Oleh/By : DATO' SERI DR.
MAHATHIR BIN MOHAMAD
Tempat/Venue : DAVOS, SWITZERLAND
Tarikh/Date : 29/01/99
Tajuk/Title : THE WORLD ECONOMIC FORUM
WORKING LUNCH
" MALAYSIA: BOUNCING BACK FROM THE BRINK "
Malaysia has gone through three great crises since
the Second World War. We have bounced back twice. We
will bounce back again, God willing.
2. The first was a war against Communist guerillas
bent on setting up a Communist Republic in Malaysia. We
defeated them.
3. Malaysia's second great post-War crisis occurred
with race riots in Kuala Lumpur in May 1969.
4. Parliamentary democracy had to be suspended. But
within 18 months everything was back to normal.
5. To ensure there would be no recurrence of such
riots we implemented a New Economic Policy (NEP) aimed
at eradicating poverty regardless of race and the
elimination of the identification of race with economic
functions.
6. As with all Southeast Asian countries Malaysia has
citizens of Chinese origin who dominated the economy
almost entirely.The NEP helped the indigenous people to
catch up with the Chinese. It was not a Robin Hood
operation. Redistribution was to be from new wealth
created through well-planned economic growth policies of
the Government. As for poverty, it was reduced from 50
percent to seven percent in 30 years of the NEP.
7. You may note that we did not choose the Socialist
or the Communist approach. We could have nationalised
by expropriating from the rich Chinese. But we
preferred the free market and affirmative action;
something that is not easy to implement.
8. The NEP has benefited every single indigenous
people of Malaysia, each of course according to his
capacity. Naturally some seem to benefit more than
others. But there is no society in the world where
there is absolute equality -- not even in the Communist
world.
9. The non-indigenous people including the Chinese
also benefitted.
10. Let me now turn to our third great crisis, which we
are still experiencing now. Two weeks before the crisis
started Malaysia was described by Mr. Camdessus of the
IMF as, and I quote "a good example 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 capital flows
and a booming property market" unquote. Yet the country
went into financial turmoil together with other East
Asian countries as its currency was rapidly devalued by
the currency traders.
11. Instead of blaming the currency manipulators, the
Government was blamed. The Governments of East Asia are
all said to be corrupt, practised cronyism and nepotism
and are not transparent. There is no doubt that to
varying degrees they were. But despite this, these
Governments were able to develop their countries so fast
that they were described as miracle economies. If their
weaknesses were the cause they could never have
performed these miracles. They would have collapsed
long ago. But they collapsed only in July 1997 when
their currencies were deliberately devalued by currency
traders bent on making money for themselves.
12. We are not taken in by the claim that the market is
disciplining Governments. If there is no money to be
made they wouldn't care less if these Governments are
run by bandits. The market is made up of very greedy
people who just want to make money for themselves
without regard for the misery they cause the poor people
in developing countries.
13. Devaluing currencies can give huge profits for the
currency traders but it is a sure way to impoverish
people and countries and destroy economies.If deliberate
currency devaluation is accompanied by attacks on the
stock market the result is even worse. Even the great
United States of America would go under if the dollar is
devalued by 50 percent and Dow Jones plummet to two
thousand points. Someone should do a sensitivity
analysis of some of the giant corporations of the USA
under these conditions.
14. In Malaysia the currency was devalued by 80 percent
at times and the stock market index went down from 1200
to 260, wiping out almost US$300 billion in market
capitalisation.
15. On top of this the IMF used its Malaysian cronies
to force interest rates to be raised, to squeeze credit
and shorten the period for loans to be declared non
performing.
16. It was suggested that high interest rates would
keep our money out of the hands of the currency traders.
Instead it flowed massively to Singapore, where even
higher interest rates were offered. The currency
traders needed to borrow the money only for short
periods and did not mind the high interests. They kept
on devaluing the currency while Malaysia ran short of
credit.
17. The economy went into a tailspin. Malaysia was
going bankrupt. The foreign observers happily predicted
that Malaysia must soon ask for IMF loans and accept IMF
control. That means Malaysia must allow foreigners to
take over Malaysian banks, privatised utilities and
businesses. The longer Malaysia balked the lower will
the shares fall and the cheaper will it be for
foreigners to pick up the distressed Malaysian
corporations.
18. We appealed to the IMF and the World Bank to curb
the activities of the currency traders. But Mr
Camdessus merely wrote to say that currency trading is
so huge and involved the great banks of the West that
nothing could be done to regulate currency trading.
19. We could not understand it. To us it was obvious
that currency trading is at the root of practically all
financial turmoils. With hundreds of billions in terms
of purchasing power of the East lost, world trade and
the world's economy must suffer. But it seems the
rights of the currency traders are more important than
the economy of the world. They must not be frustrated
in any way.
20. It would seem that the system has become more
important than the result. It has become a religion and
must be upheld even if it destroys everything. The
world's economy is not as important as the free markets
and the rights of the currency traders.
21. Malaysia is small. Its economy is not important to
the world. Whether we are destroyed or not does not
matter. Whether our people are hungry or they riot and
self-destruct is of no concern to the world.
22. Since this is the attitude of the world, Malaysia
would be wasting its time hoping for the world community
to restructure the international financial system merely
to help us out. We Malaysians have to take independent
action in order to protect our interests.
23. Since we believe that the currency traders and the
stock market speculators were responsible for what
happened to our economy, the logical thing to do is to
put a stop to their activities as they affected our
country. And so we put in place selective exchange
control designed specifically to prevent the currency
traders from getting hold of our Ringgit. The Ringgit
was therefore made worthless outside of Malaysia and may
not be brought back into Malaysia one month after
controls were imposed.
24. Trade is to be conducted in foreign currencies.
Exports must exceed imports if there is to be enough
foreign currencies to pay for imports. Within the
country the foreign currency can be converted to Ringgit
at 3.8 Ringgit to US$1.00 or equivalent and vice versa.
Conversion is only for payments for imports. Within
four months of controls reserves rose by 35 percent to
US$27 billion. As all export earnings are sold to the
Central Bank, the money in circulation has also
increased.
25. The Malaysian stock market was peculiar in that
much of the trading was done in Singapore through an
over the counter market operated by the Singapore Stock
Exchange. Although shares traded there were illegal
according to Malaysian law and were not recorded in the
Kuala Lumpur Stock Exchange (KLSE) they nevertheless
affected the Kuala Lumpur Composite Index.
26. Short-selling in Singapore rapidly pushed down the
Composite Index. All the Malaysian banks and
corporations went into a state of distress, unable to
repay loans or to borrow money to finance their
businesses. Unless the trading in Singapore is stopped,
Malaysian banks and companies would go bankrupt and we
would be forced to let foreigners take over all our
businesses. We Malaysians would be mere workers in
foreign-owned companies.
27. To stop this we required all share trading to be
made through the KLSE. In addition capital invested in
the stock market must stay in the country for at least
one year. This effectively stopped share manipulations.
At the time when the controls were imposed the Composite
Index had gone down from 1200 to 260. It has now risen
to about 600. Companies are now able to service loans
and borrow again and businesses have largely revived.
28. Free from the threat of devaluation by the currency
traders, interest rates have been lowered. The return
of the Ringgit from abroad helped increase liquidity.
An asset management company has bought the non-
performing loans while a special purpose vehicle was set
up to recapitalise the banks.
29. When Malaysia introduced these selective controls
there was almost universal condemnation. We were told
we would fail or at best the relief would be temporary.
The international media as usual accused the Malaysian
Government of imposing controls to save the cronies and
the family members of the Prime Minister. They even
hinted that the people would rise and overthrow the
Government.
30. I would like to invite all of you to Malaysia to
see whether controls have harmed Malaysia. Talk to the
average Malaysians, not just to the few who are anti-
Government. Find out if the people are interested in
rioting and overthrowing the Government. Meet the
managers of 100 percent foreign-owned industries and ask
them how they are doing.
31. I ask you to come and see for yourself because
apart from the currency traders and stock market
raiders, we have also to contend with a hostile Western
media. They distort all reports on Malaysia. If you
depend on them you will never know the truth. They are
not above fabricating stories if they are against you.
And they don't like countries which refuse to "kowtow"
to them. In other words they deny others free speech
while they preach the sanctity of free speech for
themselves. We know of cancellations by hundreds of
tourists because Malaysia is described by them as a war
zone. Power it seems has corrupted the press.
Ironically in the Information Age the only way to get
real information is to go see for yourself.
32. However if you care to believe, I would like to
point out that since controls were imposed in September
1998, the results have been very gratifying. Businesses
have been revived and are doing fairly well. As the
share prices have gone up, the Non Performing Loans
(NPLs) have reduced and companies and banks are
healthy again.
33. The repatriation of the Malaysian Ringgit has
enabled us to recapitalise the banks and purchase the
NPLs without foreign loans. Retrenchment is minimal. In
fact statistically we still have zero unemployment.
34. Inflation is only 1.5 percent above the average
yearly inflation rate. There is no shortage of food or
medicine or fuel. The supermarkets are well-stocked
with everything including imported foods. There are no
riots and you can travel anywhere in safety.
35. Whereas for almost a decade there had been a
deficit in the balance of payment, now there is a huge
surplus. Reserves have gone up from US$20 billion to
US$27 billion, sufficient to sustain over five months of
retained imports.
36. Property and motor vehicle sales have shot up. And
all other indicators show an economy which is
recovering.
37. There may be other reasons for recovery but there
can be no doubt that currency and capital controls play
a very major role. It cannot be a coincidence that the
healthy economic indicators began to show almost
immediately after controls were imposed in September
1998.
38. Those who do not condemn the controls outright ask
us when we would lift it. They admit that controls have
helped to stabilise and revive the Malaysian economy but
they insist that they are retrogressive steps. Now that
stability has been achieved the controls should be
removed.
39. We see no reason to remove currency control now.
The experience of Latin countries show that as soon as
their economies recover from the effects of attacks on
their currencies, the currency traders would launch
another attack with equally disastrous results. Clearly
as long as the international financial regime allows the
currency traders to devalue currencies, there is no
guarantee that they will cease and desist simply because
financial reforms have been carried out faithfully by
Governments. The currency traders are not interested in
the good behaviour of Governments. They are only
interested in there being sufficient wealth to rob.
Countries with worse Governments are left free of
attacks if they are too poor to be robbed through
currency devaluation.
40. The controls will therefore remain in place until
the International Community devises a new financial
regime which curbs the activities of currency traders.
41. Currency trading has served no good purpose as far
as the world's economy is concerned. It may enrich a
few rich capitalists in developed countries but it does
so at the expense of relatively poor countries and their
poor people. Today millions in East Asia are starving
or have only one meal a day, are unable to afford
medical treatment or milk for their children. You may
want to blame the Governments for this catastrophe but
before the currency devaluation these things did not
happen.
42. The IMF, the media and the rating agencies are all
culpable but not initially. It is the currency traders
who are the true culprits who caused the destruction of
the economies of East Asia, of Latin America, of Russia
and of the world. Trillions of dollars in terms of
purchasing power and in real terms have been lost. The
currency traders have destroyed huge amounts of the
wealth of the world in order to make a relatively small
profit for themselves.
43. In Hong Kong in 1997 I blamed the currency traders.
I have no reason to change my mind. The world can do
without their destructive cattle-like behaviour. If
they cannot be done away with they should at least be
regulated. Governments which harbour them and claim
that they cannot control them should resign or be
overthrown.
44. The 21st Century should be a better century than
the 20th. In the 20th Century we saw the invention of
ever more destructive weapons of war. We are now seeing
newer weapons of war, namely financial and economic
weapons. And they are no less destructive, no less
lethal than the rockets and the bombs.
45. If the world really believes in peace, in
democracy, in justice for all, destroy or curb currency
trading. Then and then only will we see a revival of
the world's economy and an equitable distribution of
wealth.
46. Malaysia is bouncing back from the brink. But I
must admit that as a small trading nation the extent it
bounces back depends on the world's economy. We will
not recover fully if the world does not recover, and it
will not recover if it regards capitalism as a religion.
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