Oleh/By : DATO' SERI DR.
MAHATHIR BIN MOHAMAD
Tempat/Venue : IMPERIAL HOTEL, TOKYO, JAPAN
Tarikh/Date : 20/10/98
Tajuk/Title : THE SEMINAR ORGANISED BY
MAINICHI SHIMBUN
Thank you for your kind invitation to talk to you
about the Asian Crisis and the Malaysian response.
2. The world is now heading towards a recession.
Everyone acknowledges this. Whereas we are conscious
that the world has shrunk into a village and we are all
close neighbours, there is really no attempt to deal
with the impending recession as a common problem. The
remedies taken so far are piece meal, unintegrated and
isolated from each other. There has been much rhetoric
but no agreement on what to do and certainly no
concerted action taken.
3. The greatest impediment to solving the economic
and financial turmoils assailing the world is the
unwillingness to acknowledge the root of the problem and
therefore to deal with it. Everything else is blamed
except the real cause of the problem.
4. The problem has been with us for a long time. One
country after another, and sometimes one region after
another has experienced sudden and massive collapse of
its economy. Certain remedies were applied and some
recovery was achieved. But the recovery was not
permanent. The collapse recurred again and again.
5. Thus the countries of Latin America repeatedly
underwent severe recession. It costs them and it costs
the world a lot of money to resuscitate them. No sooner
have they recovered when they again suffered another
bout of economic turmoil and collapse. The same
remedies were applied and recovery of a kind would be
achieved.
6. European countries are not immune from these bouts
of depression caused by sudden devaluations of their
currencies. Financial reserves were called up and the
strength of the currency restored. Some even claim that
they become stronger after their bouts of economic
depression. But whether they are stronger or not they
can and very often they do suffer from currency
devaluation again, and again.
7. The instability of the currencies hampered
economic growth worldwide. The halcyon days of the
fixed exchange rates under the Bretton Woods regime,
when the world experienced steady and rapid economic
recovery from the devaluation of the Second World War
did not impress the advocates of the laissez-faire
market economy. They did not believe that Governments
should again fix exchange rate. The market should do so
since the market knows best what is good for it. When
economies fail it is because the market is reacting to
some fundamental weakness or malpractices in that
economy.
8. What motivates the market? Obviously it is the
desire for profits. Basically it is greed, a desire for
more and more. The suggestion that markets have other
objectives, that it wants to see a better Government is
ridiculous. What is a better Government for the market
is one which can satisfy its greed more and faster. An
equitable world, a just world, a world where everyone is
well-off and happy is not the concern of the market.
Only if such a world affords the market a means of
making more for itself will it want such an idealistic
world.
9. Thus the current preoccupation of the market
forces is to ensure that the financial systems of the
countries which they wish to raid are open to them, are
without any obstruction to their exploitation to the
maximum. Any policy or practice which might get in the
way of their operation for maximum profit will be
regarded by them as wrong and unfair.
10. Their ideal is a situation where the Government
ensures that law and order is maintained while they
carry on their businesses in any way they like. They
must not be regulated even if their activities destroy
the economy and the livelihood of the people.
11. Presently market forces really mean the people who
have under their control vast sums of money which are
used for trading in currencies and shares. Since no one
regulates them, they are free to devise their own rules
of trading. According to their rule every time they sell
any currency that currency depreciates by a few points.
By repeated selling they can devalue any currency to
whatever level they wish. There is no limit to which
they can devalue a currency. Thus they devalued the
Malaysian Ringgit by 60 percent while they devalued the
Indonesian Rupiah at one time by 600 percent.
12. To revalue, the currency has to be bought with US
Dollars. Thus Central Banks may defend their currency
by buying their own currency also with US Dollar. But
since the Central Banks have usually less money than the
currency traders, defending the currency would be
futile.
13. Another rule of the currency traders is that they
can leverage their capital apparently as much as they
like. Usually they leverage by 20 times. But the Long-
Term Capital Management Fund (LTCM) actually leveraged
by 30 times and then leverage this amount by a further
eight times. Thus with a four billion dollar capital
the LTCM could invest as much as one trillion dollars.
14. It may be true that the Governments of the
countries of Southeast Asia are corrupt, practise
nepotism, crony-capitalism etc. But no one can deny
that these Governments had developed their countries
much better than any other developing country. Such was
their development that they were labelled Economic
Tigers. Yet suddenly these countries collapsed and
experienced the worst recession ever.
15. The currency traders and stock market raiders
alleged that they pulled out their money because they
had lost confidence in these countries. Is it true that
they lost confidence or is it that they saw an
opportunity to make a lot of money for themselves by
selling down the currencies and the shares? Would they
have lost confidence if they could not make any money
for themselves by pulling out? Did they actually put
money in these countries to back the currencies or have
the exchange rates of these currencies been there in the
past without any help from the currency traders?
16. If the currency traders lost confidence in the
tiger economies, why is it that they have not lost
confidence in those developing countries which are badly
administered, corrupted and extremely poor? Surely they
should lose confidence in these basket cases rather than
in the tiger economies.
17. The fact is that confidence has no part in the
decision of the currency traders and stock market
raiders to devalue the currencies and the shares. It
was greed that motivated their people.
18. What happens when the currency of a developing
country is devalued along with the share prices? The
country becomes very poor. Their capacity to import
goods is reduced by the percentage of the devaluation.
Their cost of living rises. Their wage earners cannot
make ends meet. Many will lose their jobs. In one
country almost 20 million workers lost their jobs.
Their banks fail and their businesses go bankrupt.
19. Within a short while people who had been
prosperous will be starving. They will have no
medicine, no milk for their children. They will be
scrounging in the rubbish heaps for food. They will eat
cats and rats.
20. The IMF will come in to offer loans. But there
are conditions. These conditions, such as increasing
interest rates, squeezing credit, bankrupting banks and
businesses merely make matters worse. High interest
rates and credit squeezes at a time of economic strain
and general impoverishment only cause more business
failures. Eventually the Governments will fail too as
corporate and personal taxes dry up. Paying for the IMF
loans would become impossible. Economic recovery would
be beyond any Government.
21. Should the IMF be blamed? Yes, for making matters
worse. But the IMF only came in later, after the
recession had set in following currency devaluation.
The primary cause is the currency traders and their
greed. They are the ones who inflicted the misfortunes
on the previously prosperous countries.
22. Initially the blame was placed squarely on the
"corrupt and incompetent" Governments of East Asia, on
their way of developing their countries and the way
business in these countries were conducted. Slowly a
few voices began to blame the IMF because after the IMF
moved in the situation worsened. The IMF remedy was
blamed. It did not take into consideration the
different situations in the different countries. It was
too heavy-handed.
23. Everyone avoided blaming the currency traders.
How can anyone blame them when the free flow of capital
across borders is one of the principles of free trade,
of a borderless world, of a deregulated liberalised
world. Everyone must accept capital flows in and out of
countries without hindrance because it epitomises the
free trade creed, the new religion which must be
submitted to by all. Not only must capital be free to
go anywhere but no one should know where it comes from,
where it goes to, who controls it and how much of it is
around. Others must be transparent but not the
activities of capital.
24. But in the meantime the contagion was spreading.
After East Asia came Latin America and Russia. Europe
and the United States confidently predicted that they
would not be affected by the East Asian disease. They
are too clean and incorruptible. They do not practise
crony-capitalism or nepotism. They would never lose the
confidence of the currency traders. They would never
pull their money out. After all their money came from
their own countries. Where can they park the money if
it is pulled out of the countries which provide the
capital to attack the other countries?
25. But Europe and America cannot go on being well
when the rest of the world is unwell. After all the
countries of East Asia make up the biggest market of
Europe and the U.S. If they are poor they cannot
buy the goods and services from Europe and the
U.S. If Europe and the U.S. lose their East Asian
market their economies must be affected. There are
certain things which only East Asia buys from Europe and
the U.S. Long range large aircrafts for example;
computers and sophisticated electronics for example;
weapons for example.
26. When East Asia becomes poor, Europe and the U.S.
must become poor also -- not so much perhaps, but
certainly less rich than before.
27. Blaming the IMF and not giving it funds has got
the U.S. and Europe nowhere. Eventually timid eyes were
focussed on the currency traders, the hedge funds with
their billions and their shadowy activities. But it was
not until the LTCM debacle that the U.S. and Europe
awoke to the danger posed by the hedge funds and
currency trading.
28. When the LTCM failed the powers that be in America
suddenly realised that their own financial system can
collapse too. No time was wasted in asking about
Government corruption or crony-capitalism etc. Too many
people, too many banks, indeed too many other hedge
funds had invested in the failure-proof Nobel laureate
led Long-Term Capital Management Fund. Each of them had
invested huge sums of money, running into billoins over
in one or two cases. They cannot be allowed to lose
this kind of money. They must be saved.
29. It does not matter that they would in fact be
using public funds to save themselves. The banks were
told to put in money, USD3.5 billion in all to save the
LTCM i.e to save the investors.
30. Clearly currency trading can go wrong and threaten
even the rich and powerful countries. If only the poor
will be the victims nothing should be done. Now the
rich may also suffer from currency trading. Therefore
currency trading must be regulated so that the rich
would not be threatened.
31. This is the world in which we live. This is the
future that we see descending upon us in the next
century, in the next millennium. In Malaysia we see
these things clearly. We see that no one cares what
happens to us. We are a small country struggling to
catch up with the developed countries. We can expect no
help, no hand stretched out to pull us up.
32. It is in this challenging world that we seek to
protect ourselves with the little strength that we have.
33. When Malaysia decided to cut itself off from the
new religious creed as represented by the free market,
we know that we would be regarded as heretics and we
will have to face the possibility of being burnt at the
stake. But we really have no choice. Being a heretic
is better than being colonised by people who believe in
greed as the sole motivation for their actions, who
worship greed, who declare that greed is great. Such
people have no compassion. We see how they have
destroyed countries and regions, thrown millions out of
jobs, precipitated starvation, riots, political unrests
and the overthrow of Governments. We see them doing
this and yet they not only disclaim responsibility but
they blame others for what they have done. We would
rather be heretics, be pariahs even, than be dominated
by these people.
34. The only way for Malaysia to avoid colonisation is
for us to protect our currency and shares from being
manipulated by these people. To do this we have to
illegalise offshore Ringgits. Under normal
circumstances the Ringgit has no purchasing power
outside of Malaysia. But offshore Ringgits can be
borrowed, bought or sold outside the country. To give
value to the offshore Ringgits, it is actually held in
banks in Malaysia, in Vostro accounts, reflecting the
ownership and amount of Ringgits held offshore. Changes
in the ownership of the offshore Ringgit must be
reflected in the Vostro accounts of the owners.
35. The Malaysian action is limited to stopping the
currency traders from having access to offshore
Ringgits. All offshore Ringgits have been made illegal
or valueless unless transferred back to Malaysia within
one month.
36. Ringgits in the Vostro accounts in Malaysian banks
cannot be moved to reflect dealings in offshore
Ringgits. Banks must inform the Central Bank of any
movement in their Vostro accounts. Unless the Ringgits
are put into circulation in Malaysia for normal
business, such Ringgit must be deposited with the
Central Bank.
37. This is about the only thing that the Malaysian
Exchange Control does. Since the Ringgit has no value
outside Malaysia, it cannot be taken out of the country.
But foreign currency i.e foreign capital can come in and
out of the country freely. Settlement of all trade
bills will be done in foreign currencies. Capital
coming into the country for Foreign Direct Investment
(FDI) will be in foreign currencies.
38. Since the Ringgit is only available in the
country, all exchange between the Ringgit and the
foreign currency can only be done within Malaysia.
There will be no speculations on the Ringgit exchange
rate but conversion of the Ringgit into foreign currency
and vice-versa can be done in order to finance business.
The rate is fixed by the Government taking into account
the need to be competitive in the world market.
39. The rate fixed presently is RM3.80 to USD1.00 or
RM1.00 equals US26 cents. This fixed rate will be
maintained for as long as possible even if the
currencies of competing countries get devalued.
40. Of course certain rules and regulations have to be
put in place in order to prevent abuses of the fixed
exchange rate regime. Many say that a fixed exchange
rate will lead to abuses and corruption. No doubt there
is this danger. But Malaysia is a small country and the
people are largely law-abiding. The Government has
strong popular support and can enforce the policy
easily.
41. So far the Exchange Rate Control Mechanism has
worked well. The people, especially the business
people, foreign and local have accepted it and have
found no difficulty doing their business. Indeed they
found the elimination of the need to hedge against
fluctuation in exchange rates a decided advantage when
pricing and budgetting.
42. The Malaysian economy is already showing early
signs of turning around. Reserves have gone up and the
balance of payment is in surplus. Inflation is going
down below the five percent that prevails now. Sales of
motor vehicles and houses have gone up, stimulating the
transport and building material industries.
43. There are many other signs of improvements in the
economy of Malaysia. Although there is some political
problem arising from the dismissal of the Deputy Prime
Minister and his being charged in court for a number of
offences, the country is generally calm. The attempt by
the followers of the former Deputy Prime Minister to
resort to mob rule to achieve his release is not
working. The people still adhere to the rule of law and
to democracy. They reject mob-rule totally.
44. Malaysia is settling down well after the country
regained control over the currency and the stock market.
We are not out of the woods yet. Our detractors have
done their best to undermine the country. I believe the
Japanese people believe there is continuous rioting in
Malaysia and it is a dangerous place to go to. I would
like to assure you that Malaysia is as safe as ever.
You can not only come to Malaysia but you can do
business there, you can invest there with good
legitimate profits.
45. I would like to invite Japanese journalists to
come to Malaysia and see things for themselves. Do not
trust CNN or CNBC. They have a different agenda and
they tell lies in order to promote their agenda. They
too are motivated by greed and the power they wield has
corrupted them absolutely.
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