(Petaling Jaya, Saturday): Whether Malaysia has to follow the example of Thailand, Indonesia and South Korea and seek International Monetary Fund bail-out has become a hot topic among Malaysians, although this is not reflected in the mass media coverage.
While the Prime Minister, Datuk Seri Dr. Mahathir Mohamad has warned that IMF bail-out would come with conditions that would lead to many local companies suffering losses and going bankrupt as well as the loss of national economic sovereignty, the government should be aware that more and more Malaysians would be considering the IMF option if the economic crisis worsens and the government fails to show the political will to carry out much-needed political, economic and financial reforms to effect an economic recovery and turnaround.
This would be unfortunate, especially at a time when the IMF strategy to bail out troubled economies is coming under increasing criticism, with more and more economists coming to the view that IMF's standard response to modern-day currency crisis is doomed to failure.
One critique is that the IMF' approach in its country-specific bail-outs is inherently reactive, providing assistance to countries only after they have reached a state of full-blown crisis.
Under those circumnstances, crisis economies are notorious for understating their currency exposure, their banking system liquidity, and their short-term indebtedness; as a result, they typically tend to overstate their capacity to defend beleagured currencies - leading to what has been described as a "deficient-bailout" syndrome.
This reactive approach has turned out to be forever behind the curve, especially in light of the destabilizing contagion that can now be transmitted instantaneously through fast-moving global capital flows.
Another critique is that IMF's prescription is not the right cure for the Asian economic crisis. Jeffrey Sachs, the head of Harvard's Institute for International Development, attacks the IMF for making the situation in Asia worse.
Sachs says the IMF pays lip service to transparency but offers no public documentation of its decisions, except brief press releases without the details needed for professional evaluation of its programmes.
He said it "defies logic" to believe that the small group of 1,000 economists on 19th Street in Washington should dictate the economic conditions of life to 75 developing countries with around 1.4 billion people, working out to an average of seven IMF economists dealing with a country, "who would not be enough to get a sophisticated view of what is happening".
The third critique is that IMF cures do not always work, as seen by the IMF failures in Mozambique and Bulgaria as well as the IMF mishandling of the Russian reforms.
Another critique is the IMF's role as the chief debt collector for international banks, resulting in its double-standards in the way IMF treats the interests of international banks on one hand and local institutions and local people on the other, a case which has been very well presented by Martin Khor of the Third World Network.
IMF insists on the condition that the client government not spend public funds to rescue or subsidise the country's ailing banks, finance companies and corporations on the grounds that market forces should not be tampered with, and local private financial institutions, companies and businessmen that are insolvent should be forced into bankrupcy. Those who have made business mistakes should pay for them. Aiding the private sector would be inefficient and against the rules of free market.
However, this principle of not interfering with free market forces is not applied to the foreign banks and financial institutions that have lent in foreign currency to the local private sector. They have to be repaid in full. They are not required to suffer (in fact they are protected from) any losses for their wrong decisions in providing credit to customers that are now insolvent.
As a result, a large part of the massive IMF-coordinated loans to Thailand, Indonesia and South Korea might not land there as many billions of dollars of the IMF "bail-out" funds would simply be transferred from the IMF to the governments for rechannelling to the international banks to service mostly sour private-sector loans. This is tantamount to a massive subsidy to the international banks.
The Malaysian Government must take Malaysians into its confidence and engage Malaysians in a full and frank discussion as to why the IMF option is not the appropriate option for the country.
To do so, the government must restore confidence of the people that it could come out with a national economic recovery stratetgy to check the slide of the currency and stock markets, prevent the crisis spreading to other sectors like banking, finance and property, and engineer an economic turnaround in the shortest time possible.
The government must be able to lead Malaysians to show the world a new solution for troubled economies - the ability to self-prescribe bitter IMF-like medicine without having to run to IMF and surrender national economic sovereignty.