Asia Times: Mahathir not yet through with speculators



	July 30, 1999	atimes.com

Southeast Asia

Mahathir not yet through with speculators
By Kalinga Seneviratne

SINGAPORE - Malaysian Prime Minister Mahathir Mohamad is rekindling his battle against foreign currency speculators, spurred on by Malaysia's rebounding economy and agreement from some quarters that capital controls have aided recovery.

This week, Mahathir received strong endorsements for his policies from some African leaders and the director general elect of the World Trade Organization (WTO), Thai Deputy Prime Minister Supachai Panitchpakdi.

The group of government ministers and officials met at the fourth Langkawi International Dialogue, an annual conference among developing countries hosted by the Malaysian government. The four-day meeting ends Friday.

When Mahathir first imposed selective capital and currency controls in September 1998, he received flak from critics who said Malaysia had doomed itself by "retreating" from the world financial system.

But Mahathir insisted the policies - which included a one-year holding period for investments and pegging the Malaysian ringgit to 3.8 to the U.S. dollar - gave the economy time to breathe and protect itself from speculation. Indeed, "each country should try its own medicine," Supachai said during a panel discussion on the Asian economic crisis at the Langkawi dialogue.

Supachai, who will serve the second half of the WTO chief's term, criticized the International Monetary Fund policy toward Thailand which his government adopted. Describing it as "harsh," he said the IMF oversold its austerity program to Thailand. Thailand had been expected to maintain a budget surplus of one percent in the first year of the bail-out package.

"This was not only impossible," Supachai said, "but also the direct opposite of what was needed. Thailand should have been spending to boost the economy."

Mahathir - whose response to Asia's financial meltdown differed from neighbors who turned to the IMF - also received support from Taiwan. Its finance minister, Paul Chiu, said Malaysia made the right move in implementing capital controls to stabilize the economy. He said this had curbed volatility in foreign exchange, which in turn reduced the upward pressure on interest rates.

"In Taiwan, we also have some kind of monitoring on foreign exchange," Chui said. He added that the Asian financial crisis highlighted the need to closely observe the behavior of currency speculators and the sources of their funds.

This support for Mahathir's home-grown economic medicine came closely on the heels of similar endorsements by Singapore's Senior Minister Lee Kuan Yew. In an interview this month, Lee acknowledged that capital controls was one way of stopping the tyranny of hedge funds, whose erratic movements can destabilize entire developing-word economies. The temporary closing of financial markets is one option available to small countries as a means of preventing hedge funds from attacking their currencies, Lee said.

Twelve African leaders attended this year's Langkawi dialogue, saying they came mainly to learn from Malaysia's experience in stabilizing the economy.

Botswana's President Festus Gontebanye Mogae said he was keen to learn from Malaysia's experience in managing the crisis since, unlike some of its neighbors, it staged a recovery without the help of the IMF. Zimbabwe's President Robert Mugabe hinted that his country may copy some of Malaysia's remedies to tackle its own worsening economic crisis.

After a 7.5 percent slump last year, Malaysia's first recession in 13 years, the country's GDP is expected to grow by 1.8 percent this year and by 4.3 percent next year, according to estimates from the Malaysian Institute of Economic Research. During the past year, Malaysia's foreign reserves have increased by 50 percent from $20 billion to $31 billion.

"Ask any Malaysian and he will say that the recovery is very real indeed," said Mahathir.

With a general election expected in months, Mahathir has been trumpeting his "we did it our way" theme around the country. "Without sounding boastful, we believe in, and are confident of our capability in overcoming whatever problems through our own way or style," he told the 46th general assembly of the Malaysian Chinese Association earlier this month.

He also said that many countries, including neighbors, wanted to follow in Malaysia's footsteps but "their hands were somewhat tied and they were not free to act."

Mahathir repeated his call to other countries to ban the trade in currencies as a commodity. "Currency being treated as a commodity and sold is ridiculous because it has no intrinsic value at all," he told the Langkawi delegates.

(Inter Press Service)

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