Time Daily. Malaysia's Desperate Gamble
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Malaysian prime minister Mahathir
Muhammed blames it all on the Jews. The
rich Western economies. The foreign
currency speculators. And of course on
George Soros, a rich Western Jewish
foreign currency speculator whom
Mahathir calls a "criminal" and "a moron."
Mahathir believes the IMF, far from
wishing the current crop of East Asian
leaders a speedy recovery from their
current economic crises, engineered
Indonesian president Suharto's fall and
would like very much to bring about his
own. So it shouldn't have come as too
much of surprise when the defiant Dr.
Mahathir threw the switch Tuesday on a
plan that has the Western economic
establishment covering its eyes in horror --
but also peeking through its fingers:
impose strict currency controls and save
the embattled Malaysian ringgit simply by
removing it from the fray. The theory is
attractive, especially to the prickly
Mahathir: An inconvertible currency can't
come under attack by evil foreign
speculators, and that frees the safely
walled-in government to take a deep
breath, lower its internal interest rates, and
pull itself out of recession by stimulating
domestic growth -- without subjecting its
every move to the brutish vagaries of the
global marketplace.
Mahathir's plan, of course, baldly flouts all
the IMF's -- and nearly everyone else's --
current wisdom on saving Asia. According
to their formula, a package of stopgap
loans and high internal interest rates can
protect the currency and attract foreign
capital in the short term by restoring
investor confidence. Follow that with swift
and painful economic reforms, and
recovery should be imminent. But for
Mahathir, flipping the Western economic
establishment the bird is part of his plan's
allure. The West, Mahathir insists, fears a
ascendant Asia, with its large Muslim
populations and strong governments, and
is gleefully exploiting the Asian crisis as
an opportunity to tear down the region's
governments and replace them with
toadies. In Mahathir's play, the pound of
flesh has already been torn away. Like its
neighbors, Malaysia lies bleeding, but
when Korea, Thailand and Indonesia
eagerly gulped down $150 billion in IMF
bailout loans, Mahathir wanted none of the
West's medicine. Shylock, after all, was
no healer.
Currency controls aren't anathema to
Westerners for nothing: They're very
vulnerable to abuse and corruption; they
require massive bureacracies to regulate;
and the sheer complexities of a
government's implementation of them
tends to scare away capital. Because
Mahathir's plan places tight limits on
importers and exporters as well as
Malaysians who travel abroad, it also
means regulatory headaches for the
governments of neighboring countries.
Currency controls have traditionally
resulted in stagnation and recession, and
tend to move countries farther away from
the reforms they will eventually need to
prosper in today's unforgiving global
economy.
But the plan is not without advocates. The
IMF's prescription has so far been a
spectacular failure; at this dismal point,
what does Asia have to lose? MIT's Paul
Krugman wrote in FORTUNE that such an
admittedly desperate "Plan B" could be
Asia's only way out, and when he learned
Mahathir had apparently followed his
advice, Krugman even wrote an open
letter to the prime minister advising him of
the many sinkholes along the path ahead.
(continued)
The words may have come from a Boston
economist, but the inspiration clearly
came from the country Mahathir touts as
the East's answer to U.S. world
dominance: China. Ironically, it has been
China that has been the West's great
consolation in this crisis: By refusing to
devalue the yuan, even as slowing growth
threatens to derail her own emergence as
a first-world economy and nation, China
has kept a bad situation from getting
much worse. Strict currency controls -- its
invisible Great Wall against the
briefcase-wielding Western barbarians --
have allowed China this bravery.
The wave of Western capital that sloshed
through Malaysia at the height of the Asian
miracle in 1993 had just begun to recede
when Mahathir began using the example
of China to connect his disdain for
Western economics with his hatred of
Western politics. "China may be
authoritarian, but it is better than anarchy,"
Mahathir said in 1994. "Business needs
order. It needs to have a predictable
future." He continued: "The sanctimonious
pronouncements on humanitarian,
democratic and environmental issues are
motivated by the same selfish interest --
the desire to put as many obstacles as
possible in the way of anyone attempting
to catch up with the West."
Absent from those and any other of
Mahathir's proclamations over the past
few years has been any sense of personal
culpability for the tar pit that his country's
economy has abruptly become. The usual
Asian suspects -- crony capitalism, lack
of financial disclosure and plain
old-fashioned corruption -- are as
responsible for Malaysia's fall from grace
as any of the wretched excesses of
Western investment capitalists. But now,
Mahathir has in mind for Malaysia a
resurgence that not only restores to his
people their achingly recent prosperity but
forces a cataclysmic readjustment of the
way the West would have emerging
markets run. In short, Mahathir
Muhammed dearly wants to teach the
West a lesson.
Every revolution needs a purge, and when
Mahathir decided on his desperate
measure, the heads of those advisers who
had pushed for IMF-style prescriptions
immediately began to roll. Last week saw
the resignations of the central bank
governor, Ahmad Muhammed Don, and
his deputy, FongWeng Phak. On
Wednesday, Mahathir fired his
IMF-friendly deputy prime minister and
sometime political rival, Anwar Ibrahim,
after Anwar refused to resign. (continued)
After just a few days, it is far too soon to
tell whether Dr. Mahathir's desperate
gamble will succeed or fail. The details of
the plan have yet to be laid out, and those
details will likely determine whether the
plan is panacea or poison. Malaysian
stocks tumbled on the news Tuesday, then
lurched upward Wednesday as investors
scrambled for bargains; the next few
weeks will likely be turbulent as investors
and speculators learn the ropes of what
will be a very different Malaysia as far as
outsiders are concerned. Inside Malaysia,
Mahathir's plan has already caused chaos
-- after Anwar's sacking, three truckloads
of riot police were dispatched to the prime
minister's residence to quell protests by
Anwar supporters.
Mahathir's plan is easy to dismiss as the
folly of an economically inept autocrat. But
by going through with it, Mahathir has
drawn a line in the sand: It's him against
the barbarians. And in this age where
economic and political ideology have
become inextricably entwined, the stakes
are high. Mahathir evidently dreams of an
Asia resurgent on its own terms, reborn in
its own image, not that of the West. If his
course succeeds, and Malaysia recovers,
the rest of the region could follow his
example and pull disastrously back from
necessary economic reforms. At worst,
the West could eventually be confronted
with a China-led belligerent East -- and
new Cold War for the 21st century. At
best? Malaysia does as Krugman
recommends: use the breathing room
afforded by the plan to continue reforms
and thus emerge with a hardier economy
than before.
The current global crisis has no precedent
since the Great Depression -- and that
led to World War II. As Russia melts and
Asia founders, the West's credibility is
waning fast, along with some cherished
ideas, both political and economic, about
the way to run a modern planet. But what
works must come before what should
work, and as Mahathir shakes his fist at
the West and talks holy war, what he may
not realize is that pragmatists everywhere
-- bankers, speculators, barbarians,
maybe even George Soros -- are rooting
for him. If only for a little while. |
