Among the many arguments swirling around the dispute, one that has recently surfaced concerns the value of the original sum: 5,300 MYR, after all, is an exceedingly small amount to represent the supposed value of what is now an entire Malaysian State.  As such, Malaysia has tried to represent this as a token sum, never a valuation.

This argument misrepresents the history of the claim in two basic ways:

First, financial circumstances underlying the lease have changed so radically that the old arrangement – whatever it was – no longer reflects the commercial reality. This is the case, of course, because the discovery and exploitation of hydrocarbons in and around Sabah fundamentally altered the contractual equilibrium.  There is no way that the Sultan and the Company in 1878 could have foreseen these discoveries; even if they could have, they would have been hard put to comprehend the value of oil in a world that had yet to invent the combustion engine.

But leaving aside the argument of changed circumstances, the annual lease as originally contemplated represented a substantial sum for a territory that in 1878 was good for little more than a port.  Recall, first of all, that the sum of 5,000 dollars represented the totality of the Sultan’s annual revenue from Sabah at the time.  (It was changed by Malaysia to MYR 5,300 in 1967).  Compound inflation over 145 years has a huge impact.  Which Malaysian Sultans with legitimate property holdings, from two centuries ago, in what are now major cities and economic hubs in Malaysia, would accept rent set at 1878 rates, as fair payment today?  Ask Tun Dr. Mahathir about the value of water resources contracted to the Republic of Singapore.

Second, while 5,300 MYR is indeed a trivial amount for a large territory today (even without hydrocarbon resources), it was not so in 1878. It’s unclear what kind of dollars were at issue in 1878.  The North Borneo Company also kept its books in (presumably the same) dollars, rather than pounds sterling.

Although not specified in the contract or in the North Borneo books, it seems likely that the 5,000 dollars were Mexican silver dollars.  Mexican dollars were a valued international currency in East Asia in the 19th century, principally for their reliably high content of precious metals.

In the 1870s, a Mexican dollar was worth about US$0.85. Five thousand Mexican dollars therefore were worth about US$4,250.  Adjusting for inflation and cost of living, an annual sum of US$4,250 in 1878 equates to nearly US$2 million in wealth held today. While hardly the stuff of the super-rich, this was always clearly more than a token sum.

After the discovery of oil made what was now MYR 5,300 a year ridiculous by comparison with Sabah’s annual revenue, we tried several times without success to renegotiate the payments.  We usually did so orally, in discussion with Malaysia’s Ambassador to the Philippines.  At least one written account of our demands survives: in 1999, we suggested a payment of $789 million as more befitting the true value of the lease.  We received no response.