Oleh/By : DATO' SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : PUTRA WORLD TRADE CENTRE,
KUALA LUMPUR
Tarikh/Date : 01/12/97
Tajuk/Title : THE FINANCE MINISTERS OF ASEAN AND
ASEAN PLUS SIX AND THE CONFERENCE
ON FINANCIAL INITIATIVES FOR THE
21ST CENTURY
1. As Prime Minister of Malaysia I would like to
welcome you, the Finance Ministers of the ASEAN
countries, and the six ASEAN partner countries to
Malaysia and to this crucial conference on the world
finance system and the cross-border flows of funds in a
rapidly globalising world.
2. Ever since the end of the Pacific War and the
decolonisation process which followed we have been
witnessing commendable development and increasing
economic prosperity among most of the newly-independent
countries.
3. In South East Asia a regional grouping was formed
30 years ago which displayed remarkable unity and
capacity to manage economic development. Elsewhere
after some initial fumbling and tentative experiments
with centrally-planned economies, political stability
was achieved and the process of economic development
instituted and progressed.
4. By the late 80's and early 90's most of the
countries of East Asia, Africa and Latin America had
achieved tangible development with or without help from
the developed countries and international agencies. The
South East Asian countries had progressed so much that
they have been dubbed `economic tigers' and `dragons',
and were held up as examples of how developing countries
could govern themselves well and manage economic growth
with great skill. They had become quite rich and make
very good markets for the products and expertise of the
developed industrialised countries of the North. In
fact they contributed to the wealth of the developed
countries and that of the world. Their continued
growth promised to make the world community prosperous,
to contribute towards the eradication of poverty
worldwide and to the banishment of hunger and other
scourges which plagued the world.
5. Yet in July of this year these prosperous countries
were thrown into an unprecedented and rapid economic
regression. Their currencies devalued rapidly and
continuously. Their stock market collapsed with
unwelcome consequences. Thriving and profitable
companies became insolvent and tycoons as well as small-
time investors became bankrupt. Construction projects
were halted and completed offices and houses found no
occupants or buyers, causing developers to lose money
and compounding their debts. Banks foreclosed companies
unable to come up with margin payments and sold off
collaterals at give-away prices, further depressing the
stock and property market.
6. Huge loans raised from foreign banks could not be
paid and pressure was applied on the Governments to
devalue and float their currencies. And when they did
the currencies rapidly depreciated against the American
dollar and the currencies of the developed countries.
7. The devaluation impoverished the country and the
people, in particular the business community. They
found themselves almost totally unable to pay foreign
debts as they needed more of their own currencies in
order to make up for loss of value. It looked like they
would never be able to pay their debts at all. It
looked like the foreign banks which lent them money
would never get back their loans. It looked like the
devaluation would be borne heavily by the foreign
lenders. And all the time the currencies in the
countries of South East Asia kept depreciating at a
rapid rate making adjustments quite impossible.
8. The Governments of the South East Asian countries
which until then had been praised for performing
economic miracles, for their skills in administration,
their liberal investment policies with the incentives
they had invented; these Governments were roundly blamed
for the depreciation in the exchange value of their
currencies and the consequences. They were told that
they had caused a loss of investor confidence because
they had engineered unsustainable levels off growth (why
it was assumed that the growth was unsustainable is not
quite clear since until currency traders moved in they
had sustained their growth all through the years that
they were told it was unsustainable), they had external
payments deficit, they had allowed their banks to be
over exposed to the property sector. They were told
their policies were just bad and their institutions
(whatever this may mean) were weak.
9. Despite their record of growth, their success in
reducing poverty, their investments in infrastructure
and in capital goods for growth in productivity, they
were told that their spending was excessive and lacking
in prudence and was weakening their economy. All these
things it seems were eroding investor confidence and
they have to pull out. As a result the currencies
depreciated and the stock markets plunged. And when
this happened it was pointed out that their critics and
investors were right in their prediction and warning
that this would happen.
10. We admit that we have been guilty of some of these
things but not all. A few countries did have one or two
of these problems but they could be remedied. Malaysia's
only identifiable weakness was a deficit in the balance
of payment, which reached a peak in 1995. By 1996 it had
been almost halved. And in the early months of 1997
the deficit had decreased further. Some of Malaysia's
infrastructure and development projects were big but
past experience had shown that they were manageable.
But the so-called investors insist that they could not
maintain confidence in Malaysia.
11. They pointed out that the Thai currency which had
devalued would make Thailand more competitive than
Malaysia and this would erode Malaysia's trade. It
hadn't yet but it would be. So would the
competitiveness of Indonesia and the Philippines. Never
mind that the economies of these countries are not
exactly duplicates of each other; never mind that the
markets for their products are growing; it was suggested
that Malaysian, Indonesian and Philippine factories
would close down because the Thais would render them
uncompetitive and redundant. It was implied that this
would happen overnight, unless the other ASEAN countries
also devalued. Since they would not devalue
voluntarily, then the so-called investors would dump
their currency holdings in order to avoid a loss when
devaluation occurs.
12. Lo and behold. The moment the currency traders
sold off the currencies of these countries, the
currencies depreciated. It would seem that by pulling
out quickly the currency traders had saved themselves
from losses.
13. But is this really true? Were the currencies about
to depreciate on their own or did they depreciate
because the currency traders dumped huge amounts of
these currencies? Were the currencies actually invested
in by the currency traders i.e. were they holding huge
quantities of these currencies and were running the risk
of losing money from impending devaluation?
14. Since currency trading is not open, not transparent
but very secretive it is difficult to ascertain how much
of the so-called exotic currencies were held by the
traders. But what is certain is that the countries
concerned never had so much offshore funds as were
traded in the so-called currency market. Yet there
seems to be an inexhaustible supply of offshore money,
running into billions and billions, in the hands of the
currency traders, for them to sell in the market.
15. Actually of course this offshore currency did not
exist. Currency trading as devised by the currency
traders is such that they can borrow offshore money and
sell in most cases to each other. And every time they
sell, the currency devalues by a number of points. By
repeatedly selling the currency its value could be
depressed almost indefinitely. And when the currency
has been depressed it can be bought back at the lower
price and delivered to the buyers -- who incidentally
had already sold the paper amount that they had bought
which they had themselves to deliver. No real money was
moved, except probably in the final stage, if ever the
currency stops being sold.
16. The only way the currency can recover is when
someone purchases the currency by selling the U.S.
dollar. Central banks with dollar reserves can do this
but their funds are limited and they deal in cash.
Against the limited funds of the Central Banks, the
currency traders can leverage their funds by more than
twenty times. It is estimated that between them the
currency traders have funds amounting to 180 billion
dollars. Twenty times this would be 3.6 trillion
dollars. No central bank, no developing country, can
match this. And the currency traders work in concert.
17. Clearly the devaluation of the currencies can be
easily manipulated by the traders. They never did
invest or hold the currencies which they asserted would
depreciate. They never ran any risk of losing money.
All they did was to borrow the currency from banks, sell
and resell it repeatedly and took their profits from the
difference in the initial high price that they sold and
the lower price money that they delivered. It is a
classic case of short-selling, only the movements were
caused deliberately by them and not by anything that the
Governments did or any weakness of the fundamentals. And
since the movements were caused by them, there was
really no real risk as in ordinary speculation. They
have discovered or rather invented a sure way of making
billions in a few short days through selling and buying
currencies and they use this against any country they
choose.
18. As a bonus they also depress the stock markets
through their attack on currencies. The reaction of
Central Banks to attacks is to raise interest rates. A
rise in interest rates stifles the trading in shares.
The share prices go down and through short selling the
currency traders make more money. Sometimes they were
able to lend the money they had borrowed initially at
the higher rates when the Central Banks increase
interest rates. More money was made.
19. It is the operation of the currency traders which
cause the devaluation of the currencies of the countries
of South East Asia. There may be some fundamental
weaknesses but these had only a minimal effect on the
value of the currencies. Without the currency traders
the currencies would devalue slightly but may regain
later. Indeed the currencies of many countries of South
East Asia including Malaysia had in the past revalued
upwards against the U.S. dollar when the U.S. was not
performing well economically. But the movement was
never extreme. The operation of the currency traders
had caused a devaluation of between 30 to 50 percent of
the currencies of South East Asian nations.
20. It is clear that with the huge resources at their
disposal the currency traders can attack any country no
matter how strong their economy may be. Having attacked
the South East Asian countries they looked for other
victims. There was no shortage of reasons for
subverting the economy of any country.
21. The traders publish and circulate analysis of the
financial futures of every country. Through constant
releases of unfavourable news and rumours about the
markets they could create grounds for the devaluation.
In the absence of information to prove otherwise their
prophecy becomes self-fulfilling. From then on the so-
called herd instinct among them takes over.
22. A favourite gambit is contagion. Thus because of
the devaluation of the South East Asian currencies,
these countries were said to be more competitive than
Hong Kong, Taiwan and Korea. Their currencies must
therefore fall in value in order to regain
competitiveness. The traders then declare that they
have lost confidence in these countries and loudly
revealed their desire to pull out and sell their
investments in these currencies.
23. Through the same process of borrowing and selling
these currencies repeatedly they were able to say that
their prediction was correct. The currencies have
indeed devalued and the stock-market nose-dived as well.
24. Another gambit was to say that since the countries
whose currencies have been devalued have now become
poorer their capacity to buy goods from their trading
partners have been reduced. Their trading partners must
now face a recession and their currencies too could be
devalued. And indeed countries like Australia faced the
prospect of losing its big markets in the Far East. And
so the Australian currency was devalued also although
not very much.
25. What is the effect of devaluation? Basically it
reduces purchasing power of imports. And since all
countries have to import goods, foods and services, they
will not be able to sustain the standards of living they
had reached. In other words they would become poor.
26. In the case of Malaysia a 40 percent devaluation of
the Malaysia Ringgit is equal to a reduction of per
capita income from US$5000 to US$3000. In GDP term this
amounts to approximately 40 billion US dollars yearly.
At the same time more than 100 billion US dollars were
wiped out from our stock market which has tumbled by
almost 60 percent. Altogether we have lost about 140
billion dollars.
27. The other countries of South East and North East
Asia between them must have lost more than 500 billion
U.S. dollars in terms of purchasing power of imports.
28. How much have the currency traders made from their
impoverishment of these countries? Quite a lot but
still only a fraction of the total loss of the countries
attacked. We see some of them posting good profits but
on the whole the wealth transferred to them fall far
short of the wealth lost by the countries attacked by
them. There is therefore a huge nett loss of wealth not
only of these countries but actually of the world --for
the rest of the world have lost a goodly size of their
market.
29. And we all know that it is not only the countries
of Asia but the countries of Latin America and even
Africa which had been attacked. The countries which
have been spared are those which have no money to be
worth attacking. Strangely the currencies of some of
these poor countries have appreciated against those of
the richer countries which had been attacked. These
poor countries must have good fundamentals or else how
can we explain their currencies performance.
30. We accept the need to exchange money. We cannot
trade otherwise. But currency trading which we have
seen destroying the economies of many developing
countries have really no direct connection with trading
in goods and services. Currency trading treats money as
a commodity. But money is nothing more than tokens with
no intrinsic value. Money is not like rubber or tin or
copper or gold. The value that money has is what we
agree to give it. Its value can therefore be
depreciated or appreciated at will. The unfortunate
thing is that when it is devalued people and countries
suddenly become poor, sometime very poor through really
no fault of their own. They really do not deserve the
misfortune inflicted upon them by those who fiddle with
currency values.
31. Would trade in goods and services contribute
tangibly to economic development and the well-being of
people? They create jobs, businesses, industries,
freight, insurance, the building of roads, railways,
port and airports and a lot of other amenities which
benefit mankind.
32. Currency trading is said to be 20 times bigger in
money terms than world trade in goods and services. Yet
what benefits do we derive from it? Apart from a few
people making huge sums of money and losing it
sometimes, it has created no increase in employment, no
growth in business or the wealth of nations and people.
On the other hand it has obviously impoverished millions
and millions of people. It has impoverished countries
and regions. It has wiped out decades and years of hard
work, of sweat, toil and tears.
33. But the worse is yet to come. An Associated Press
report pointed out that, "Turmoil in Asian economies and
the weakness in Japan .....have led to volatile stock
swings on global financial markets .... Investors fear
the Asian troubles will hurt North American and European
companies that export into the region."
34. In the face of these currency trouble and worsening
of the ability to repay loans what has the IMF to offer?
It offers to lend money with which to repay loans to
foreign lenders. But the loans come with a string of
conditions; principal among which is the opening of the
financial sector to full foreign partic ipation. It is
likely that this will result in foreign banks eventually
dominating the finances of the country concerned.
35. For this reason South Korea hesitated. Seoul
according to the same AP report "sees that route -- with
its accompanying economic control -- as a last resort,
one that would reduce a proud country to a beggar
surrendering its sovereignity." That hesitation caused
the Korean won to depreciate by another 10 percent.
36. There is no conspiracy to dominate the economy of
the developing countries of East Asia but obviously
their trouble have afforded an opportunity for forcing
open their economies and possible domination by strong
and powerful nations.
37. The assaults by the currency traders against the
emerging economies of the South have done nothing good
for these target countries. Much has been made about
the eventual recovery of these countries but even if
they do recover they would have lost a lot of their
wealth and the fruits of their struggle. In addition,
they may have lost their economic sovereignty as well.
38. Surely no one can argue that the right of the
currency traders to make huge profits overide the well-
being and the wealth of millions of people and of
countries and regions. True the countries themselves
may be at fault but without the manipulation of the
currency traders they would not be in such dire straits.
39. If currency trading is to be allowed then it should
be made transparent and it should be regulated. It is
ridiculous that at time when Governments and all other
businesses are being exhorted to be open and
transparent, currency trading must be allowed to do
their trading in almost absolute secrecy. We don't know
who they are, how much capital they have, how much have
they borrowed, what currency they hold, whom they sell
to and who do they buy from? What and to whom do they
pay taxes on the profits they make from their target
countries? Certainly these countries collect no taxes
from them.
40. While trade in stocks and shares and in commodities
are carried out in the open and in properly designated
markets, there is no proper market for currency trading,
no membership, no rules and no Government regulations to
stop abuses.
41. Who decided that the traders can leverage up to
twenty times or more of the funds they deposit with
their bankers? Who are these bankers who can make
available trillions of dollars to their clients? What
is the capital resources of these banks? Who invested
in them and how much? How can these banks become richer
than most countries of the world?
42. We believe in globalisation, and liberalisation of
trade, in dismantling national laws and rules which
hamper trade and cross-border flows of capital. But
surely liberalisation and deregulation of national
entities should not result in exposure to an anarchic
world. Haven't we been told to abide by the rule of
law? How come the abolition of national laws should
lead to absence of the rule of law in the enlarged world
market?
43. If globalisation and open markets are to contribute
to growth and enrichment there must be the rule of
international law for everyone to respect. Without laws
the strong and the corrupt will rule, will dominate. Is
this what is being advocated?
44. International trade is being regulated by
principles, policies and regulation agreed to in the
World Trade Organisation. Why should currency trading
be exempted from the purview of the WTO? Why cannot the
WTO discuss and formulate rules and regulation for
international currency trading, rules which the rich and
the poor alike have a hand in drawing up, rules which
are fair and just and designed to create wealth and
prosperity for all? Since currency trading is 20 times
bigger than world trade, is it logical to control the
world trade in goods and services which make up only
five percent of world trade and let a trade that is 20
times bigger unregulated and beyond the purview of those
who are responsible for achieving fairness in world
trade?
45. The IMF should continue to supervise, but if
currency trading is trade then the WTO must be the one
to formulate the regulations. Why is regulations
considered objectionable for currency trade when it is
good for trade in goods and services? Is there
something sacred about currency trading or is there
something that does not bear public examination? In a
world which believes in the right to know, a world which
pries and probes into the private lives of very private
people, cannot we know of the people and the activities
of currency traders whose decisions can inflict all
kinds of misery on millions of people and a large number
of countries?
46. It is normal for people who make money from what
they do to pay taxes to the Governments of the people
they make money from. The money these currency traders
make is from trading in the currencies of many
countries. As far as is known these countries receive
no payment of taxes. Is it fair for the countries of
their domicile alone to collect the taxes? Certain
countries impose taxes on profits made in other
countries. Have the countries which provide the
currencies for the traders to make money from no right
to impose taxes on them?
47. Looked at from any angle, currency trading demands
to be regulated in the interest of everyone. Every
country would be affected adversely by their activities,
even the developed countries, even the countries of
their domicile. They have left a trail of shattered
disoriented economies and nations wherever they went.
These nations and others not yet visited by them live in
fear of their attacks. And for so long as they are not
regulated, for so long as they can have trillions of
dollars at their disposal, their capacity to attack and
to damage economies will remain, and they will strike
fear in the hearts not just of Governments and Finance
Ministers but of businessmen and people, rich and poor
alike.
48. Most of you who are here to discuss on Financial
Intiatives for the 21st Century have been victims or are
potential victims of the currency traders. You are
responsible for the well-being and financial stability
of your countries. I hope you will give thought to and
consider the need and the substance of the regulations
that have to be brought into force to reduce the anarchy
in currency regulation.
49. I wish you useful and successful deliberations.
|
|