[asia-apec 459] Mahatir Attacks Liberalization

[PAN Asia Pacific]

Give solutions
 
Find remedies to currency crisis, Mahathir tells financial experts

By Lim Chye Khim 
(The Star, June 3 1998, p.1)

TOKYO: Datuk Seri Dr Mahathir Mohamad said financial experts should
stop blaming Asian governments for the currency crisis and help
reform the international financial system. 

The Prime Minister said the experts should help work on reforms to
minimise exchange rate volatility and curtail currency speculation. 

"Our task is to focus on the remedies, the things which must be done
if we are to revitalise ourselves, if we are to ensure the
revitalisation of Asia," he said in a keynote address at the Fifth
Symposium of the Institute for International Monetary Affairs (IIMA) here yesterday. 

Describing the present system as "messy, unreliable and
destructive", Dr Mahathir said: "I believe the time has come to deal
with the entire issue of reform of the international financial
system to ensure currency stability and contain the activities of
those who buy and sell money for no other purpose than to make profits." 

Touching on the volatility of the Indonesian rupiah, which at one
time was devalued by more than 600% and then recovered by 200%
within a few days, he asked: "What indeed is the worth of a nation
if suddenly someone can devalue and even bankrupt it? 

"If currencies can be made useless so easily, what is the point in a
country issuing its own money?" 

It had been said that currency would strengthen if confidence was
restored, said Dr Mahathir, but there was no certainty as to what
would bring back confidence. 

"There was a lot of talk about market forces. But who constitutes
market forces and how do market forces determine what value to give
to each act of a government or an economy under attack?" 

Dr Mahathir said that devaluation or revaluation were not the
answers to the world's economic problems. 

"Improvements in productivity are, and such improvements can be
achieved through greater skills, better managaement and continuous
technological improvements," he said. 

On globalisation, he said that so far, the advantages seemed to
accrue only to the rich. 

Dr Mahathir said the only way Malaysia could overcome the
instability in the exchange rate and rebuild the economy was to do
away with currency in trade as much as possible. 

"We will revert to bartering. We will want to balance our trade
with countries which have a trade surplus with us and Japan is the
country with the biggest trade surplus. 

"Where we have to pay, we will pay in the currency of the trading
partner concerned." 

On Asean, he said the grouping had agreed that trade between them 
should be enhanced as the devaluation of their currencies was 
approximately at the same rate. 

Hitting out at theorists who "had never run any country, much less
help it grow," Dr Mahathir said that the economies of East Asia
would grow again, if left to themselves. 

As an example, he said that in the World Competitive Year Book
issued by the International Institute for Management Development
(IMD), most of the economies which had been so severely hit since
the IMD issued its 1997 report had scored highly based on its 224
criteria, or fundamental factors. 

Similarly, he said the International Monetary Fund (IMF) had a very
good impression of Malaysia a year ago. 

"Just two weeks before the July 2 'currency hurricane' struck, IMF
managing director Michael Camdessus was handing bouquets to
Malaysia for its sound economic management, our superb economic
fundamentals," he added. 

He said it was so easy for some analysts to slip into the view that
currency movements were purely the function of fundamentals, adding
that "the market fundamentalists tell us this is so with incredibly
sincere conviction, however loudly the speculators chuckle all the
way to the bank. 

"The truth is the currencies plummeted even though our fundamentals
were strong. The truth is that, ipso facto , the fall of our
currencies was not a function of our basic fundamentals." 

Dr Mahathir said it would be sad commentary on the ability of the
world's financial and economic experts if they could not come up
with new proposals on a new international financial system. 

"Their habit of merely trying to explain the present turmoil as
being due to bad practices by the governments concerned sounds too
much like an apology and a defence of currency traders."