Oleh/By : DATO' SERI DR.
MAHATHIR BIN MOHAMAD
Tempat/Venue : PWTC, KUALA LUMPUR
Tarikh/Date : 15/11/98
Tajuk/Title : THE APEC BUSINESS SUMMIT 1998
" Restoring Confidence, Regenerating Growth:
Managing Globalisation Better "
It heartens me to see so many of APEC businessmen
present here today. Going by the press coverage leading
up to this summit on whether anyone was coming to the
Kuala Lumpur APEC Economic Leaders Meeting, I was
initially concerned as to whether we had ordered too
much food. Now, looking at the large business
representation here in this Independence (Merdeka) Hall,
I hope my earlier concerns have not led the chef
ordering too few desserts for dinner tonight.
2. As host to APEC this year, Malaysia feels a strong
sense of responsibility that the meeting should help
tackle the current economic problems. As we approach a
new millennium, it is imperative that we devise and put
in place a better economic and financial regime now
referred to as architecture for the world. Some of these
will be the result of technological progress but others
will reflect the emergence of new commercial and
sociological ideas and values. With your indulgence, I
would like to take this opportunity to discuss the
present architecture or lack of it as manifested by the
anarchical and unregulated capital flows in the
international monetary system. In doing so we must not
be tied down by fanatical beliefs which act as mental
blocks to our recognition of the facts involved.
3. What are the facts?
4. Firstly before July 1997, before the Thai Baht came
under attack and was devalued, the countries of East
Asia were all prosperous. Such was their prosperity
that they were described as economic tigers and dragons.
Their prosperity was not just confined to a privileged
few although these privileged few did exist. Their
prosperity was very well distributed. They were
successful in reducing poverty to below 20 percent of
their population. Malaysia had reduced this to below
seven percent. Their per capita incomes had increased
from the level of least developed countries to the
middle-income group. For developing countries their
infrastructure was far superior to those of other
developing countries. Unemployment rates were very low
so much so that workers from other region flock in to
share the prosperity.
5. Their Governments were not the best in the world
but despite obvious cases of cronyism etc, they must
have been doing something right to prosper their
countries. They were largely stable. Social and
political unrests were minimal.
6. This was the situation in the countries of East
Asia. But by July 1997 the dragon economies of East
Asia were collapsing one after another. What happened?
The Governments were the same. They had not changed
policies or systems. The people were peaceful and were
working as hard as ever. There was no revolution or
civil war or even street demonstrations.
7. Despite everything remaining the same they all
suddenly experienced economic turmoil. Their banks and
businesses collapsed. Millions and millions of workers
lost their jobs. There was not enough food or medicine
or milk for the children. Civil unrest and street demos
with looting and even killings and rape became common
phenomena. And Governments were overthrown.
8. What triggered all these upheavals was the rapid
devaluation of the currencies of these countries. And
alongside this came the collapse of the stock market.
9. It is accepted that ever since the Bretton Woods
fixed exchange rate regime was abandoned the exchange
rates of currencies had never been stable. Businessmen
had to hedge against exchange rate changes and business
went on without too much difficulty. But when the
exchange rate changes became violent, rapid and
unpredictable business must be affected. In one case
the fall in the value of the currency was 600 percent
i.e you require six times the amount of local currency
in order to pay for whatever it is you want to import.
10. Admittedly currency devaluation has different
effects on different people. For exporters of Malaysian
Palm Oil the earnings and profits increased because the
sale was priced in U.S Dollars. For importers the cost
of goods increased resulting in higher prices at home.
For those who import components to add value and re-
export, the blessings were mixed.
11. Businesses and banks can go bankrupt very easily as
loans and loan repayments became inflated greatly.
Indeed many banks and businesses closed down resulting
in unemployment. The cost of living rises resulting in
demands for higher wages. Eventually there would be
strikes and riots if the Government fails to provide
relief. But the Government also finds its revenue
decreasing as corporate taxes shrink.
12. The net effect is to impoverish the country and the
people.
13. It is suggested that the economy would recover if
financial reforms are carried out, if Governments are
less corrupt etc. But those countries which tried to
conform have found that reforms have not made things any
better. In fact the economic turmoil worsened despite
the reforms and the loans from the IMF. There are
attempts to paint a happy picture of economies under the
IMF recovering. But the facts belie this. The people
in these countries are still suffering unemployment and
shortages of food and other goods. None of the
currencies of these countries have regained their
previous strength.
14. In any case if they recover there is no guarantee
they will not be attacked again by the currency traders
and the share market raiders. Several Latin American
countries have been attacked repeatedly with grievous
results despite their reforms. The fact is that
currency traders attack not because the Governments or
the systems are bad but because they see opportunities
for making money for themselves. An impoverished
country offers them no such opportunity, but a middle
income country would have sufficient money to yield a
good return for them but would not be strong enough to
take counter measures.
15. Allegations about bad Governments etc are just
excuses. For the currency traders it is the profits to
be made that influence their decisions to attack the
currency. In a word it is greed.
16. It is said that currency trading is 20 times the
value of world trade. We all know that world trade is
economically beneficial to every country. Jobs are
created, industries flourish, land, sea and
transportation and all kinds of businesses are generated
because of world trade. There is probably not a single
person in the world who does not gain something from
world trade. It is reasonable to expect that if world
trade is increased by 20 times, then the whole world and
everyone on earth would be greatly enriched.
17. But what is there to show for the huge trade in
currency, 20 times bigger than world trade? The number
of people who invest in the hedge funds and the banks
are very small -- thousands perhaps as against a world
population of six billion. These people are rich people
who can live comfortably without the profits from
currency trading. In contrast tens of millions of poor
workers lose their jobs and are starving because of
currency trading, not to mention the loss of wealth of
many developing countries which run into hundreds of
billions.
18. There was no currency trading as such several
decades ago and the world's economy did not do badly.
Indeed the world's economies were more prosperous. If
there is no currency trading now the world's economy
would not collapse. Nobody would really suffer.
19. We need to change money for the purpose of trading.
We need to determine how many units of one currency is
equal to how many units of another currency i.e the
exchange rates. But we need not leave it to the
currency traders to determine the rate. Various indices
can be used and Governments can agree to a reasonable
exchange rate. It may be difficult but it is not
impossible.
20. There are many mechanisms for determining the
exchange rates which can be devised by the fertile minds
of economists and financiers. Governments of powerful
countries just cannot abdicate their roles in
determining the exchange rate mechanism. They owe it to
their peoples and their countries to accept the
responsibility for determining the exchange rate.
21. The excuse they give that currency trading cannot
be made transparent is ridiculous. On the one hand the
currency traders condemned Governments for their lack of
transparency, on the other hand these self-appointed
discipliners of Governments are themselves not
transparent. Despite dealing in billions and trillions
of dollars we do not know who they are, how they trade,
where they trade and who invests with them. It is only
when they fail, as the Long-Term Capital Management Fund
fails that we learn about them and their massive
trading.
22. It is shocking to learn that with a capital of four
billion the Fund could borrow up to one trillion
dollars, 250 times more. Banks are supposed to exercise
prudence. Is this what is meant by banking prudence?
Aren't the Governments supposed to supervise banks or
have they abdicated this role also?
23. While nothing was done to stop such banking
imprudence, rich Governments were quick to act to bail
out the hedge funds, using money deposited in the banks
by ordinary people. The rich investors in the hedge
funds are being bailed out with money belonging to poor
people. Yet the same Governments condemn any bailout of
corporations belonging to the public using public funds.
The inconsistency and double-standards are glaring.
24. The economy of Malaysia is minute compared to the
world's economy. If there is no Malaysia the world's
economy will not collapse. We cannot do anything to
affect the world's economy adversely or otherwise. We
are just too insignificant. Hence the furore over
Malaysia's decision to stop the Ringgit from being
traded by the currency traders is quite unreasonable.
25. We have not hurt anyone, except the currency
traders. Even then only minimally because the Ringgit
is only a small fragment of the huge trillion dollar
trading that the currency traders are involved in. No
one else is affected by the Government declaring that
offshore Ringgits would cease to be legal tender unless
they are returned to the country one month after the new
policy was announced. The owners of offshore Ringgits
would continue to own them within the country where they
can earn interest or be profitably invested.
26. Other than this all business transactions are
unaffected by the action taken by the Malaysian
Government. All imports and exports must be paid in
foreign currencies. There is nothing new in this as all
foreigners convert the Ringgits into their currencies
when they receive payment. Now they don't have to
convert as the local importer will convert the Ringgit
locally in order to pay for his imports. Malaysian
exporters will be paid in foreign currency which they
can convert to Ringgits within the country. This
arrangement has not caused any problem. In fact
Malaysian trade is as active as ever. In the two months
of the so-called capital control Malaysia registered a
trade surplus of over six billion Ringgit.
27. Within the country only the Ringgit is used. The
exchange rate with the U.S Dollar is fixed at RM3.80 to
USD1.00. The exchange rates between the U.S Dollar and
other currencies are used to determine the Ringgit
exchange rate with these currencies. Since these
exchange rates move, the Ringgit exchange rate with
other currencies also move. But as 70 percent of
Malaysian trade is done in U.S Dollar, the variable
rates of exchange of the U.S Dollar against other
currencies do not affect Malaysian trade much.
28. As the U.S Dollar weakens against other currencies,
the Ringgit will also weaken. We are now about seven
percent weaker as compared to our neighbours. That
simply makes us more competitive. We need not change
the exchange rate unless it is too weak or too strong
compared to our competitors. Alternatively, our
competitors can weaken their currencies or strengthen
them according to their competitive needs.
29. The other leg of the currency control has to do
with the inflow and outflow of short-term capital into
the share market. By requiring the capital invested to
stay in the country for one year we hope to prevent
short-selling. Speculators will not like this but again
the Malaysian portfolio is minute by comparison to their
worldwide operations. So it would not affect their
money-making operations very much.
30. I am emphasising the smallness of the Malaysian
market simply because many great economic and financial
minds seem to think that we have done something that can
damage the process of liberalisation and globalisation
of the world financial system. We cannot. We are too
small. Why not leave Malaysia alone with its
idiosyncrasies. If we are wrong then we will pay the
price. It would serve us right. But the world
community would have learnt something and be better off
for it.
31. The reason for Malaysia removing the Ringgit out of
the reach of the currency traders is because we still
believe that currency traders are too powerful and
completely irresponsible. They don't mind bankrupting
countries and regions, impoverishing millions of workers
and destroying whole economies in their quest for
profits. We had asked the world to regulate the
currency traders but we were laughed at for not
understanding the world's financial system, for being in
denial, for profligate ways, for building the world's
highest building etc.
32. Now the world is beginning to realise that the
activities of the currency traders can adversely affect
them also. And they have called for some studies. From
past experience we know they are going to take a long
time. And when they decide it could possibly be only to
their benefit. The developing countries cannot hope for
a regime that can save them especially as they will not
be involved in the formulation of that regime. The last
time the G-7 decided to correct the imbalance in their
trade with Japan, they revalued the Yen, suddenly
pushing up the debts of developing countries by two and
a half times. Already the G-7 is talking about using
the IMF to get the developing countries to accept IMF
i.e developed countries guidelines.
33. Malaysia cannot wait for this process, for the
ponderous movements of the great powers. Unless they
see their own collapse staring them in the eyes, and
they saw this when the LTCM failed, they would not do
anything. By the time they decide, it would have been
curtains for Malaysia.
34. But we are being urged to reverse our decision.
Some say it is wrong while others say we have already
achieved our objective and we should go back now. But
we are of the view that there is still anarchy in the
international financial market. If we go back there is
no guarantee that we would not be attacked again.
35. Again I would like to restate that we are not doing
anyone any real harm. So leave us to our devices. It
would serve us right if we fail.
36. Our currency control will remain in place for as
long as the world refuses to bring order to the
financial market. There is a lot of contradictions
between what the world says it believes in and what it
does. We are constantly being told to abide by the rule
of law. Presently the world believes in laws i.e in
rules and regulations to govern the behaviour of
everyone. Yet we are being told also that we must
deregulate, we must leave finance and trade to market
forces. Which one do we follow? Mr Bill Gates used his
great financial power to build up his business. He is a
true free marketeer. But the U.S Government thinks he
is being unfair to his competitors. We see no
difference between Bill Gates and currency traders. Why
should Microsoft be penalised for using market forces
when currency traders are not?
37. In currency trading the Hedge Funds are the Bill
Gates of the International Financial Market. They
compete against puny Central Banks of Developing
Countries. The Central Banks have no chance at all
especially against the combined financial strength of
all the Funds and the banks which lend them money. If
it is unfair, improper and illegal for Bill Gates to
corner the market then shouldn't the activities of the
funds be considered unfair also? If Bill Gates'
competitors have to be protected should we not protect
the victims of the Hedge Funds also?
38. I have dwelled at length on currency trading. You
are of course not currency traders. In fact you may not
be affected much by currency trading. But there cannot
be prosperity for anyone if an activity that causes the
impoverishment of a quarter of the world is not reined
in.
39. Malaysia believes in prospering its neighbours, far
and near. It is not charity which motivates us. It is
what we prefer to describe as enlightened self-interest.
When Malaysia became prosperous because of Japanese
investments, we became a good market for Japanese goods.
So the Japanese reaped double benefit from their
investments here.
40. If on the other hand you cause a country to become
poor you will lose a market. And with that you will get
poorer yourself.
41. East Asia was a huge market for the products of
Europe and America. Much of that capacity to buy has
now been lost. This will show up in the trade figures
of the rich countries. They may not be impoverished to
the same extent, but they will not prosper as much as
they used to.
42. Today we are seeing that the whole world is
becoming adversely affected by currency trading.
Getting the world back on its economic feet is going to
be extremely difficult. It will take a long time.
43. A world that is poor is no good to the business
community. An APEC region that is largely poor will not
be good for the economies of Asia Pacific countries or
the rest of the world.
44. We are rushing onward towards globalisation simply
because we cannot isolate ourselves from each other any
more. There is nothing that is so inherently good that
it cannot be abused to deliver what is bad. Democracy
for example is good but some democratic countries seem
never able to have a viable Government. All the great
religions of the world are good, but their adherents
fight and kill each other despite being urged to be
brothers. Globalisation too is good but it can be
abused, abused in such a way that instead of worldwide
prosperity there will be worldwide poverty or extreme
disparities between rich and poor, international and
civil disorders, revolts, rebellion and all kinds of
crisis.
45. Globalisation can bring about a better world if we
are not fanatical about it. Not everything that is done
in the name of globalisation will give good results. We
should always be on the lookout for adverse consequences
and be prepared to take corrective actions or even to
reverse certain globalisation trends in order to ensure
that these adverse consequences will not befall us.
46. Currency speculation and the rapid flow of
investment capital in and out of countries may be
compatible with globalisation. But we have seen how
much harm they can do to the economies of the developing
countries. When we see these things we must be prepared
to take corrective measures to reverse the process. It
is not the system that has to be adhered to. It is the
results which count. If the results are good, by all
means embrace the particular manifestation of
globalisation. If on the other hand the results are
bad, and in the case of currency trading they are bad,
then we should reexamine the system and be prepared to
jettison that expression of the system.
47. We must proceed cautiously with globalisation. The
countries of APEC are not equally developed. Any
competition between them will not be fair competition
even if the playing fields are level. Handicaps must be
given so the weaknesses can be compensated.
48. When a country or an economy feels that it is not
going to be overwhelmed by the massive strength of a
competitor, when an economy's handicap is recognised and
compensated for, then there will be confidence and a
willingness to open up. Growth can then take place and
regeneration made possible.
49. We should not reject globalisation. It is coming.
It has to come to this shrinking world. But the big and
the powerful can be magnanimous and accord the small and
the weak time and latitude to prepare and to make
adjustments.
50. Creative destruction is not the way. We can build
on what we have instead of destroying and expecting
phoenix to rise from the ashes. It may not rise at all
or it may take too long a time.
51. APEC is a segment of the global community. It can
provide a model for the regeneration of the global
village. We are passing through difficult times and we
need the lessons of experience. The East Asian members
of APEC can provide the experience and we all can help
devise the right formula to restore confidence,
regenerate growth and manage globalisation better.
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