Is the worst over or is the economic situation going to get worse before it can  get better?

Media Statement
by Lim Kit Siang  

(Petaling Jaya, Monday): The admission by the Deputy Prime Minister and Finance Minister, Datuk Seri Anwar Ibrahim, that "the economic problems may make it no longer possible for the country to sustain a surplus or balanced budget" are indications that the economic situation is going to get worse before it could get better.

When Anwar visited New York in the middle of last month, he met and assured American bankers,  fund managers and  insurers  on April 14 that "the worst is over for Malaysia’s economy and that the country is recovering".

From the reactions of the American bankers, fund managers and insurers, it was clear that Anwar’s assurance was not very convincing.

The Chairman of Morgan Stanley Assets Management Barton Briggs said that Anwar was "very reassuring"  in their 30-minute meeting and what he said was "very interesting", and added:  "We want to go back and think about it, look at the numbers he points out to us, and we will make our assessment."

Briggs said: "Our concern is that the problems in Malaysia may not be over yet. Although it is stronger (than some other countries) the slower growth in the region and the problems in Indonesia and Thailand make us believe that the crisis may not be over for Malaysia."

The managing director and portfolio manager for the College Retirement Equities Fund, Richard Price, also gave a very guarded reaction when he said: "I like what I am hearing, although I would like to see and hear more".  The fund at its peak had invested up to US$200 million in the Kuala Lumpur Stock  Exchange, although now it has dropped to US$5 million.

He said: "You are only human. You mess up, you hit a rough spot  you pull together and you come out of it."  He said he got out because of the drop in share prices, water problems, haze and difficulties in funding working capital.

Price said that the willingness of Malaysian entrepreneurs to accept changes to their business practices would be a key factor to the fund returning in a big way.

The reservations of the American bankers, fund managers and insurers as to whether the worst is over for Malaysia have not been completely misplaced as the Kuala Lumpur Stock Exchange Composite Index, for instance, had kept falling from 664.84 point on April 14 to last Friday, when trading ended lower  by a walloping 64.79 points at the  580.05 mark  - reviving the spectre when the KLSE was at its worst month during the 11-month financial crisis in January this year.

When Anwar met the American bankers, fund managers and insurers, the Malaysian ringgit had stabilised to 3.675 to the US dollar but the ringgit could not strengthen or sustain its 3.6 level against the US dollar, weakening to the 3.7 level for the rest of the month and even falling at one time to 4.07 against the US dollar on May 7.

Last week’s renewed falls in East Asian stockmarkets have triggered deep fears that the regional financial and economic crisis is far from over and that adverse social consequences have yet to reach their climax.

The Asian Development Bank’s  recent forecast at its annual general meeting in Geneva  that the crisis is likely to be much deeper and drawn out than  generally expected should give  sobering food for  thought to government policy makers who want to paint a picture that the worst is over for the Malaysian economic crisis.

 In its latest annual report published during the meeting, the ADB  warned that "while the brunt of adjustment is likely to be felt in 1998 -- some economies will actually contract -- it may be several  years before normal growth patterns reappear" and warned that  "the social costs"  of the economic crisis  could be very high.

The Institute of International Finance (IIF), a global association of financial institutions with over 280 members based in Zurich, Switzerland, has come out with more sobering forecasts.   Contrasting with claims by the International Monetary Fund that the worst of   the Asian crisis may be over, IIF research director Gregory Fager  suggested that a chain reaction of adverse economic events is only  just beginning to unfold in the region.

The Singapore Business Times today reported that unlike the IMF and other official bodies, the IIF does not see itself as having a "duty" to build confidence in its public statements.   Yet, since it represents leading private financial firms around the world, it is not given to making rash predictions.  Even so, the depth of the recession indicated in IIF's predictions shocked many bankers and financiers at the Geneva meeting.

It reported that the IIF  (whose forecasts have often been more bearish but proved more realistic than those of official bodies) warned of a  real GDP contraction of  12.5 to 15 per cent for Indonesia this year, 7 per cent in Thailand, 5 per cent in South Korea and 2 per cent in Malaysia.

What is the position of the Malaysian Government to the alarming forecast by IIF that there would be a contraction of 2 per cent in  the real GDP growth in Malaysia for this year?

Yesterday, the interview of the Prime Minister, Datuk Seri Dr. Mahathir Mohamad with CNBC correspondent was again telecast.  This was the interview where Mahathir  denied charges that Malaysia's economy had been weakened by widespread cronyism and nepotism and claiming that  he had many children who are poor.

In this CNBC interview, Mahathir also reiterated charges that Western currency speculators and hedge fund operators were responsible for weakening Southeast Asia's economies.  This raises the question why Anwar was in New York last month to woo the very hedge funds whose short-term capital flows had been blamed for destroying the 40 years of economic development in Malaysia  when the new international financial architecture to regulate capital flows has not yet been put in place?

But what is most disturbing about Mahathir’s interview with the CNBC is his insistence that there would be no internal changes or reforms, as the causes of the economic crisis are external, raising the question whether Malaysia would take even longer than other countries affected by the Asian financial turmoil to see light at the end of the tunnel.


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