Oleh/By : DATO' SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : SANTIAGO, CHILE
Tarikh/Date : 30/09/97
Tajuk/Title : THE 12TH INTERNATIONAL GENERAL
MEETING OF THE PACIFIC ECONOMIC
COOPERATION COUNCIL
1. I would like to thank you for the invitation to speak at
this PECC Conference. I am a great supporter of cooperation
for mutual benefit. The Pacific Economic Cooperation Council
has I believe been set up to enable the businesses and the
countries of the Pacific Rim to come together and to
cooperate so we may all grow and prosper.
2. But the countries of the Pacific Rim are not equally
developed. There are among them the two biggest economies of
the world, the U.S. and Japan. But there are also some of
the poorest countries including the tiny island nations of
the Pacific. In between are the emerging economies of East
Asia, sometimes described as tigers and dragons.
3. For a time it looked as if cooperation would result in
growing wealth for all the countries of the Pacific Rim.
More and more countries would be joining the ranks of the
dragons and tigers. Many of the candidates are from Latin
America. In fact over time some of the Pacific countries may
even join the ranks of developed countries.
4. Malaysia is one of the aspiring nations. Malaysia has
prospered through opening itself early to direct foreign
investments. The industrialisation and rapid growth of
Malaysia is due to foreign investments. We are foreigner-
friendly.
5. Malaysia's story is typical of the story of the so-
called tigers and dragons of South East Asia. Those of North
East Asia are less dependent on foreign investment, although
not altogether. And so if I describe Malaysia, I am really
describing the countries of South East Asia, fellow tigers
and dragons whose fangs and fire-breathing apparatus have
been badly damaged lately, damaged unfortunately by some of
the people we had been friendly with. I want to relate the
Malaysian experience because it will have a direct bearing on
the future of other developing Pacific countries and indeed
developing countries everywhere.
6. Malaysia was a two-commodity economy only 30 years ago.
Its economic well-being was dependent on tin and rubber which
were traded largely in markets outside Malaysia and outside
Malaysian influence entirely. The vagaries of these market
places created a life of uncertainty for our people. For as
long as we depended on commodities we could never progress.
7. And so we decided to industrialise. We had no
manufacturing capability, no big domestic market, no world
network of markets. To industrialise we had to rely on
direct foreign investments which could be attracted only at
the sacrifice of taxes and local participation. We accepted
the conditions demanded of us because we needed jobs for our
unemployed so desperately. We succeeded beyond our dreams so
that today 80 percent of our export worth US$80 billion is
made up of manufactured goods and we have more than full
employment -- we in fact have a shortage of workers.
8. In the meantime our people learnt the sophistication of
an industrial economy and began to manufacture goods
ourselves, to export them and even to invest in manufacturing
in other countries.
9. From 1988 to 1997 we grew at eight percent plus per
annum with inflation held at 3.5 percent. Per capita income
rose from about US$1,600 in 1970 to US$5,000 approximately by
1997. Our reserves could finance four to five months of
retained imports. We had high savings of 38 percent of GNP
while the interest hovered around eight to nine percent, good
for savers and good for borrowers.
10. We had the best infrastructure in the region. Ports,
airports, roads, rail and air services were adequate. Power
outages were minimal while water supply and sewerage are
comparable with those of developed countries.
11. Our companies were all very profitable. Despite
reducing corporate and personal income taxes, Government
revenue increases by about ten percent every year. For the
last four years the Government's budget showed a surplus.
12. We had very little foreign debt, having prepaid many of
these debts from increased Government revenue. For all the
projects which were ongoing or planned, the financing
arrangements have all been made and they involved very little
borrowings from outside the country. Most of the financing
would come from sale to locals and loans from local banks.
There has always been sufficient liquidity. All projects
were bankable.
13. Against all these strong fundamentals we have a deficit
in the balance of payment since 1994. In 1995 the deficit
reached US$7 billion. We took immediate action and by 1996
the deficit was reduced to US$5 billion. The first half of
1997 showed further reduction. Given a little more time we
could wipe out the deficit altogether.
14. We have a strong Government able to make and implement
decisions, even unpleasant yet necessary decisions, quickly.
The country is peaceful and stable. There is no civil
strife. Labour relations are good, there being hardly any
strikes.
15. Such was the situation in Malaysia that Mr. Michael
Camdessus drew particular attention to the soundness of the
Malaysian economy. In a speech on 17 June, 1997 Mr Camdessus
said, and I quote:
" Malaysia is a good example of a country where the
authorities are well aware of the challenges of managing the
pressures that result from high growth and of maintaining a
sound financial system amid substantial capital flows and a
booming property market. Of course, the life of policymakers
is always easier when one starts, as Malaysia does, with a
long history of low inflation and an outward-oriented
economy. But significant further progress has been made in
dealing with new challenges. Over the last year, output
growth has moderated to a more sustainable rate, and
inflation has remained low. The current account deficit --
which is primarily the result of strong investment spending -
- has narrowed substantially. The increase in the fiscal
surplus targeted for this year is expected to make an
important contribution towards consolidating these
achievements. The Malaysian authorities have also emphasised
maintaining high standards of bank soundness. Non-performing
loan ratios of financial institutions have fallen markedly in
recent years; risk-weighted capital ratios are above Basle
recommendations; and steps have been taken to restrain
lending for the property and stock markets. In an effort to
increase the flow of comprehensive up-to-date, and reliable
information to markets, Malaysia was also among the first to
subscribe to the (International Monetary) Fund's Special Data
Dissemination Standard... Of course, as the Governor of the
Central Bank of Malaysia, Ahmad Dom, said recently, "Despite
this positive outlook, there is no room for complacency.
Given rapidly changing market conditions, there is need to
remain ever vigilant." That is true for all countries. And
it is the kind of attitude that fully justifies the
confidence of the markets on the positive prospects of
countries persevering in such endeavours."
16. Obviously Mr Camdessus had a lot of confidence in
Malaysia, in its fundamentals, in its economy, in the
management of its economy. Yet today we are told that the
fund managers have lost confidence in Malaysia because of
weak fundamentals. The Malaysian ringgit which had hovered
between 2.49 to 2.51 to the U.S. dollar for years began to
slide.
17. The explanation given was that the economy of Thailand,
a neighbour, was weak. Yet when Mexico went through its
currency crisis a few years back there was the prediction
that Malaysia would be next. And Mexico is not Malaysia's
neighbour, nor is its economy similar to Malaysia's economy.
Malaysia's trade is with the whole world and not with a very
rich neighbour only.
18. Obviously there were people who have been eyeing
Malaysia and thought that it was ripe for the picking.
Indeed the dynamic economies of South East Asia all appeared
ripe for plucking.
19. When the depreciation of the Ringgit continued, Malaysia
limited foreign exchange deals not related to trade to US$2
million. For a time the manipulators were stopped. But then
they began short-selling borrowed shares to obtain Ringgit.
The result was a dip in the Stock Exchange indices. To the
loss due to Ringgit depreciation was added capital
depreciation. Shares pledged to the bank fell below the
amount borrowed. Margin calls were made which forced the
index to go down further as shareholders tried to sell their
shares to pay the banks.
20. No Government can sit by and watch the wealth of the
country being siphoned off. A stop was put to short-selling.
Angered by their inability to fiddle with the stock market,
the manipulators dumped shares and Ringgits.
21. Today in exchange rate terms Malaysia has lost 23
percent of its wealth, and that includes the earnings of the
very poor; and the share market capitalisation, once the
biggest in South East Asia, has shrunken by 60 percent in
Ringgit terms and 70 percent in Dollar term.
22. Where has this money gone to? It did not disappear into
thin air. The speculators, the short-sellers and the
manipulators have it. These are rich people from rich
countries. They have no compunction about impoverishing the
poor in order to enrich themselves. Their excuse -- The
South East Asian economies were not open enough. Yet they
seem sufficiently open for these market manipulators to
profiteer.
23. We believe in free trade but does it mean that abuse of
the freedom should be calmly accepted? When Rockefeller
legitimately cornered the oil market in the U.S., Anti-Trust
Laws were enacted to stop such monopolies which had hurt
others in the business and the public at large. When Slater
Walker acquired controlling interest in companies and
stripped them of their assets, the authorities in the U.K.
imposed a condition that anyone acquiring 30 percent of the
shares of a company must make an offer for the rest. That
stopped asset stripping forays. Later anyone acquiring a
five percent share must announce their holding.
24. When Alan Boeskey and Michael Milken started to
artificially inflate the value of junk bonds and Wall Street
capitalisation went down by 30 percent when they dumped the
shares, the two were jailed.
25. Obviously when the accepted system is abused and
loopholes taken advantage of by the unscrupulous and the
crooks, Governments can and have acted to put a stop to them.
26. The free market works well under normal conditions. But
when huge funds move into the market, the values of the
shares and the currencies are directly affected. The fund
managers can actually determine before-hand the effect of
their moves and profit from their knowledge. They are not
unlike insider traders and yet their trading is still
considered legal.
27. Currency trading is said to be 20 times the size of
world trade. Yet what is there to show for this huge trade
in terms of wealth creation for the international community.
The only people who made or lost money are the traders. They
contribute nothing to the well-being of the peoples of the
planet. A few Dollars for charity is not enough to
compensate for the destruction of the economies of not just a
few people or a country, but whole regions. Until these
traders started fiddling with the currency and the stock
market, South East Asia was the most dynamic region in the
world. Now there is financial turmoil and loss of billions
of Dollars by these countries.
28. Short selling is speculative for the ordinary player in
the stock exchange. But when a huge number of shares are
sold for future delivery, the effect is the same as dumping
currency. The share prices fall. When the shares sold are
borrowed from banks or the banks undertake to deliver when
required, the amount of shares sold can be almost unlimited
as they can be sold over and over again, each time forcing
the share prices to fall.
29. In Malaysia the share prices went down by 60 percent or
more as a result of the short selling by these manipulators.
They obviously made a lot of money for themselves. But when
the banks ask for margins from those who have pledged their
shares, many of these people will be bankrupt. Companies may
be foreclosed. The small players are going to suffer in the
same way they suffered when Slater Walker stripped companies
of their assets or Boeskey and Milken manipulated junk bonds.
Yet the big short-sellers are free to strip the stock
exchanges of developing countries. They even consider it as
a right. And they are protected instead of being prosecuted
for their role in destroying the economy of nations.
30. The reality is that the currency manipulators have
pushed back the economy of South East Asia by ten to fifteen
years. The reality is that innocent people have been
impoverished by their action. The reality is that they seem
able to manipulate at will and with impunity. The per capita
income of Malaysians have been reduced by them from US$5,000
to US$3,600 in two months when it took 12 years to achieve.
31. The North-controlled media openly gloated and tried to
put the blame on allegedly incompetent South East Asian
leaders. Blatantly they tried to get South East Asian
leaders to blame each other, to break their unity. Any
criticism of the currency traders would immediately result in
further devaluation of all the South East Asian currencies.
32. These are the realities. Yet the Finance Ministers of
the rich North and assorted leaders lauded the currency
manipulation as an integral part of the free trade system.
They demanded that South East Asia accept their
impoverishment as evidence of how good is free trade. They
demanded that these countries open wider their countries to
other potential manipulators.
33. What is the meaning of democracy if the elected leaders
of a country have to submit to the wishes of self-appointed
currency traders from other countries? What is the meaning
of democracy if freedom is denied the popularly elected
leaders to manage their own country's economy? What is
democratic about impoverishing poor people in poor countries
in order to force them to accept the dictates of the
avaricious in the rich North?
34. There is no democracy and there is no freedom. Free
speech is only for the rich and their media. The rest have
no voice.
35. For hundreds of years South East Asia was colonised and
exploited. After independence the people had worked hard to
rebuild their countries. It was a lot of sweat, toil and
tears and not miracles which built their economies. Most of
their people are still poor. They need many more years of
toil and tears and more sweat. But much of their sacrifices
have come to nought because a few very rich currency
manipulators and short-sellers decided to rape these
countries under the guise of free trade.
36. Currency trading and short-selling only benefit the few
speculators and those who invest in their funds. These
people pay no tax to the countries from which they make huge
profits and which they impoverish. They are shadowy figures
whose trading is far from open. There seems to be no
published record of the transactions, the volume, the
currencies involved, the funds and the individuals involved.
All that we know is that suddenly certain currencies
depreciate in value because these shadowy figures have
decided that they have lost confidence in the currency.
37. Countries, rich countries had developed in the past
without currency trading. In fact they developed on the
basis of fixed exchange rates. Clearly trade in goods and
services can be carried out without currency trading, but
currency trading cannot exist without trade in goods and
services. So, why must there be currency trading at all?
Exchanging money to finance trade is fine, but trading money
as a commodity is unnecessery and immoral.
38. For some time now Malaysia has been literally preaching
the benefits of a prosper-thy-neighbour mindset. Business
need not be a zero sum game in which one party gains at the
expense of another. Business can be beneficial to both
parties, a win win game. We have experienced this when
genuine investors set up real industries in Malaysia,
creating jobs and wealth for the country, and making it a
good market for the countries of the investors. Subsequently
Malaysia began to invest in other countries, to create jobs
for them, to enrich them. And then they became good markets
for Malaysian exports.
39. The membership of the PECC is made up largely of the
business people of the Pacific Rim. I am sure you know that
doing business with a poor country is not worthwhile. Rich
countries, including rich developing countries make good
trading partners. If you impoverish these countries you
would really be killing the geese which laid the golden eggs.
You would not cooperate to impoverish the markets where you
do business.
40. As a result of the devaluation of the ringgit, Malaysia
cannot now import all those things we used to buy from you.
In the first place we need 23 percent more of our money to
buy whatever we used to buy. And finding that extra money is
not going to be easy. Even if we need to import these things
we have to cut down by 20 percent at least. You will lose 20
percent of your Malaysian market.
41. Besides we have been told to reduce the deficit in our
balance of payment. The only real way of reducing the
deficit is to import less since it is not so easy to export
more. If we slow down our economy to reduce our trade
balance, it still means we will be unable to buy the things
we need from you. Whatever we do your export to us will be
reduced and reduced quite considerably. You will lose
something due to our impoverishment.
42. There really is no benefit in impoverishing other
countries. No one gains anything, not the country concerned,
not the country of the people who undermined the economy of
the aforesaid country.
43. You may want to uphold free trade and consider currency
manipulation and short-selling as a part of free trade. But
they need not be. If we cannot stop currency trading we
should at least try to regulate them. And it is not the
first time for an abuse of privilege or right to be stopped
or curbed or regulated.
44. As business people you want predictability. When
Malaysia began to invite foreign direct investment one of the
things we assured the investors was that there will be no
surprises in Malaysia. We know that it takes time for
investments to yield a return. If three years, five years or
ten years down the road you are likely to find the rules of
the game changed, you will not invest. Malaysia is steady
and sticks to its policies. It is consistent. That is why
we have succeeded in attracting foreign long term investments
much more than other countries.
45. But currency manipulators create uncertainty. Your
costings can be adversely affected by revaluation or
devaluation of the currency. It may be good for them but it
will not be good for you.
46. We cannot go back to Bretton Woods and the fixed
exchange rate. The value of the country's currency should
fluctuate a little simply because the economic performance of
countries are never constant and there must be changes in the
exchange rates between different countries because of the
differences in economic performance. But there are already
numerous indices of economic performance which can be used to
fix the value of a country's currency. We have the per
capita income, GDP, GNP, growth rates, so-called
fundamentals, etc which can all be given points within a
certain range. This will enable investors and others to
determine the potential and the future economic performance
of the country. Everyone should be free to make his
assessment based on these indices and buy or sell the
currency concerned in order to finance trade.
47. If we want to see world trade grow then we should not
support the abuse of free trade caused by the trade in
currencies as a commodity. They are not commodities. They
are merely tokens with no intrinsic value but are meant only
to facilitate trade. Because of them we have no need to
barter.
48. We need to have a standard for comparing the value of
different currencies. Today we use the American Dollar -- an
unstable currency. We need to devise a standard which is
less volatile. A common basket of currencies can be used for
this -- each currency being valued according to the economic
indices. There will be fluctuation of the currencies in the
basket but they are likely to cancel each other. The
basket, if wisely chosen, is likely to remain stable. We
would then be able to make a comparison of the relative value
with a stable standard.
49. World trade would surely be facilitated and would grow
because much of the uncertainty would have been eliminated.
However as the basket is only a standard it cannot be traded
as currency is traded. We would still have to procure the
particular country's currency. The value would still
fluctuate a little. But economic activities, trade,
services, etc., would all be less subject to violent swings
and volatility which can cause unnecessary losses.
50. People trade for profit. Real traders are not gamblers.
They want to buy and sell at known prices. If they hedge
today it is not from choice, it is from lack of choice. And
I don't think real traders like it even if, off and on, they
make windfall profits.
51. It is nauseating to read in some magazines the obscene
gloating over what they consider the fall of the Asian
tigers. As in the case of Diana, where strenuous attempts
are being made to exonerate the paparazzi and put the blame
on the dead driver (ignoring of course that it was the
frenzied chase by the photographers on motorcycles which
forced the driver to speed), the so-called popular press and
even the IMF are trying to blame everything on the
Governments of the Asian countries.
52. I will not say that Asian Governments are totally
blameless. But the financial situation of some countries
would never be this bad if it had not been for the
manipulators.
53. When the Thai Baht depreciated it should not have been
aggravated by the foreign holders of the Baht dumping the
currency. As it is, they purposely dumped and cause the
slide to continue.
54. But the other countries of South East Asia were not in
the same economic situation as Thailand. I have already
enumerated the strong fundamentals of Malaysia. Nothing had
changed much in the other South East Asian countries since
the time when confidence was strong and investors were
pouring money into them.
55. Yet because of Thailand's problems the loss of
confidence was visited upon the rest of the Asian tigers.
Can anyone dare to say that if the currencies were not dumped
on the market they would on their own devalue themselves?
Yet there are people from the rich North who insist that we
should accept the loss of billions of dollars because free
trade is sacrosanct and may not be blamed.
56. The present crisis has nothing to do with Asian values.
Hard work, discipline, a strong commitment to the community,
thrift, moderation in the pleasures of life - these are Asian
values and they cannot adversely affect Asian societies.
They had not in the past. Indeed they had contributed to the
emergence of the Asian tigers and dragons.
57. On the other hand, the values which influenced the
dumping by the manipulators are totally materialistic,
inconsiderate of the problems of others, uncaring for the
poor and motivated purely by the desire to create an economic
environment for further exploitation by them.
58. It is not Asian values which had failed us. It is the
greed of a few which had precipitated the crises in Asian
countries.
59. Today the countries of South East Asia are the main
victims. But as we all know Mexico and Brazil have been
attacked too. So has South Africa. So had a few East
European countries. It would seem that as soon as a
developing country appears rich enough it will be raped and
impoverished again.
60. I am aware that the PECC and many other Pacific
organisations have members from the developed North as well
as the developing South. The idea of cooperation is great.
Cooperation implies mutual help and mutual benefit -- a win-
win mindset. I am sure that everyone of you is of that
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