Dr. Mahatir's triumph
By Antonia Feitz
At the Asia Society dinner held in New York on the 27th September this year, Malaysia's prime minister, Dr Mahatir bin Mohammed, strongly refuted the idea that the Asian currency crisis was a result of financial weaknesses in the tiger economies themselves. He pointed out that corruption, nepotism, cronyisn and lack of transparency had been present all along while the Asian economies were achieving their 'miracles', becoming 'tigers' and even 'dragons'. Such things have never inhibited business.
Speaking of the currency traders, he said: "Observers must notice that they never attack poor countries however weak their finances must be. It is not because they are being kind, but because there is no money to be made".
Of course he's right. It could also be pointed out that corruption, nepotism, cronyisn and lack of transparency were - and are - also the hallmarks of the great European and American banking dynasties such as the Rothschilds and the Rockefellers. After all, 'nepotism' and 'cronyism' are just perjorative words for the pretty-well universal custom of favouring family and friends.
And corruption? Self-righteous Westerners might consider what Carrol Quigley had to say in 1966 about bankers' lack of scruples let alone ethics: "The history of the last century shows ... that the advice given to governments by bankers ... was consistently good for bankers, but was often disastrous for governments, businessmen and the people generally. Such advice could be enforced if necessary by manipulation of exchanges, gold flows, discount rates and even levels of business activity" (Tragedy and Hope, New York : Macmillan, 1996, p. 62).
What? Manipulation of interest rates? Manipulation of government? Surely bankers would never deliberately cause political chaos let alone hardship among the people? Dream on, Virginia.
And lack of transparency? In the US, during the period of financial capitalism 1884-1933, the international bankers moved into commercial banking and insurance along with railroading and heavy industry. Their influence was so great that according to Quigley, "the Morgan and Rockefeller groups acting together, or even Morgan acting alone, could have wrecked the economic system of the country by throwing securities on the stock market for sale, and having precipitated a panic, could then have bought back the the securities they had sold but at a lower price." (p. 72)
It all sounds unpleasantly familiar, particularly to the Asians.
And just as today, these unelected tycoons of Big Banking and Big Business had the political game sewn up too. They planned to contribute to both political parties so as "to allow an alternation of the two parties in public office in order to conceal their own influence, inhibit any exibition of independence by politicians, and allow the electorate to to believe they were exercising their own free choice". (p.73, emphasis added).
It seems not much has changed. Politicians - even successful ones - who don't play the game seem to get into all sorts of strife, don't they. Look at Maggie Thatcher. She seemed invulnerable, but her own party suddenly ditched her when she got seriously stroppy about Britain joining Europe. As the financiers wanted integration, Maggie had to go. And so she went. Of course to suggest there was any chicanery behind her downfall is to be branded a conspiracy theorist.
Mahatir didn't play the game. For blaming the crisis on the greed of the currency traders, he was labelled a conspiracy theorist and anti-Semitic for good measure. That's the very worst of the labels, far worse than racist. Anybody with the anti-Semitic tag is beyond the pale in decent society. And indeed Mahatir was subsequently referred to as a pariah in the media.
Nonetheless, faced with the prospect of his country's economic and social destruction, Dr Mahatir convened a National Economic Action Council of representatives from the public and private sectors. A committee of seven analysed daily economic data, and offered practical solutions. The country had lost US$50 billion in purchasing power and a further US$150 billion in market capitalisation, and there was no end in sight to the slide.
The crisis had already undermined years of affirmative action to reduce racial tensions in Malaysia. Mahatir knew the IMF prescription would reignite that racial fuse, and that the economic rationalist ideologues in the IMF didn't give a tinker's cuss. Their callous indifference to human suffering was on record: in Indonesia, IMF policies caused massive social chaos which resulted in much ethnic violence, including the mass rapes and even massacres of the ethnic Chinese. There was no UN 'humanitarian intervention' to protect the Indonesians. Nor would there be any for the Malaysians.
So instead of slavishly implementing the IMF policies, which ruined its neighbours anyway, and eventually saw their assets divvied up among Western bargain hunters in degrading firesales, Malaysia acted independently. Mahatir said, "Since the IMF is not an option for Malaysia, we had to think of something homegrown. The only way for the economy to recover was for the exchange rate of the Ringgit to be stabilized and the stock market to be protected from further attacks".
And they did it. They slapped on currency controls which rendered Ringgits held outside Malaysia worthless, thus thwarting the traders. They set a stable exchange rate which was fair and benefited them. They had sufficient reserves and a big trade surplus which earned enough foreign exchange to pay for their imports. Long term investors were allowed to take out profits and even their capital if they wished. Short term investors could take out profits but had to wait a year to take out their capital. To protect the stock market, registration through nominee companies was disallowed.
For these actions, Mahatir was derided. To a man, the world's government leaders, the media, and the economic experts condemned his allegedly futile defence of his country's currency and national economy. He said, " We were told our economy would be shattered as a black market in currency would undermine our controls. We were called pariahs, idiots with no understanding of economics or finance".
And who was right? Mahatir was. The black market in the currency never eventuated. The foreign reserves grew rapidly. There was never a time they couldn't pay for imports. The fixed exchange rate reduced the cost of doing business in Malaysia because hedging became unnecessary. The currency controls resulted in a massive inflow. Consequently interest rates were lowered drastically, and cheaper loans were made available to companies and for hire-purchases. Sales of motor vehicles and landed property picked up. The IMF had advised a budget surplus for Malaysia, calling for government spending to be slashed by 21 per cent. They tried it, but as the result was a severe contraction in the building industry, they reversed direction. A budget deficit revived the construction industry, and the economy grew again.
All the world's leaders, the media and the economic experts were shown up to be the ideologically blinkered fools they really are. They might have PhDs and be Rhodes scholars, but they're either stupid or traitorous. Journalists especially were found wanting. They, whose profession it is to investigate and report, were exposed as a mangy herd of independent minds, all obediently and mindlessly mooing the free trade mantra: it's inevitable. The media-derided populists proved to have more common sense in their toenails than all the journalists put together.
In fact it's rather amusing that the so-called economic illiterates have been proven - yet again - to be at the vanguard of progressive thinking. The new economic thinking is that capital controls are chic. Now, only hopelessly unsophisticated people think that short-term capital flows are market driven.
Mahatir the pariah is now Mahatir the visionary. The IMF has praised Malaysia for its "skillful" handling of capital controls. On the 15th of September this year, the World Bank's chief economist, Joseph Stiglitz, added his praises, saying in execrable English, " ... in the context of Malaysia and the quick recovery in Malaysia, the fact that the adverse effects that were predicted - some might say that some people wished upon Malaysia - did not occur is also an important lesson".
I think he means Mahatir was right.
But don't hold your breath for any such virile, independent, and patriotic action from the witless wimps who waste oxygen in the Australian parliament. They're so self-indulgent they probably produce more methane than cabon dioxide. Perhaps MPs should be hit with a special environmental tax for contributing to greenhouse emissions.
Antonia Feitz is a regular contributor to Enter Stage Right.
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