The single greatest challenge today is for Malaysia to end the five-month long non-stop haemorrhage of confidence, embark on a programme of restoring confidence through political and economic reforms by uniting Malaysians to take some of the IMF bitter medicine without having to seek IMF bail-out such as government and corporate transparency

Forum on "Economic Crisis and Recovery - Causes and Remedies"
by Lim Kit Siang

(Kuala Lumpur, Friday): The single greatest challenge today is for Malaysia to end the five-month long non-stop haemorrhage of confidence, embark on a programme of restoring confidence through political and economic reforms by uniting Malaysians to take some of the IMF bitter medicine without having to seek IMF bail-out such as government and corporate transparency

Yesterday, Thailand's King Bhumibol Adulyadej said that economic mismanagement had caused the country's worst financial crisis in decades and he urged Thais to be more self-sufficient.

For more than a month, Thailand has been taking out three full-page advertisements in international news magazines to attract international investors, with the following headlines for each page, "Thailand - Growing Pains Slow an Asian Tiger", "Thailand - The Right Medicine for Recovery" and "Thailand - And Now, More Reasons Than Ever to Consider Thailand".

The Thai advertisement openly admitted Thai responsibility to Thailand's economic problems, describing them as "the growing pains of a developing country" and declared that the Thai people would share the pain caused by the IMF "medicine".

It said: "The shocks of recent months have given way to this realistic, though painful, recovery plan. Every belt in Thailand must tighten. All Thais will likely face at least two to three years of austerity before full recovery is expected. This is the medicine that will produce a long-term cure."

It then looked into the future and beckoned investors of the many reasons to be optimistic about Thailand, stressing: "From crisis, opportunity arises".

The denial syndrome, however, reigns supreme in Malaysia, with the Prime Minister, Datuk Seri Dr. Mahathir Mohamad only yesterday in Langkawi re-asserting that currency manipulators had caused the current regional currency crisis. Government Ministers public dismiss claims that the economic problems facing the country was caused by wrong Government policies, claiming that the same policies had made the country's economy robust with strong fundamentals.

We do not seem to want to learn from the lessons of other countries, like South Korea where the same policies which had enabled it to achieve a meteoric rise from a war-torn nation to the world's 11th largest economic powerhouse, with a gross domestic product larger than Thailand, Indonesia and Malaysia combined, earning South Korean admission into the exclusive ranks of the world's rich nations' club, the Organisation of Economic Co-operation and Development (OECD) last December, has transformed the Asian Tiger into an Asian beggar with a unprecedented US$57 billion IMF bail-out.

Only in Parliament on 25th November when the Deputy Prime Minister and Finance Minister, Datuk Seri Anwar Ibrahim made a Ministerial statement on the RM 2.4 billion UEM-Renong deal, which was a national catastrophe not only to UEM, but also UEM minority shareholders as well as the Kuala Lumpur Stock Exchange (KLSE) investors, causing the KLSE Composite Index to fall by 19.58 per cent, from 667.29 to 536.62 points in three days, wiping out RM70 billion of the investors' funds in the stock exchange, Anwar dismissed my statement that the government had aggravated the national economic and financial crisis with many avoidable self-inflicted wounds.

We just saw one such self-inflicted haemorrhage yesterday and today. Yesterday, Asian currencies rallied against the US dollar in reaction to the news that South Korea had finally secured agreement on a US$57 billion IMF-backed assistance package, except for Malaysian ringgit, which went into a free-fall, touching an all time-low of 3.7300 yesterday and 3.8450 today.

The cause of the plunge of the Malaysian ringgit from 3.6500 to the US dollar on Wednesday to the all-time low of 3.8450 today, a fall of 5.34 per cent in two days, is because of the announcement by the Prime Minister, Datuk Seri Dr. Mahathir Mohamad in Langkawi yesterday that Malaysia would proceed with the RM10 billion land bridge project linking northern peninsula and southern Thailand despite the ringgit's depreciation, raising the question as to the government's commitment in September to shelve or delay mega-projects.

I had this morning issued a statement urging the Prime Minister to give top priority to the restoration of confidence and to exercise the fullest of restraint in his pronouncements at this delicate stage of trying to restore confidence in the economy.

I commend Anwar Ibrahim for his 4 p.m. press conference to salvage the situation with his announcement that the government would not proceed with the RM10 billion land bridge project, which had eased the attack on the Malaysian ringgit, immediately strengthening it from 3.8450 to 3.7250 against the US dollar.

Whether Anwar's other announcements would have the confidence-restoring effect are still to be seen, but there is no doubt that we cannot just blame George Soros for the depreciation of the ringgit against the US dollar by nearly 50 per cent - with all the horrendous consequences for Malaysian parents with children studying overseas or for Malaysia's imports.

While the DAP supports Mahathir and the Government in advocating regulations to curb untrammelled speculation and manipulation in the global currency markets, this should not become our primary preoccupation. It is even more important and urgent that the government find answers as to why the ringgit had nosedived from RM2.6475 to RM3.8450 to a dollar while the KLSE CI had crashed from 1,041.26 points to 526.12 in the past four-and-a-half months from July 26 when Mahathir named George Soros as the "rogue speculator, the person whom Mahathir accused who "with his few billion dollars had undone what Malaysia had worked for 40 years in just two weeks."

I do not wish to re-open this subject, but to point out that the fall in the ringgit and the stock market in the last four-and-a-half months had been even sharper and greater than in those "two weeks" in July when George Soros allegedly undid what Malaysia had worked for 40 years!

On 30th June, the exchange rate of the ringgit was 2.5238 to a dollar; on July 26, it was 2.6475, but today it had crashed to as low as RM3.8450. The KLSE CI was 1,077.30 on June 30, 1,041.26 on July 26, but it had crashed to 526.12 on Wednesday last week (26/11/97), at one time touching the all-time low of 512.41 - just short of crashing through another 500-point psychological level within a week.

The Government should not be seen to be only concerned as to why in July the ringgit fell by 4.9 per cent and the stock market fell by 3.34 per cent, while not equally or more concerned as to why the ringgit and the stock market underwent even sharper and greater fall in the past four-and-a-half months, with the ringgit falling by a walloping 45 per cent while the KLSE CI dropping by 49.47 per cent!

While Malaysia should continue to press in world forums for international rules to regulate the global currency markets, our topmost agenda mustbe to stop the downward slide of the ringgit and the stock market and to get the national economic recovery seriously on track.

Malaysia has gained the unfavourable reputation of wanting to pin all blames for our national economic crisis on external factors, refusing to admit that there was anything wrong with our economies or policies, or to acknowledge the series avoidable self-inflicted wounds, whether the 100 "designated securities", the establishment of a RM60 billion fund to prop up the stock market, the threat of the use of the Internal Security Act against financial analysts and journalists writing unfavourable reports about the Malaysian economy, arbitrary interpretation of trading rules by the FIC, intemperate outbursts by the Prime Minister in international forums although knowing they would the effect of causing a collapse of the currency and the stock market, the UEM-Renong deal and the take-over of Bakun dam project by the government, the latest being RM10 billion land bridge project announcement.

Such an attitude would be a major flaw in any national economic recovery efforts in the country as well as making it difficult to prepare Malaysians to face the severe pains when the real economy is hit by the national economic crisis in the coming months - as indicated by warnings of price increases for essentials like sugar, cooking oil, potatoes and flour after the Chinese New Year and Hari Raya celebrations. The single greatest challenge today is for Malaysia to end the five-month long non-stop haemorrhage of confidence, embark on a programme of restoring confidence through political and economic reforms by uniting Malaysians to take some of the IMF bitter medicine without having to seek IMF bail-out such as government and corporate transparency.

One of the biggest obstacles to restoring confidence is the serious problem of information deficit in the country. The right of Malaysians to information is an important key to restoring confidence and the government should not treat Malaysians as if they are children who could not withstand bad news.

Recently, the local editors were instructed not to alarm Malaysians by giving the impression that there is a economic crisis in Malaysia, when all Malaysians should be told in no uncertain terms that we are in the thick of a national economic crisis.

There have also been attempts to mislead Malaysians about the gravity of the economic crisis. In Parliament on Thursday, during the debate on the Foreign Ministry allocations for the 1998 budget, when DAP MP for Kepong, Dr. Tan Seng Giaw, referred to the US$30 billion (RM108 billion) loss suffered by Malaysians as a result of the currency crisis, the Deputy Finance Minister, Datuk Dr. Affifuddin Omar interjected to say that this was "mere paper loss".

This prompted me to seek a clarification from the Deputy Foreign Minister, Datuk Dr. Leo Michael Toyad, during the winding-up of the debate as to whether the US$30 billion (RM108 billion) loss to Malaysians as a result of the currency crisis is a genuine loss or "mere paper loss", as the Prime Minister had been going all over the world talking about the iniquity and enormity of the catastrophe caused to Malaysia by the currency crisis.

It would appear that for international consumption, the US$30 billion (RM108 billion) loss as a result of the currency crisis is a real and genuine one, but for home consumption, it is a mere "paper loss" and not something to be too worried about - creating a grave credibility gap for the government in the process! When the Prime Minister was in Tokyo on Nov. 28, in a very offhanded manner, he suddenly made an major announcement that Malaysia’s economic growth next year would be 6 per cent or even lower - an announcement which should have been made inside the country and to Malaysians.

Four days later, on Tuesday, the Malaysian Institute of Economic Research lowered by a full percentage point its forecast for next year’s real GDP rate, from 6.8% to 5.8%, although it predicted that Malaysia should emerge from its present financial crisis and return to its 7%-8% GDP growth rate in two years in 2,000

Malaysians are rightly entitled to know the expert opinions of others as to whether the bottom has been reached in Malaysia as far as the economic and financial crisis is concerned.

In this context, it is most unfortunate that a report by Reuters yesterday forecasting that "Malaysia's economic growth will slow down sharply in 1998 as a belt-tightening budget and declines in stock and currency values begin to bite" had not been reported in the local mass media.

The Reuters report was based on a poll of 13 research houses in Malaysia and Singapore which yielded a median gross domestic product (GDP) growth rate estimate of 4.67 per cent for 1998 and 7.66 per cent for 1997. The forecasts were in a wide range, varying from 3.5 to 6.5 percent for next year and between 7.0 and 8.0 percent for 1997.

An economist with a Malaysian brokerage, requesting not to be identified, told the Reuters poll: "Though we cannot say it in Malaysia, I think growth will be between four and five percent".

According to the Reuters poll, economists blamed the recent slide of the Malaysian currency and stock prices on a large current account deficit and unsustainable growth levels, factors which have been central to financial turmoil in the region as a whole.

They said the Malaysian economy could also suffer from high interest rates, a liquidity crunch, sagging confidence, a loss of wealth due to stock and currency declines, increased competition in the export sector from other countries in the region and a potential slowdown in Japan.

Although the Reuters report yesteday contained "bad news", Malaysians should be trusted as capable of handling such bad news and to exercise judgement as to what to believe. The authorities should realise that there is nothing worse than manipulating or suppressing such "bad news", which is not only impossible in this era of Information Technology, but would give such "bad news" even greater currency, credibility and weight - which would be completely counter-productive to the paramount objective of restoring confidence during the economic crisis.

The tragedy about the information deficit in Malaysia is that Malaysians now depend on foreign mass media for news, analysis and information on the Malaysian economic crisis, with the local media treated with great skepticism - although some foreign mass media often contain misleading reports.

It has rightly been said that in nearly every economic crisis, the cause is political, not economic.

The question is whether the National Economic Action (NEAC) which is proposed could be a nationally unifying force to spearhead national economic recovery, but this will depend on whether the government is prepared to undertake political and economic reforms which are necessary for the success of any national revival plan and to allow the NEAC to deal with the causes and not just the symptoms of the national economic crisis.

The DAP supports the government's stand not to seek IMF help as an IMF bail-out would tantamout to Malaysia surrendering her national sovereignty as well as being very harsh and unacceptable in disregarding social justice for the people. However, Malaysia must be able to prescribe and take some of the bitter medicine IMF would have prescribed such as financial and economic reforms as well as greater government and corporate transparency and an all-out war against corruption - in other words, IMF bitter medicine without IMF.

As part of the strategy for national economic recovery, there should be a review of the New Economic Policy to terminate all inequitable and divisive policies and measures.


*Lim Kit Siang - Malaysian Parliamentary Opposition Leader, Democratic Action Party Secretary-General & Member of Parliament for Tanjong