[asia-apec 729] FW: Mahatir Demonstrates an Alternative Asian Solution

[Arno Mong Daastøl]

In spite of the Western media storm against Mahathir - some perspective
might be useful - and necessary.
Best!
Arno
Arno Mong Daastøl
http://daastol.com

PhD Cand. Department of Public Economics, University of Maastricht
SUM - Centre for Development and Environment, University of Oslo


-----Original Message-----
From:	Technology Transfer in International Development
[mailto:DEVEL-L at AMERICAN.EDU] On Behalf Of Jay Hanson
Sent:	Thursday, September 24, 1998 7:31 AM
To:	DEVEL-L at AMERICAN.EDU
Subject:	Asia pulling out of MacWorld?

It looks as though Asia is going to be pulling out of MacWorld. (This is a
good, free newsletter.   Instructions to subscribe on the end.)
Jay-www.dieoff.com

--------------------------------------------
Global Intelligence Update
Red Alert
September 24, 1998

Mahatir Demonstrates an Alternative Asian Solution
The focus of the Asian crisis is shifting to Malaysia, where the political
consequences of economic meltdown are now being played out  The overt crisis
revolves around the decision of Prime Minister Mahatir Mohamad to fire and
then arrest his Deputy Prime Minister, who also served as his Finance
Minister and heir apparent.  The deeper issue, transcending both personality
and politics, concerns how Malaysia will respond to its own version of the
general Asian crisis.  Mahathir, who has long been an advocate of Asian
solidarity, has charted a course that is both idiosyncratic and, in our
mind, a model of the direction Asia is going to be moving in the coming
months.  Thus, the political crisis points in an interesting and revealing
direction.
The split between Mahathir and Deputy Prime Minister Anwar Ibrahim began
over differences of opinion as to the best way to achieve economic stability
in Malaysia.  Anwar favored a Western-style financial reform package,
similar to the IMF packages being put in place all over Asia.  Mahathir,
however, was more in favor of a national approach to solving the problems,
one which relied more on Kuala Lumpur than on multilateral agencies.
Mahathir, who had carefully observed events in neighboring Indonesia,
including the fall of Suharto in May, became increasingly convinced that the
IMF solution to the Indonesian problem was not only ineffective, but that it
had directly led to the fall of the Suharto government and the resulting
disorder in Indonesia.  Since he was convinced that the IMF did not have any
workable solutions in hand, he was not prepared to risk his regime by
following IMF dictates.
After Suharto's fall, Mahathir became concerned about the support his
erstwhile protege, Anwar, had been developing in the ruling party, the
United Malays National Organization (UMNO).  Anwar and one of his deputies
made remarks in June suggesting that the Malaysian situation was analogous
to that of Indonesia, with the clear implication that Mahathir's fate ought
to be the same as Suharto's.  Needless to say, Mahathir vigorously disagreed
with this analysis.
With the UMNO becoming divided over the ability of Mahathir to lead Malaysia
out of its economic turmoil, Mahathir needed to act swiftly.  In July he
brought in his friend Daim Zainuddin as Special Functions Minister, removing
much of the control Anwar had over Malaysia's financial decisions.  A
campaign of vilification against Anwar was launched, including the
interesting charge by his brother in law that he had been sodomized by
Anwar.
Apart from personality and power, the struggle between Mahathir and Anwar
represents a struggle between two visions of how Malaysia and Asia are to
recover from their shared economic crisis.  Anwar and his allies represent
the conventional view on how to solve Malaysia's crisis.  Their focus is on
external aid, particularly from multilateral organizations like the IMF.
Since the price for IMF support is austerity at home, the imposition of
market reforms and a decrease in protection, this faction is prepared to
make fundamental changes in Malaysia's economy.  Of course, since economic
liberalization runs counter to Mahathir's more authoritarian, less liberal
economic strategy, it followed that Mahathir had to go.
Mahathir's own analysis was fundamentally different.  In his view, the IMF
offered no solution at all.  The amount of money and credit being offered
was completely insufficient to solve Malaysia's problems.  Moreover, the
IMF's price would create social chaos in Malaysia.  For example, the IMF
required a rigorous program of closing insolvent banks, writing off bad
loans and decreasing available credit accordingly.  Having seen the
consequences of these policies in Indonesia, Mahathir's position was that,
since the IMF provided no real solution anyway, it followed that it made no
sense to pay the price.
Mahathir has pursued a radically different course.  On September 1, Mahathir
announced new foreign exchange controls, effectively limiting the
convertibility of the Ringgit.  In addition, earlier this week, Mahathir's
government introduced new banking regulations that provided banks with more
time in which to write off bad loans, reduced reserve requirements, and
generally allowed Malaysian banks, at least internally, more room for
maneuver.  In addition, Mahathir had Anwar arrested in the midst of the
Commonwealth Games and Queen Elizabeth's visit.
What is important about events in Malaysia is that they demonstrate a new
economic response to the crisis emerging.  The previous response has been to
look to the outside for support.  Malaysia's response to is cast itself free
from the outside, on the theory that the outside world not only doesn't hold
open a solution but that the solutions it offers will be more harmful.
Since Malaysian exports have declined precipitously, the inflow of
investment into Malaysia has collapsed altogether, and outside aid is
completely insufficient to solve any problems, Mahathir has clearly decided
that economic nationalism no longer bears much of a cost.
Naturally his neighbors are appalled, and none more so than Singapore.
Singapore, one of the healthiest economies in the region, is intimately tied
to a liberal trade regime, given its role as financial center and exporter.
Prime Minister Goh Chok Tong warned yesterday that Malaysia's model, if
followed by the rest of Asia, could trigger U.S. protectionism and a
collapse of interregional trade.  Mahathir's position, of course, is that
with or without formal protectionism, Malaysia's economy has already been
smashed, and there is little hope in looking for salvation in trade with the
United States.  Punctuating this exchange on economic theory, Malaysia
banned overflights by Singapore aircraft, disputes over minor border issues
have begun to flare again, and Malaysia has threatened to ban exports by
Malaysian companies through the port of Singapore.
Thus, Malaysia's internal political argument has important international
ramifications.  One of the most interesting was the decision by Japan to
loan Mahathir's government about $1 billion after Anwar's arrest and the
announcement of a nationalist economic policy.  So while Australia condemns
Mahathir's suppression of Anwar and Singapore warns of dire consequences,
the Japanese are lending him money.  Interesting.
Nothing is decided in Malaysia.  The Central Bank moves back and forth on
regulations and the situation is fluid.  Our sense, however, is that
Mahathir will carry the day both because of his entrenched power and because
his economic policies promise, albeit only in the short run, some relief
from economic pressure.  The debate between Singapore and Malaysia sets the
stage between the two great camps forming up in Asia: Asianists and
Internationalists, those looking to the West for answers and those arguing
that answers are national and regional.
This debate, of course, takes place on the Straits of Malacca, one of the
most strategic waterways of the world.  Should the debate adjourn from the
theoretical and political, it would have extraordinarily important
consequences for nations outside the region.  We are far from that point, of
course.  But then, just two years ago today's events would have been
unthinkable.

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