Past Scandals – The Maminco-Makuwasa Affair

Estimated losses: RM1.6 Billion

(The WTF Report) – Malaysia used to be the world’s leading tin producer accounting for 31% of the world’s output. It was a major contributor to the country’s economy providing employment for more than 40,000 people.

In 1985 the world tin market crashed with the price plunging by 50%. Many tin mines in Malaysia had to close as it was no longer economical to operate the tin mines. One of the factors that contributed to the collapse of the tin market is the ill-fated attempt by the Malaysian government to corner the tin market and to prop up the tin price.

This is the Maminco scandal that is usually found at the top of the lists of scandals and bail-outs plaguing Malaysia since Mahathir became the PM. This is probably because it was the earliest scandal occurring immediately after Mahathir became the PM in 1981. Although not the largest loss in terms of value, it still caused a loss estimated to be RM1.6 billion or more.

In this crooked scheme, a RM2 company Maminco Sdn. Bhd. was set up and was used to secretly buy tin future contracts and physical tin in order to push up prices on the London Metal Exchange. To finance its covert activities, Maminco obtained financing from Bank Bumiputra – naturally. At one point, this RM2 company was borrowing astronomical amounts from the bank – as much as RM1.5 billion.

Initially, they succeeded in pushing up the tin price artifically. But the higher prices stimulated increased tin production and resulted in the US releasing its strategic stockpile. The tin price could not be maintained at the artificially high level for long and eventually it collapsed.

Undertaking this Maminco scheme is already bad enough. But instead of admitting their mistake, Mahathir and his merry band cooked up another scheme to hide the losses incurred by Maminco from the Malaysian public. Another RM2 company called Makuwasa was set up.

The idea was new shares reserved for bumiputras allocated to EPF were diverted to Makuwasa at par value! Can you believe this? These cheaply acquired shares could then be sold for a profit at market price! Instant profits made by Makuwasa can then be used to cover the Maminco’s losses. Effectively, Makuwasa is used to raid the savings of Malaysians to help pay for Maminco’s losses!

In 1986 Mahathir publicly admitted that Makuwasa was created to recoup the government’s losses from the Maminco debacle and to repay its loans to Bank Bumiputra.