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Oleh/By : DATO' SERI DR.
MAHATHIR BIN MOHAMAD
Tempat/Venue : THE PALACE OF THE GOLDEN HORSES
HOTEL KUALA LUMPUR
Tarikh/Date : 27/08/99
Tajuk/Title : THE BREAKFAST DIALOGUE WITH PROF.
PAUL KRUGMAN
I am honoured to be speaking on economic and
financial matters to such a group of distinguished
economists and financiers. I am a medical doctor,
untrained in economics and finance and it is with some
trepidation that I consent to speak to you, in
particular Prof. Paul Krugman, an expert in the fields
I am supposed to tackle. If I dare to speak at all it
is because my job requires that I handle the economic,
financial and other problems of a nation, a developing
nation of 22 million souls. During the course of
carrying out the job entrusted to me I have, with the
average intelligence of a trained doctor and a fairly
successful politician learnt a few things about
economics and finance. I am still unfamiliar with the
erudite language of the economists and financiers and
so I hope you will not giggle if I use them wrongly or
not at all. My experience is purely practical.
2. Human society worldwide is forever looking for the
perfect formula to make life bearable if not enjoyable.
But through the ages it has found that no formula is
perfect. Over time their imperfections emerge and
abuses worsen the effect. Eventually in disgust
society abandons them in favour of a new perfect
formula which it is willing to shove down the throats
of all the members of human society.
3. The problem is the infatuation of the formulator
and the adherents with the formula to the extent of
disregarding completely the original objective. Even
when none of the objectives are being achieved, the
formula must be adhered to the latter. Failure to do
so would result in punishment which far exceeds the
original sufferings which the formula was supposed to
end. Thus the Centrally Planned Economy was supposed
to end the sufferings of the masses. Its
implementation required and resulted in even greater
sufferings not just of the masses of everyone. The
results were worse than the original malady affecting
the people. It took 70 years for Central Planning to
be rejected.
4. Now of course the free market has replaced it.
But the free market has caused more poverty and
sufferings than the Command economy had ever created.
But no one is about to reinstate the Command economy or
to reject the free market. The new formula must be
accepted and religiously adhered to even if it kills
everyone. What is important is the formula, free
market, not the well-being of people.
5. Malaysia believes in the free market but not as an
article of faith, not as a religion. The free market
is an imperfect system devised by imperfect Man. It
should be adhered to faithfully only if it delivers the
results it was designed for. If it doesn't we are not
afraid to reexamine it, to modify it or in the last
resort to discard it altogether.
6. The problem with the free market, as with all
systems, is the tendency to widen its interpretation.
When the free market was adopted no one really thought
that currencies should be regarded as commodities and
traded like coffee beans or wheat. That came much
later when the smart people in some financial centres
felt that if they can make money, easy money, by
selling money in the free market, then why not? The
important thing is to make money trading money.
Everything else is irrelevant. That the free market is
supposed to bring about general prosperity to the world
and everything else is irrelevant. To these bright
people the main thing is the free market offers this
opportunity to make money. If by selling money
millions are forced out of work, starved; if the
economies of countries and whole regions are destroyed,
if political upheavals occur -- these are irrelevant.
7. When accused of causing human sufferings all the
answer that we get is 'that is the free market'. It is
teaching you how to manage the free market. We are
doing you a good turn by destroying you so that phoenix
will rise from your ashes.
8. Malaysia believes the free market has been abused
by the currency traders and the short-term capitalists.
They have been profiteering. And Malaysia does not see
any reason why we should adhere faithfully to the free
market when the profiteers are not subscribing to the
original intention of the free market. We subscribed
to the free market because of the results it promised.
Now we see that not only are the promised results not
being achieved but whatever little had been achieved
had been systematically destroyed by the same free
market system.
9. What we did to frustrate the profiteers, the rogue
traders, the stock market manipulators is something
that is so obvious that everyone would have resorted to
it if not for the fear of being labelled heretic and
burnt at the International Stakes. If, as we reasoned
it, the cause of the economic turmoil was the
deliberate devaluation of our currency and depression
of our share market, then we just have to stop it any
way we can. As a doctor I have been taught to
eliminate the cause in order to cure the patient. By
preventing Malaysian currency in whatever form from
falling into the hands of currency traders, deliberate
manipulation of our exchange rate became impossible.
Thus Government regained the right to determine the
exchange rate. As for the stock market the
manipulators were deprived of access to the stocks they
wish to short-sell. That stopped manipulation of the
stock exchange in order to, intentionally or not,
bankrupt the banks, the Malaysian businesses and
finally the Government.
10. It is of course not as simple as it seems. Prior
to this the nation's strengths and weaknesses in
political, economic, financial and social terms were
audited and the impacts of the proposed action studied.
The remedies to possible adverse consequences were
figured out. Every aspect of the economy was monitored
and scrutinised.
11. To cut a long story short, we devised scores of
actions and measures in order to enable the economy to
recover. We were gratified that almost as soon as the
controls were imposed the signs of recovery were seen.
The Kuala Lumpur Composite Index (KLCI) rose
immediately and rapidly while the Reserves grew as
never before.
12. The Malaysian economy is today on the mend. The
important key indicators have turned positive. What is
particularly significant has been the return of
business confidence, of investors confidence and of
late, consumer confidence. Indeed, I have begun to
worry that people may already be getting too
optimistic; I worry because over optimism breeds
complacency at a time when we need dedication,
commitment and perseverance. We have emerged from the
woods, but we are not yet out of the woods. We are
still vulnerable. The risks are there. We will no
doubt see modest growth this year, but flaws remain.
The fixed exchange rate and selective capital controls
have helped to provide a conducive environment to kick
start the economy and restructure the banking system.
We have come a long way, but corporate restructuring
still leaves much to be desired. Of course, there can
be no quick fixes. We are realistic enough not to
expect them. But, the process has been slow and not
without pain. A large part of the problem has been the
discrepancy between words and deeds. Strong resistance
from those with vested interest cannot be
underestimated. As a democracy, we cannot force people
to do what they don't want to do. Further, so long as
flaws in the international monetary system are not
corrected, small nations -- like little boats in a
turbulent sea -- remain vulnerable. We cannot
therefore return to that imperfect system. We have the
well-being of our people and country at heart. But we
do appreciate that the economic well-being of the world
has an important bearing on that of ours. So we would
like to see the reform of the international monetary
system carried out as soon as possible.
13. For reforms to be worthwhile the mindsets of the
powers that be must change. Any attempt to preserve
the rights of a few currency traders will only negate
the results of the reforms.
14. Currency trading is said to be 20 times bigger
than world trade in goods and services. We know that
world trade benefits hundreds of millions of people in
terms of employment, businesses and productive
activities. Governments and countries prosper on world
trade. But what is there to show from the 20 times
bigger currency trade. A few thousand very rich people
may make billions for themselves overnight. But hardly
anyone else gain employment or business opportunities.
Indeed hedging simply increases the cost of business.
But worse of all currency trading had destroyed whole
economies of nations and regions, destabilise them
politically and caused untold misery for hundreds of
millions. The profits made by the traders are actually
a mere fraction of the wealth of nations which they
destroy. So why are we protecting them, why is the G-7
so concerned for their welfare that the world's
economic recovery has to stall?
15. If I may I would like to say a few words about
this slightly boorish country, Malaysia. Some may find
it difficult to believe but Malaysia is a democratic
country subscribing to the rule of law. In Malaysia it
is possible for opposition parties to win elections and
they have even set up Governments in a number of
states. If they have not been able to form the
Government at Federal level it is not for want of
trying or opportunities.
16. As for the rule of law no one and no organisation
is above the law or may ignore the law. The King, the
hereditary rulers and the leaders of the Government are
all subject to the same laws. Several ministers in the
Government, several Chief Ministers from the Government
party have been charged in the courts, and when found
guilty were sentenced. One was even sentenced to
death.
17. The biggest party in the ruling coalition was
declared illegal by the courts and had no choice but to
be set up again. The courts are answerable only to
themselves. They take orders from no one and certainly
not from the Government. That is why members of the
Government who break the law must face the
consequences. The Government has time and again lost
cases in the courts and can seek redress only through
due process.
18. In Malaysia opportunities abound. The son of a
poor rice farmer has as much chance to become a
billionaire as the son of the Prime Minister.
Discrimination is odious whether in favour or against.
19. Power corrupts but there are still people in this
world who regard their mission as sacred enough for
them to resist the corruption of power. Only those who
are weak will assume that all who have power must be
corrupt.
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