South News commentary Sept 23
Strange things are happening in Asia. 25 million unemployed workers, economic recession and accompanying problems that are blamed on domestic and regional failings. The tight-money prescriptions of the International Monetary Fund have failed to stem the crisis. Yet the blame is put squarely on the Governments of these countries for not providing a safety net in the form of unemployment benefits.
Hedge fund managers of the West continue to revel in the ease with which they can strip the wealth from Asia while the protests of the victims are not only ignored but they are actually censored by the international media controlled by the West. IMF loans they have been forced to take will ensure that for decades to come they will be debt slaves to the rich in the world.
In a region that was once held up as an economic model is now is in the throes of one of the post-World War II world's deepest financial crises. The free flow of capital and the right of speculators to determine the exchange rates of currencies have resulted in chaos, confusion and extreme poverty.
Political unrest in Malaysia comes as the country faces its worst economic
crisis since independence in 1957. From the very beginning of the Asian
economic crisis, Prime Minister Mahathir responded forcefully to US based
speculators. He denounced in no uncertain terms currency tycoon George
Soros and the IMF formula of cuts to government spending.
|When the Asian financial crisis broke out in the middle of last year, Dr Mahathir accused Western investors of using global financial markets to bring Malaysia to its knees. Few listened.|
However Malaysia's problems were not driven by public deficits and government borrowing. Before the crisis started, its fiscal accounts were in surplus. Inflation was below 3 per cent. Dumped deputy prime minister and finance minister Anwar Ibrahim, with his advocacy of an austerity policy and removing restrictions ton foreign ownwership, got it wrong.
Recently Malaysian Prime Minister Dr Mahathir in his speech prepared for the 12th Summit of the Non-aligned Movement, emphasised that," ... every nation must adopt the so-called free and open market system which will enable the rich and avaricious capitalists of the Western nations to enter and leave any country at will. They can own and set up banks and businesses everywhere and anywhere unfettered by the national needs and aspirations of any nation. They must be free to revalue and devalue currencies and shares unimpeded by Government rules, laws and regulations. They will control and determine the exchange rates of all currencies anywhere, anytime. But the world must not know who they are and how they work. While they require Governments to be open and transparent, they themselves will remain shadowy and their operation closed to inspection."
In June Anwar, the darling of western business, condemned what he said was cronyism, nepotism and corruption but failed to unseat Mahathir at the UMNO party conference. This was only a veiled attempt to undermine Malaysian sovereignty.
For several months, the economy's openness to capital movements had frustrated just about every initiative Malaysian policymakers had tried. In particular, the policy of high interest rates was simply not working according to script: foreign capital was moving out rather than in.
The Ringgit's collapse both aggravated capital flight and hit companies with high import content, which included many of Malaysia's biggest export earners, such as the car manufacturer, Proton, and dozens of electronics firms.
The economic rationalists have not had any second thoughts on the rightfulness of the free market system, of unregulated capitalism and the free-flow of capital across borders. The market forces are merely disciplining Governments so that they will adopt superior Western ways of governance and management of the economy we are told by the free marketeers.
Malaysia's imposition of exchange controls at the beginning of this month is perhaps the boldest policy response we have seen so far to the economic crisis that has engulfed the region. It is also of much international interest, because it represents an economic experiment that goes radically against the received opinion on how to rescue an economy in trouble.
"The free-market system has failed," Dr Mahathir said in a television address. "The only way we can manage the economy," he said, "is to insulate us from the activities of currency traders and share-market speculators."
Exchange controls will, according to its leading proponent, provides breathing space. If the gamble succeeds it will, quite reasonably, be hailed as a coup that will blow apart much of the current economic orthodoxy. A country should be able to defend its currency to beat back the global hedge funds and market speculators.
The countries most insulated from the crisis are those whose economies are the most closed and protected -- such as those of China and Vietnam, which exercise controls on their currencies and are shielded from speculators that prey on open markets.
Yet even in the West, Brookings Institution analyst Robert Litan says the idea that emerging-market countries should seek to control capital flows at their borders has gained new respectability among Western strategists as a way smaller economies can protect themselves from increasingly large speculative flows.
"It's wise for countries to at least slow down their foreign currency borrowing. That's the main lesson of this crisis," Litan said. "There's been a tremendous sea of change on this issue, and there's a major rethinking going on."
For months, both the US and International Monetary Fund (IMF) officials have been telling governments of severely affected countries that the best way to overcome the Asian crisis is to open their markets further. But World Bank chief economist Joseph Stiglitz and Massachusetts Institute of Technology (MIT) economist Paul Krugman, now agree that imposing limits on currency trading might give hard-hit countries some breathing room to tackle their other problems.
In a recent Fortune magazine article, Krugman argues that while currency controls inevitably cause distortions and work badly if kept in place too long, "when you face the kind of disaster now occurring in Asia, the question has to be: badly compared with what?"
The broader context in which Malaysia is introducing exchange controls is a "National Economic Recovery Plan", which involves pump-priming of Malaysia's economy. The planned fiscal spending is ambitious indeed. The government plans to spend 12 billion Malaysian ringgit (US$5.4 billion) or around 3.5 per cent of GDP to kick start the economy, including RM5 billion for a special infrastructure fund.
Malaysia is not the only country imposing more restrictions on markets. Hong Kong is pouring billions of dollars into its stock market in a duel with speculators. Russia unilaterally decided not to pay some of its foreign debt. With tens of thousands of businesses and many scores of banks folding up Governments are now without adequate revenue to pay wages and fund public works.
"The countries of the world have two choices, submit or be impoverished by having their currencies devalued and their share markets destroyed." Dr Mahathir has called for increased cooperation between the countries of the South in face of this new global neo colonialism. He should be supported.
By David Muller and Keith Langford