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JULY 14, 2000 VOL. 26 NO. 27 | SEARCH ASIAWEEK

National Follies
Proton and IPTN: lessons not yet learned

The once-mighty British motor industry has just about disappeared up its own tailpipe. Many other Western manufacturers are either consolidating at home or picking off weakened Japanese and South Korean automakers. And around the world, lots the size of soccer fields are filling up with cars no one wants or can afford. So why does the Malaysian government think it can go it alone with its national car, the Proton? Possibly for the same reason some people in Jakarta continue to imagine there is hope for an Indonesian national plane. Despite the humbling lessons delivered by the Asian Crisis, neither the Malaysian nor Indonesian authorities seem to be getting the message — that the time has passed for Napoleonic follies that stand in defiance of economic law and the ever-tightening disciplines of globalization.

The Proton — a pet project of Prime Minister Mahathir Mohamad — has been stuck in low gear since the Asian Crisis began, despite hiding behind prohibitive tariffs on imported cars. For years the Proton was little more than a Mitsubishi with Malaysian characteristics, but it recently unveiled a new model, the Waja, that is largely designed and engineered at home. The hope is that the Waja will provide a fresh start. But there are a couple of problems: Its manufacturer, Hicom, suffered a net loss of $41.5 million last year. And Hicom's holding company, DRB, lost $55 million. To the rescue comes that savior of other troubled but well-connected Malaysian companies, the state-owned, cash-rich oil company Petronas. It plans to save Proton by buying it for $263.2 million. Says Kuala Lumpur investment consultant Lee Siang Chin: "For the nation, it is the right decision. The car project has to go to someone with enough money."

The new-look Waja, with its striking marque of gold tiger stripes and technological input from elite British subsidiary Lotus, may be more successful overseas than previous models — but only if vast sums of public money are spent on raising the Proton profile. But some wonder: Two decades after Hicom was set up, isn't it time to call it quits?

The numbers don't make much more sense at IPTN, the state-owned Indonesian aircraft manufacturer that was launched in 1976 with soaring ambitions (and the patronage of president Suharto) — and which now has debts to match. Created and run by B.J. Habibie, then research and technology minister and, in 1998-99, president, IPTN was supposed to transform Indonesia into Asia's leading plane-maker. Today, it owes $245 million to the Indonesian Bank Restructuring Agency, and perhaps another $130 million to other creditors. Plans for a regional jet and a sophisticated turbo-prop were dropped as a condition for International Monetary Fund assistance for Indonesia at the outset of the Crisis. But the company continues to turn out small turbo-props and some helicopters. IPTN president S. Paramajuda insists the corporation is adapting to market realities. "We are professional and entrepreneurial," he says. "We are a normal company." So "normal," in fact, that the only way that IPTN is likely to survive is if the government comes to its rescue and converts its giant debt to equity — all paid for out of public funds.

— With reporting by Arjuna Ranawana/Kuala Lumpur and Warren Caragata/Jakarta

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