(Dewan Rakyat, Monday): The acid test of the 1998 Budget is whether it could restore investor confidence to address the twin ringgit and stock market crisis.
The Deputy Prime Minister and Finance Minister, Datuk Seri Anwar Ibrahim had recognised this when in his budget speech, he stressed that "The major challenge facing the economy is restoring economic stability and confidence in the economy".
As usual, the local mass media had glowing headlines for the 1998 budget, like the New Straits Times headline "A confidence boosting national Budget for 1998", the Star headline "Good Mix - Anwar unveils confidence-boosting measures", the Sun headline "Confidence boost" and the Business Times headline "A necessary prescription".
Barisan Nasional Ministers like MCA President Datuk Dr. Ling Liong Sik, Gerakan President Datuk Dr. Lim Keng Yaik and the MIC President, Datuk S. Samy Vellu competed with each other to praise it as "painless way to overcome current economic problems". Datuk Ling described it as "another good and caring budget".
The sky-high praises given by the Barisan Nasional leaders and local mass media after every budget presentation has become an annual affair. The 1997 Budget last October for instance was touted by Anwar as the "People’s Budget", "the budget to set the tone for the next century" and would address "some of the major concerns to allow us to move on to the next century".
As he said in his 1997 budget speech: "All the fundamentals of the Malaysian economy are strong except the balance of payments. This problem should be viewed as the birth pangs of a new economic era. What we are giving birth to is the economy of the 21st century".
At the time, the 1997 Budget received the usual fulsome praise of all Cabinet Ministers and sectors.
The 1997 Budget, however, not only failed to set the tone for the next century, but could not set the tone for the next 12 months, for what was described as "the birth pangs of a new economic era" proved to be more deadly, being one of the causes which plunged the country into the twin currency and stock market crisis which has shaken the very economic foundations of the country.
This sad history of the chorus of unthinking support by Barisan Nasional leaders and local media to the budget should make the Finance Minister more sensitive to the different chord struck by the foreign media.
For instance, the Singapore Business Times on Saturday carried the headline "Anwar’s austerity budget fails to impress", with the following report:
Finance Minister Anwar Ibrahim announced a suprise 2 percentage point cut in corporate tax and moved to rein in the economy with an austerity budget yesterday.
But his measures were poorly received by fund managers and analysts who felt they did not go far enough to address the overheating economy. Mr. Anwar did spell out measures to narrow the current account deficit, enhance the country’s export competitiveness and property market, and took steps to strengthen the financial sector.
He also signalled that further monetary measures may follow to curb runaway credit growth.
The markets responded by sending the ringgit down to 3.27 against the US dollar, against 3.17 on Thursday. Although most of the budget speech was delivered during the last hour of trading, the Kuala Lumpur Stock Exchange Composite Index fell 7.22 points to 794.80 points.
Analysts said the bourse had expected "more pain" and is likely to react negatively when it resumes trading on Monday.
"The cut in government spending is not deep enough to bring a sharp shrinkage in the current account deficit," said Daniel Lian, head of Asian markets research at ANZ Investment Bank in Singapore. "There's no relief for the ringgit."
Although Anwar said on Saturday that the 1998 Budget would restore confidence in the Malaysian economy as all necessary measures to deal with specific problems had been taken, he should give serious consideration to these negative reactions to the 1998 Budget as they are critical in determining as to whether the 1998 budget could succeed in its major challenge to restore economic stability and confidence in the economy and enable Malaysia to emerge from the twin currency and capital crisis with stronger fundamentals.
This morning, the markets have spoken loud and clear, and it is one of lack of confidence. The KLSE CI, which opened at 794.80, plunged further, at one point falling by 19.64 points to 775.16. The Malaysian ringgit also fell to 3.3365 against the US dollar, as compared to 3.27 on Friday, which is near the all-time low of 3.4080 on October 1 after Mahathir’s Chile speech.
Anwar and the Treasury officials should go back to the drawing board to ponder the clear signal of lack of confidence in the 1998 budget. Clearly, what are urgently lacking to restore confidence in the midst of the twin currency and stock market crisis are (I) good and consistent policies; and (2) transparency.
Foreign fund managers will go where there is profit to be made. The government must assure investors that it would ensure that there would be fair and transparent trading in the KLSE where rules are applied to all without fear or favour and that there would be no arbitrary imposition or interpretation of rules, whether it be the infamous 100 "designated securities" imposed on 28th August and withdrawn on 5th September or MRCB affair.
Malaysian Resources Corp (MRCB) had a poor showing last month after it announced that it had a waiver from the Securities Commission to make a mandatory general offer of RM15.20 for shares of New Straits Times Press (NSTP) and RM5.20 for shares of TV3, after its market purchases which would otherwise have triggered the mandatory general offer obligation under the Malaysian Code on Take-Overs and Mergers 1987,
A waiver in the application of Malaysian Code on Take-Overs and Mergers is only permissible if it is in the "national interest". What is the "national interest" factor to justify the waiver in the MRCB case? Is the "national interest" really involved or is it just "UMNO interest"?
Based on the original offer in March 1997 where MRCB had to offer shareholders of NSTP RM15.20 per share and TV3 RM5.20 per share, MRCB has saved approximately RM2.3 billion for itself or denied the minority shareholders of RM2.3 billion.
At a time when the country should be more diligent to restore investor confidence after the twin currency and stock market crises, the arbitrary decision in favour of MRCB has sent very negative reactions to both foreign and local investors, and had not prevented a plunge in the prices of these three stocks concerned although the waiver secured by the MRCB should have been very good news to the companies.
The 29th ASEAN Economic Ministers meeting in Kuala Lumpur over the weekend ended with an upbeat note, with the New Sunday Times carrying the front-page headline "Currency problems will not affect region - Asean meeting ends on a confident note".
However, the Government and Parliament should give serious attention to the article in the latest issue of the Economist October 18 - 24, 1997, under the heading "The blind, the deaf and the dumb", which said:
SHOCK, denial, anger and acceptance. The conventional analysis of the progress of grief also applies to the bereaved leaders of South-East Asia, mourning the loss of their status as economic miracle-workers. Most are still stuck in one or more of the first three stages, refusing to acknowledge that a large part of the region faces several years of slower economic growth and painful financial restructuring. As a result, they may be as ill prepared for the dire social and political consequences of the slowdown as they were for its onset…
A few days of calmer currency and stock-markets this month encouraged the hope that a turning-point had been reached…. But others believe it is a more fundamental economic malady, and one that will not be cured by leaders simply holding their breath.
The optimistic view is that the root of the difficulties is in the foreign-exchange markets: that after years of relying on links to a cheap American dollar, currencies were overvalued. In punishing this mistake, the markets have overshot. Common sense will soon return, and all that is needed is a consensus on new currency alignments, combined perhaps with trading regulations and a fighting fund to beat off speculators.
The pessimistic view is that the devaluations are symptoms of deeper economic problems, which policymakers have themselves exacerbated. In particular, banks in Malaysia, the Philippines and Indonesia face the risk of bad debts mounting to unbearable levels, as has already happened in Thailand. In that sense, this week was not so much a turning-point, but—in the words of Neil Saker, head of regional economic research for Socgen-Crosby, a firm of stockbrokers—"the beginning of the descent".
How steep the descent will be, and where it will end, are unknowable. At the least, it is going to involve—in all four countries—a period of fiscal austerity, higher unemployment and slower growth. It is also likely to involve the bankruptcy of some very influential people who have spent their money unwisely, otherwise foreign investors will still believe markets are rigged. They are already beginning to demand greater openness in everything from the balance-sheets of banks and companies to the awarding of government contracts and concessions. Even a Malaysian minister has suggested it may be time to review the practice of awarding such plums by "negotiated tender" instead of competitive bidding. Such reforms would strike at the heart of the cosy relationships in the region between businesses, banks and governments.
Undoubtedly, all the confidence-boosting efforts of the 1998 budget could easily be undone by confidence-shattering statements or pronouncements by the Prime Minister, and it is clear that his speech in Kuala Terengganu two Fridays ago that there is an intenational Jewish conspiracy and agenda to undermine and subvert the economy of Malaysia and other Muslim countries is still haunting Malaysia - although Mahathir had denied the next day that he had either said or implied that there was such an international Jewish conspiracy.
The problem is that Mahathir’s speech that there was an international Jewish conspiracy and agenda against Malaysia and other Muslim nations was reported by none other than the national news agency, Bernama, which was given extensive coverage in the international media, whether it be the Washington Post, the New York Times, the International Herald Tribune, the Los Angeles Times or the Sydney Morning Herald.
Furthermore, the same speech was reported also by the local newspapers.
Berita Harian of Oct. 11, for instance, carried the front-page banner headline "Krisis mata wang angkara Yahudi", which has the by-line of two reporters Azhar Abu Samah and Noor Jaafar, with the report:
"Kuala Terengganu, Jumaat - Datuk Seri Dr. Mahathir Mohamad berkata, kerajaan mengesyaki pihak Yahudi mempunyai rencana dan agenda tertentu untuk menjejaskan ekonomi negara ini dan negara Islam lain."
Utusan Malaysia also carried the story under its front-page banner headline: "Awas agenda Yahudi - PM dedahkan usaha lemahkan negara-negara Islam", in a report which by-lined Amir Sairufdin:
"Kuala Terengganu 10 Okt. - Datuk Seri Dr. Mahathir Mohamad mengesyaki masyarakat Yahudi mempunyai agenda dan rencana tertentu untuk menjatuhkan umat Islam dengan mengatur pelbagai usaha jahat termasuk melemahkan ekonomi dan mata wang negara-negara Islam".
The Star of the same day carried the story as a Page 2 lead with the headline: "PM: Jews unhappy to see us progress" which said:
"Kuala Terengganu: Prime Minister Datuk Seri Dr. Mahathir Mohamad said the speculative attacks on the ringgit could be the work of Jews who are uncomfortable with the progress of Muslim nations."
Thus, apart from Bernama, there are at least four other local journalists who had written up the same reports about Mahathir’s speech. Who were wrong - Mahathir or the Bernama and other local reporters?
Let us not distract the people and nation from the fundamental issue about our eonomic crisis - the question of restoring investor confidence, whether local or foreign.
Let us not take the easy way out by blaming our economic woes on an international mass media or Jewish conspiracy. Where we have made mistakes, let us be honest and brave enough to admit them and make corrections.
It is most unfortunate that there is a lot of press self-censorship by many local newspapers over overseas developments with direct bearing on the paramount question of confidence in the economy.
One example is the suppression of an Associated Press report from Hong Kong last Wednesday on the "strongest response yet from a foreign government to Mahathir’s increasingly virulent statements about the reasons for the 20-30 per cent plunge in the value of Malaysia’s currency since July".
The AP report datelined Hong Kong said:
Hong Kong - A senior US official said today that Malaysian Prime Minister Mahathir Mohamad’s allegations of a Jewish conspiracy against his country are outrageous and self-defeating.
It was the strongest response yet from a foreign government to Mahathir’s increasingly virulent statements about the reasons for the 20-30 per cent plunge in the value of Malaysia’s currency since July.
"Of course that characterization is utter nonsense and there’s no one in the region who takes that seriously," Stanley Roth, U.S. assistant secretary of state for East Asian and Pacific affairs, said at a news conference.
Roth was attending a conference organized by the World Economic Forum.
"I think it is an embarrassment," Roth said. "I think it has hurt Malaysia, that we have seen a direct correlation between some of these outrageous allegations and the fall in the currency in Malaysia as well as the stock market."
He said he hoped the remarks would end so that attention could focus on resolving the region-wide currency crisis.
I hold no watching brief for Stanley Roth, who either did not know that Mahathir had denied the next day that he had alleged that there was a Jewish conspiracy against Malaysia, or who did not give much weight to Mahathir’s denial. It is also up to the Malaysian government to make the appropriate response to Roth.
Malaysians, however, have a right to know that a senior US official had made such a strong statement to the reports about Mahathir’s speech in Kuala Terengganu last Friday, and local mass media which had exercised press self-censorship in not informing their readers of this news item are not contributing to the development of an Information Society.
The most serious case of mass media self-censorship is Friday’s news agency report that the World Jewish Congress would complain to the United Nations Human Rights Commission that recent comments by Mahathir were grotesque and played into stereotypes.
World Jewish Council Vice President Kalman Sultanik said he would also seek the support of the Vatican Council and the World Council of Churches in denouncing the remark.
"Prime Minister Mahathir sounds like he is speaking in the 1940s, not the 1990s," Sultanik said, adding that the complaint would be brought to the United Nations today because the United Nations five years ago declared anti-Semitism a form of racism and bigotry.
This is an example where all the confidence-boosting efforts of the 1998 Budget could be undone by the alleged speech of the Prime Minister in Kuala Trengganu with regard to the international Jewish conspiracy against Malaysia - including the ambitious RM5 billion Multimedia Super Corridor (MSC) project, as several members of the International Advisory Panel (IAP) on the MSC as well as several movers and shakers of the IT world are Jewish in origin.
Last week, the House was in an uproar when I referred to a Washington Post report dated October 13, 1997 that "Each time Mahathir speaks these days, the markets at home react - negatively. Malaysia’s currency, the ringgit, tumbles and stocks continue their downward slide".
MPs behind such an uproar in the Dewan Rakyat do not seem to know the dismay of Malaysians that although Mahathir knew that his speeches and statements would result in the slide of the ringgit and the stock market, Mahathir was openly heedless of the losses suffered by Malaysians by going ahead with such outbursts.
In Santiago early this month, Mahathir had forecast that the Malaysian currency would probably fall further after a speech he was set to make at the Asia-Pacific Co-operation Council dinner and he was proved right when the ringgit plunged over 4 per cent in less than two hours and at one point was losing one sen a minute, which spilled over to the stock market, driving the Kuala Lumpur Stock Exchange Composite Index of 100 blue chips down 2.30 per cent to 795.83 at the close.
Malaysians are entitled to ask whether this was the action of a responsible Prime Minister, who seemed to relish that his speeches could cause a hammering of the currency and the stock market!
Malaysia is going through a national economic crisis and the DAP is prepared to give full and unstinting support to the Prime Minister and the Government in efforts to overcome the crisis, and in particular, to restore confidence in the Malaysian economy.
We cannot, however, give a blank-cheque of support, such as endorsing the various outbursts by Mahathir which had led to new rounds of crisis in the currency and the stockmarket, and we would urge the Prime Minister to exercise the fullest of restraint in his pronouncements at this delicate stage of trying to restore confidence in the economy unless he substantiate his allegations - like the allegation that there is a Jewish conspiracy and agenda to undermine the Malaysian economy.
For instance, we cannot countenance the condemnation of Malaysians who have dissenting views from those of the Government as "traitors" or the threat to invoke the Internal Security Act against journalists, writers, financial analysts and economists who dare to depart from the official line - and for a period in August, the crisis atmosphere in Malaysia was so ominous that many thought there could be a repetition of Operation Lalang ten years ago with mass arrests of dissenters - which only deepened the sense of economic and national crisis in the country.
The New Sunday Times carried a cartoon yesterday of Uncle Sam making use of the Western media to force Malaysians to change the political leadership with the threat: "Change Your Leaders Or We Will Take All Your Money".
Although the DAP is an opposition party, we will give full support to Mahathir if the United States or any Western nation attempts to interfere in the domestic affairs of Malaysia by wanting to force a change of political leadership not to its liking. Whether Mahathir remains as Prime Minister is a matter strictly to be decided by Malaysians, and it is no business either of the United States or any other Western nation to dictate to Malaysia as to who should be the Prime Minister.
However, Malaysians should not fall easy prey to the conspiracy theory of an international mass media or Jewish plot to force a change of leadership through engineering the twin currency and stock market crisis without proper evidence or substantiation.
Nor should this be the excuse for censoring or denying access of foreign mass media reports, however unfavourable to Malaysian leaders, as we should have more confidence in the maturity and judgement of our people to distinguish between right and wrong, true and untrue.
In fact, Malaysians should be encouraged to know what the foreign mass media are reporting about Malaysia, to reject what is wrong and untrue but to take serious note of what is right and true, as the Malaysian mass media is too controlled to give a true and fair reflection of what is happening in the country.
In the past three months, the international media had raised various issues and Malaysians are entitled to know the government’s position.
For instance, it has been reported that Mahathir had been influenced by a publication, Executive Intelligence Report (EIR) put out by a conservative think tank headed by Lyndon LaRouche and it had been noted that some of the Prime Minister’s comments were almost verbatim from the think tank’s newsletter.
Lyndon LaRouche Jr has been described as an eccentric 75-year-old American who spins elaborate conspiracy theories, has run unsuccessfuly for president five times and was convicted in 1989 of conspiracy charges in the U.S.
When Mahathir attacked George Soros, saying "He’s no Robin Hood. He takes from the poor and fills his own position", he was echoing a phrase from the EIR.
I am neither detractor nor defender for Lyndon LaRouche. A search of Internet discloses that another conspiracy theory of Lyndon LaRouche is that Princess Diana did not die in an accident but was assassinated and her death made to appear to be an accident. Does Mahathir buy this conspiracy theory of LaRouche?
On September 8, 1997, the Singapore Business Times reported that a survey of 12 tycoons found that their share of the total market capitalisation on the Malaysian bourse dipped from 10.6 per cent on March 28 to 9.9 per cent on Sept. 4, representing a combined loss of RM40.8 billion.
The paper losses ranged from a colossal 69.2 per cent fall for Mirzan Mahathir or a loss of RM 3 billion to a 19.2 per cent drop for the Yeoh Tiong Lay family.
The March 28-Sept. 4 period covers the day Bank Negara sparked a sell-off with its stringent guidelines on property and stock purchases to the aftermath to the Kuala Lumpur Stock Exchange’s new trading curbs, subsequently lifted.
Were the Prime Minister’s various outbursts sparking off mini-crisis of their own in the Malaysian ringgit and the KLSE in any way related to the virtual halving of the worth of Malaysia’s top 12 tycoons with a combined paper loss of RM40.8 billion on Sept. 4?
Malaysians should not give blind support or credence to foreign mass media reporting about Malaysia, but they should not also blindly reject what is in the foreign media.
While the DAP does not support the various outbursts by Mahathir which had hurt himself as well as the Malaysian economy, DAP supports his proposal for international regulation to prevent abuses and manipulation in the international money market.
The Nobel laureate James Tobin of Yale University has called for a turnover tax on foreign exchange spot transactions to enable national authorities to operate more independent monetary policies, discourage speculative capital movements and increase the relative weight of long-term economic fundamentals against short-term, speculative activity.
Another Nobel laureate, Lawrence Klein, has mentioned two other options: regional monetary arrangements and the introduction of "circuit-breakers" into the system - a suggestion also made by the World Bank’s chief economist, Joseph Stiglitz.
The dangers associated with financial liberalization have now become evident, but are not being sufficiently addressed. Most cannot be addressed unilaterally without great cost, as market reactions to Mahathir’s remarks have made clear. Hence, these need to be actively pursued through multilateral initiatives for which we need the support of neighbours and others. The few options for unilateral initiatives should be carefully considered, and if desirable, implemented.