discount to firms in open sectors for 15 years. That suggests that the highest returns to outside investors are to be found in open industries.

Perhaps when growth picks up again in emerging markets, rent-seeking will explode once more. Or, as countries get richer, the share of great wealth that is made in crony industries may naturally decline. In 1900 American tycoons became rich by building and financing railroads. By 1930 the action had shifted to food production, photography and retailing. Cronies around the world should take note.

17 March 2014

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Asia Sentinel

Miscues and media gaffes are turning Malaysia into an object of anger and criticism in the aftermath of the disappearance early Saturday morning of a Malaysian Airlines jetliner carrying 239 passengers and crew.

No trace of the craft has been found despite a search encompassing thousands of square kilometers.  On Wednesday, the day was dominated by confusion over reports that the aircraft might have attempted to head back toward Malaysia before it disappeared.

Malaysia’s air force chief told reporters very early Wednesday that the plane had veered off course. Later in the morning, the same officer denied the report sharply. By Wednesday afternoon, the government seemed to reverse itself again, requesting assistance from India in searching the Andaman Sea, north of the Malacca Strait, where the plane may have gone down far from the current search area off the coast of Vietnam.

Officials finally said the plane “may” have been heading toward the Strait of Malacca when it disappeared and that the search was now also concentrated in that area.

Other countries have grown frustrated.  The Chinese, with 152 passengers on board, have complained about a lack of transparency over details. They have also complained that Malaysian Airlines staff handling relatives of the victims in Beijing have been short of information and in many cases don’t speak Mandarin.

From the start, according to critics, the Malaysians have treated the disappearance and ensuing inconsistencies as a local problem instead of one that has focused the attention of the entire world’s media on the tragedy. In a semi-democratic country with a largely supine domestic media, the government insists it has the situation in hand but that hardly seems the case.

Often, those giving press briefings about the affair communicate badly in English to an international press whose lingua franca is English.  Because of widely differing reports of where the aircraft actually disappeared, the picture being delivered is one of incompetence. Networks like the BBC and CNN are openly declaring that the post-accident situation is a mess.

Some of it isn’t Malaysia’s fault.  An initial report that two possible hijackers using fake passports somehow got through the country’s passport control because of lax surveillance turned out to be false.  While the two were traveling on false passports, apparently the stolen documents had never been reported to Interpol, which tracks such incidents.  The pair turned out to be Iranians seeking asylum in Europe.

But that wasn’t helped by the fact that Malaysian authorities originally said erroneously that as many as four to five people could have been traveling with suspect passports, raising the possibility of a fully-fledged hijack gang aboard.

But five days into the loss of the aircraft and with no idea of where it could have disappeared, there is growing concern over who is in charge, coupled with the fact that Prime Minister Najib Tun Razak has largely removed himself from the picture, allowing his cousin, Hishammuddin Hussein, the defense minister and acting transport minister, to deal with the affair.

International treaties that allow for Malaysia to greatly expand the probe by calling in experts from foreign governments to help were not invoked until Wednesday, it seems, when it was reported that US and other foreign experts had finally been invited to take part in the formal investigation. It seemed again that valuable time had been lost.

Much of the problem is due to the fact that the Malaysian government has habitually handled information as a problem rather than as a means of communication. The mainstream news media are all owned by the ruling political parties and are used to being fed information the government wants them to hear.  Government-owned MAS at one point issued a press release only to recall it twice because of misspellings and misinformation.

In a deeply divided political culture, especially in the last year as the opposition has grown more effective, the government is finding it difficult to manage the flow of information on a disaster. In addition, in the midst of this flight crisis the government is seeming preoccupied by court actions to drive two opposition leaders, Anwar Ibrahim of  Parti Keadilan Rakyat, and Karpal Singh of the Democratic Action Party, out of Parliament.

At the start, the plane was characterized as having simply gone off the radar – until Wednesday, when a report carried in Berita Harian, a government-controlled Malay-language newspaper, quoted Air Force chief Gen. Rodzali Daud as saying Malaysian radar had tracked the missing Boeing 777-200 turning left from its last known location on radar. It then supposedly crossed Malaysia itself and disappeared over the Strait of Malacca.

The report set off a frenzy. CNN and the BBC carried maps of the new possible crash site as it was reported that the massive search for the wreckage had shifted to the waters between Malaysia and Indonesia instead of the South China Sea off the coast of Vietnam.

Then the report was emphatically denied by Daud, who told a press conference that “I wish to state that I did not make any such statements as above.”

CNN, however,  quoted an unnamed “senior air force source” as saying the plane indeed had shown up on radar for more than an hour after contact was lost at around 1:30 a.m. Saturday. The craft was last detected, according to the official, near Pulau Perak, a small island in the Strait of Malacca.

Has four days been wasted by a huge flotilla of airplanes and ships that have been scouring the South China Sea for wreckage while the plane might actually be somewhere 900 km. to the west?  The Vietnamese announced they were suspending their participation in the search.

Chinese Foreign Ministry spokesman Qin Gang on Tuesday complained about the lack of progress in finding the plane, saying “We once again request and urge the Malaysia side to enhance and strengthen rescue and searching efforts.”  The Chinese government itself is starting to feel the heat, offering to deploy 10 satellites in the effort to find the plane.

The crisis wasn’t helped any by a sensational revelation from Australia by a young South African woman that she and a friend had once ridden in the cockpit of an MAS flight from Phuket to Kuala Lumpur at the invitation of the missing co-pilot, Fariq Abdul Hamid, and had pictures of themselves flirting with the pilots, who were even smoking in the cockpit, to prove it.

Since 9/11 in the United States, airline regulations forbid anyone not part of the crew from gaining access to the cockpit. If nothing else, the story and the pictures are an indication of lax flight deck discipline and raise questions if someone could have got into the pilots’ cabin aboard MH370.

17 March 2014

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Malaysiakini

In questioning a news report which linked the pilot of MH370 to her husband, PKR president Dr Wan Azizah Wan Ismail asked: “Is everything Anwar’s fault?”.

She was responding to UK tabloid Daily Mail‘s report that Captain Zaharie Ahmad Shah, a PKR member, is a “political fanatic”.

“There are many PKR members. They say Captain Zaharie cried over the (sodomy) verdict. Millions of other Malaysians did so, too,” Wan Azizah said.

Daily Mail had reported that Zaharie (right) was in court when the verdict with regard to Anwar Ibrahim’s conviction was delivered less than 24 hours before MH370 took off from KLIA at 12.41am on March 8.

Berita Harian also published a column floating the theory that the mysterious disappearance had to do with claims that most MAS pilots support Pakatan Rakyat.

Wan Azizah also denied that Pakatan is politicising the disappearance of MH370 but was merely criticising what seemed to be poor crisis management on the part of the government.

“We sympathise with the victims but we criticise how the government has handled this crisis. We are not politicising it.
“We see a lack of preparedness for such crises, especially aviation ones. We prepare for floods and crises on land but not in the air. That is the critique,” the Kajang by-election candidate told reporters.

BN leaders had urged Pakatan to stop politicising the missing Malaysia Airlines’ aircraft on the campaign trail.

Meanwhile, PKR Kajang by-election director Abdul Khalid Ibrahim said the party does not dispute that Zaharie is a PKR lifetime member.

“It means he paid the party RM200. Just like I did,” he added.

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