Oleh/By : DATO' SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : DUBAI, THE UNITED ARAB EMIRATES
Tarikh/Date : 18/03/98
Tajuk/Title : THE EMIRATES INTERNATIONAL FORUM
" OUT OF CRISIS: THE OPPORTUNITIES "
1. Firstly, I would like to thank the organisers for
inviting me to speak at this Emirates International
Forum. The organisers have found a very interesting
title for me: "Out of Crisis: The Opportunities". I
suppose the crisis referred to is the current financial
turmoil in Southeast Asia.
2. Quite obviously the turmoil the nations of
Southeast Asia face today is one of their greatest
challenges since the Second World War. For that matter
Northeast Asia is also facing the same crisis which
extends beyond South Korea.
3. Before we talk about how to get out of the crisis
it is necessary to try and understand what the crisis is
all about. In very simple terms it is about the
impoverishment of whole nations and indeed whole regions
through what is now euphemistically called 'market
forces'.
4. Since the demise of the command economy, the free
market has become the economic creed of the world. Like
all creeds and ideologies it must be practised
unquestioningly. Heresy is not allowed even if the
practice results in losses and misery as we are seeing
today. In the free market, the drive and the policing
is through what is described as 'market forces'. The
force ensures that no one strays beyond what is thought
proper in the conduct of Governments. If Governments
are recalcitrant then market forces will take necessary
actions to bring the recalcitrant back in line.
5. The way the market forces work is through enriching
or impoverishing a country's economy. This can be done
by moving either the stock markets or the exchange rates
up or down. To avoid becoming impoverished and to be
enriched it is necessary that countries and their
leaders say and do things that will create confidence in
the market. Unfortunately like beauty being in the eyes
of the beholder, market confidence too lies in the
perception of those who move and shake the market. What
may be done or said to create confidence may in fact not
result in confidence being created. It is necessary to
tread very carefully in this minefield and to expect
that a wrong step might bring about unpleasant results,
usually in the form of currency devaluation. Leaders of
countries must be especially careful when making
speeches or talking to the press. A wrong word might
prove fatal.
6. The impoverishment of a country is very painful for
the people, even for the Government. Presently we are
seeing millions of people being thrown out of work in
Southeast Asia. The rest who are still working earn
only a fraction of what they used to earn in terms of
purchasing power. In terms of living condition this
means no food or not enough food, no milk for the
children, no medicine and obviously no fun and joy in
life. The impoverished people take to the streets and
loot the shops. They urge the Government to step down.
They migrate to neighbouring countries and at times to
countries which may not be so near. All these must be
accepted because that is how market forces operate.
7. Impoverished countries make poor markets. Their
needs are there but they just don't have the money to
buy. This must affect the economies of their trading
partners eventually. A single country becoming poor
will not do much damage to world trade. But when whole
regions, and rich regions at that, become poor, the
effect on world trade and the economies of the trading
partners can be considerable.
8. How impoverished are the countries of Southeast
Asia in the present crisis? It is not easy to trot out
the numbers which economists can recognise. But in the
case of Malaysia the Ringgit has been devalued from 2.5
to US$1 to 4.0 to US$1, i.e by approximately 60 percent.
Since Malaysia purchases or imports about US$80 billion
of goods and services a year, its capacity to purchase
has obviously been reduced by about US$48 billion. In
addition the share market prices have been reduced to
less than half. Since prior to the crisis market
capitalisation was around US$400 billion, the loss would
be slightly more than US$200 billion. It is worthwhile
to note that other countries have their currency
devalued by 400 percent and market capitalisation
totally wiped out.
9. By any measure the loss incurred by the countries
of Southeast Asia and Northeast Asia is massive. The
crisis is serious. Submitting to the IMF is not
sufficient. Even after abject submission the currency
can still be further devalued. If a country becomes
disillusioned because submission has brought no relief,
and it tries to do something else, it would be condemned
by the whole world and the currency will devalue again.
This is the nature of the crisis that has hit the
countries of Southeast Asia. The economic tigers of
eight months ago have now become whimpering kittens.
10. So how do we create opportunities out of the
misfortunes which have befallen the Southeast Asia
countries? The answer lies in the experience of the
past when these countries were almost all basket cases.
They were commodity producers very dependent on the
vagaries of the market place for their products. After
they achieved independence they found that the terms of
trade were steadily deteriorating. Their earnings from
their products were fetching less and less of the
manufactured goods they needed. Their growing
population could not be gainfully employed because the
production of commodities created very few jobs.
11. On the other hand they had no indigenous capacity
to industrialise. And so they opened up their countries
for foreign investment. And here they succeeded so well
that their economic growth surpassed those of developed
countries and they actually found that their people
could not take up all the jobs that were created.
12. And so even though the crisis is far from over the
countries of Southeast Asia are already embarked on
programmes and strategies to attract foreign
investments. And in this they have a lot going for
them. The share prices of their companies are so low
that they are below net assets value. True, many
investors foreign mainly, as locals have no money, are
still waiting for the fall in share prices to bottom
out. But there is some indication that the stock market
is back on the growth path.
13. Better than this, the devaluation has actually made
many businesses extra-profitable. The plantation sector
is particularly attractive. While the products retain
their international prices in foreign currency terms, in
local currency the prices are actually higher. Profits
have risen in some cases by 100 percent.
14. As has been pointed wages have not risen despite
the devaluation. This is because there is a shortage of
jobs now. Inflation has not been as high as the
devaluation seems to justify. The increase in the
profits of the plantation and commodity sectors is very
meaningful in the domestic economy.
15. Eventually when the economy recovers the value of
these plantation shares and the plantations and
commodity-based industries must appreciate. Through
foreign investment the recovery would be hastened.
Clearly the share markets in the crisis-hit countries
are very attractive. Foreign buyers snapping up the
underpriced shares will push up their value, besides
reaping windfall profits. In the process the stock
market will recover and so will the economy.
16. But even more attractive is foreign investments in
manufacturing. Due to the depreciation of the
currencies the cost of investment and production in the
countries affected by the crisis is very low indeed.
Yet the products fetch the same prices in foreign
currency when exported. Earnings by manufacturing
companies are higher today and will become even higher
if the investments are new. There are signs that
investors are already taking advantage of this situation
and are either expanding or putting up new facilities.
17. But the countries of Southeast Asia are not relying
entirely on foreign investors. Although the money is
tight and interest rates have gone up, higher earnings
from exports in terms of local currency means that
certain businesses remain good. Production capacities
for a whole range of manufactured goods have been
expanded as new markets are developed which can accept
the now more competitively priced goods. Export
earnings are already increasing and the balance of trade
has been reversed and is giving these countries trade
surpluses.
18. There can be no doubt that the indigenous as well
as the foreign-owned exporting industries will expand
and grow as a result of the crisis. Although the
currency may appreciate and their cost of production may
go up, their present investment cost will be lower
especially in foreign currency terms. As usual during
bad times more effort is made in finding new markets.
Once these markets are opened and expanded they are not
likely to be allowed to shrink in the future. Brands
and products which these markets were not familiar with
in the past will become known and popular now. The
popularity will not be confined to these products alone.
They will extend to the countries concerned. And this
will certainly help the crisis-hit countries to recover
and prosper again.
19. There was a time when Japanese products were
synonymous with poor quality. After the Pacific War the
Japanese made special efforts to get rid of this image.
Over time they succeeded in gaining the recognition that
their products, though still cheaper than European
products, are actually of superior quality. Once this
reputation was established all Japanese products came to
be associated with quality and value for money. Japan's
rapid economic success in the sixties and seventies was
due to this reputation. To a certain extent their
reputation rubbed off on the other Asian countries. The
perception now is that the products of other countries
in the East are at least acceptable.
20. The countries of East Asia can use this opportunity
to export more and to show that their quality is second
to none. Of course price-wise they are competitive due
to the devaluation of their currency. With the effort
they are making they are bound to gain acceptance for
the products and to increase their export earnings.
21. While increasing exports will earn them more
foreign exchange, and they need the foreign exchange in
order to buy capital goods and raw materials for the
increase in the production of export items, these
countries are also trying hard to reduce imports. This
will not be difficult as all they need to do is to
produce their needs at home.
22. These needs have resulted in a switch in the type
of domestic business. Once again import substitution has
become important. Food, especially processed food has
always been a major import item. The need to reduce
food import has actually resulted in changing eating
habits. Wheat, sugar, beef etc will be consumed less
than before. Instead rice, flour and locally available
meats will be more in demand. Already every available
land is being used for vegetable and fruit farming, for
animal husbandry involving such exotic animals as
ostrich, quails, geese, and ducks. Aqua-culture, always
a lucrative industry in the Southeast Asian countries,
will acquire added importance as the export demands
augments domestic demands. New business opportunities
are being created in this field.
23. Timber plantations and the cultivation of bamboo
and rattan show much promise. Research has already
resulted in new fast growing species being identified.
Where before the forest were logged and left to
regenerate itself, it will now be replanted seriously.
So will all land which had been left idle or had been
earmarked for certain industries and housing estates
which can no longer be proceeded with because of the
reduced demands. A whole lot of new agro-based
industries will provide opportunities for investments
which will fuel the post-crisis economy.
24. Because of the need to reduce imports, a number of
industries which were not attractive before have been
reconsidered. The industrial character of the countries
of Southeast Asia will change as new technologies,
research and development are applied to old industries.
25. The countries of East Asia have always shown that
familiarity breeds greater skill and efficiency. After
all they had always succeeded in taking assets from
other countries and turning them into much more valuable
products. Malaysia took the rubber tree, the oil palm
and the cocoa plants from South America and Africa and
created unbelievably profitable industries. Research
and development have converted these foreign plants into
little factories yielding more rubber latex, edible oil
and cocoa than they were capable of in their native
land.
26. With the crisis research and development have once
again been given a boost. The Government and the
private sectors are busy doing research in making the
local substitutes every bit as good if not better than
the import they replaced. If our performance in the
past is anything to go by, there is going to be a lot of
enhanced value for the new crops, animal husbandry and
renewable sources of raw material which we will be
capable of producing in the future.
27. But the most important opportunity presented by the
crisis is in the improvement to the financial management
of the country. We have since found that both in the
public and private sectors there was much waste. Too
many people were employed in doing too few things.
There was a lax attitude towards the spending of money.
28. The crisis has prompted all of us to look at our
costs. Every item of expenditure is now scrutinised
closely and where there is no absolute necessity, severe
cut backs will be made. The financial base of the
countries will be much strengthened as a result of the
crisis.
29. For decades the Government and the peoples of East
Asia have been sending their young people to study
abroad, particularly in the developed western countries.
The drain on the national coffers was very big.
Malaysia has 50,000 students studying abroad at any one
time. The cost of foreign education has been going up
every year. But because there has always been high
regard for education, the peoples of East Asia have
never looked at the cost. They felt that good education
was worth the money spent.
30. Today they cannot. But because they still regard
education as of prime importance they have to find
alternatives which cost less. Education has now become
an important business as demands for local institutions
of learning mount. Students are being brought back home
to new universities and educational institutions,
largely private, which are spreading throughout East
Asia. The quality of education has always been high
before and are being maintained. Apart from students
returning before their studies are completed, new
students are also going to be educated at home.
31. It is believed that the financially strapped
countries of Southeast Asia will not only save money by
bringing back their students but they will also become
new centres of excellence which can cater for foreign
students.
32. One of the decisions of the Asia Europe Meeting in
Bangkok last year was to have European students study in
Asian universities. For centuries Asian students have
been going to European countries for their higher
education. In the process they not only acquired
knowledge but also an appreciation of European culture.
It enabled them to handle relations with Europe and
Europeans when later on they do business or they carry
out their Government's business involving Europe and the
Europeans.
33. Europeans on the other hand never having lived in
Asian countries as students, find themselves quite
unable to handle relations with Asian countries and
people. By studying in Asian universities the future
business and Government leaders of Europe would be
better able to understand and handle their relationship
with Asia and the Asians.
34. With the expansion of educational institutions in
Southeast Asia brought about by the present crisis,
there will be ample room for a lot of European students
to study in Asia. The educational field therefore looks
very promising. It is an area that can contribute much
towards the post-crisis growth of the East Asian
countries. The potential is really enormous. If we
only think of the billions of dollars now being spent in
Europe and elsewhere for education coming back to
Southeast Asia, then the future economic prosperity of
Southeast Asia seems assured. Of course the change
would be almost irreversible. After all if the majority
of European students never left their country to get an
education, why should Southeast Asians leave their
country for the same.
35. Trade between the countries of East Asia has mainly
been transacted in U.S. dollars. Seventy percent of
Malaysia's trade is in U.S. dollars although only 18
percent of Malaysia's trade is with the U.S. The
devaluation of the Southeast Asian currencies is mainly
against the currencies of the developed world. There is
practically no change in the exchange rates between the
countries of Southeast Asia. For these countries the
cost of imports from each other has not changed much.
36. Because foreign exchange is not easy to come by and
are intended for capital goods, trade between the
countries affected by the crisis must now rely on local
currencies. Instead of paying for every transaction it
is possible for the total exports and imports of the
trading partners to be computed and payment made only on
the difference. This way not much money will change
hands. The balance to be paid to the country with more
exports than imports will be very small and can be
settled in the currency of that country.
37. The magic of the computers will enable daily
settlements to be made through a clearing house. It is
expected that the trade between the countries of
Southeast Asia will grow very considerably. Of course
it may be at the expense of other trading partners. But
the growth of trade between these countries will be only
natural considering that they cannot buy their needs
from others as much as before.
38. Southeast Asia will overcome the problems of the
devaluation of the currencies through taking up and
exploiting new opportunities surfacing as a result of
devaluation and impoverishment. It will do so partly by
insulating the domestic economy, by reducing the need
for foreign exchange, by strengthening internal
resilience. In the process new directions will be taken
and new practices devised. Southeast Asia will probably
not return to the old pattern of economic growth based
largely on foreign investments. They will continue to
want such investments but they will depend more on their
domestic capacities and intrinsic strength.
39. For most of us the recovery will take a long time.
This is acceptable. After all when we started we were
basket cases. We had pulled ourselves up by our own
bootstraps. Now that we know that the route we took
infringed on the interest of others we will avoid that
route.
40. Southeast Asia has a population of half a billion
in a region which has a total population of more than
two billion. These are very hard working people used to
all kinds of hardship and challenges. Although we may
not say it, I still believe Asian values will pull us
through. We will be very patient. After all it took
many centuries for us to gain our independence. We will
overcome. And in the process we are going to spawn such
opportunities for ourselves and for others as have never
been seen before.
41. When we do come back we will contribute to a better
world, a world in which people will not be impoverished
in order to enrich a few people. We in Malaysia believe
in smart partnerships, a partnership in which the
partners all gain. Despite what has happened to us we
still believe in sharing fully with our partners. And
the opportunities that we have created and will create
as a result of the crisis will be shared with everyone.
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