An old sore

The squabble over "whether we should write to the World Bank for help" between Mahathir and Anwar Ibrahim has reawakened the memories of many a Malaysian at a time when the European debt crisis is casting a dark cloud over the global economy.

On July 1, 1997, just as I was still in Hong Kong covering the landmark event of the territory's return to China's sovereignty, the Thai government announced on the following day that it had abandoned the fixed currency exchange mechanism for a floating rate mechanism, triggering a widespread financial crisis across much of the region with Thailand, the Philippines, Indonesia and Malaysia being the most severely battered by foreign currency speculators.

Late October that year, the speculators moved over to Hong Kong, and in the month that followed, South Korea was also hurled into the crisis.

A year later, just when Malaysia was struggling to keep its economy afloat, the spat between Mahathir and his deputy Anwar broke out.

Mahathir was of the opinion that we should trim the interest rates and liberalise bank finances in order to stimulate public consumption, while Anwar Ibrahim, who was also the finance minister, was more inclined towards the IMF formula of perking up interest rates and tightening cash flow to keep inflation at bay.

September 1, 1998, the government implemented the exchange control policy. The following day, Anwar Ibrahim was dismissed as the deputy PM and finance minister. On September 20, he was put under arrest.

Looking back at the past, there is no question that those international currency speculators were downright detestable, but it was some of the inherent weaknesses in the economies of Asian countries, such as chronic reliance on short- to mid-term funds, economic structural imbalance coupled with the bubbling of their economies that had exposed them to such brutal speculative assaults.

Thanks to the assistance from the IMF, Thailand, Indonesia and South Korea had recovered from the downturn, but then why did Mahathir see a helping hand from the World Bank and IMF such a big humiliation?

Political considerations could never be ruled out in this respect. Once we sought assistance from the IMF, we would have to subject ourselves to the reform formula prescribed by the IMF. Mahathir used to think that Anwar was trying to mess up the economy and then topple him by bringing up the interest rates.

Moreover, companies closely linked to Umno, already suffering massive losses and incurring billions in ringgit in debts, would collapse if interest rates were not kept low.

Another thing, the general election was supposed to be held a year from then, and if the country were to kowtow to the IMF, the prospects of the national economy recovering by then would be murky.

As a consequence, Mahathir chose to play the risky game of implementing the capital control mechanism mostly on political ground.

In the 1990s, Mahathir launched a massive drive to build the country's infrastructure with the hope of developing the national economy through an expansionary approach, beginning with the Multimedia Super Corridor to the KLIA, Putrajaya administrative centre, Petronas Twin Towers, Sepang F1 Circuit, etc.

A big chunk of the country's resources was put on these mammoth projects, igniting the start of 15 consecutive years of budgetary deficits.

Did that sound any different from what Greece is going through right now?

Abdullah Badawi put a brake on these mega projects after he took over as the prime minister in hope of cutting back the deficits.

Today, the European countries have to seek assistance from the IMF to make up for the mistakes they have committed. If Malaysia wants to free itself from such "humiliation," it should steer clear of the same blunders.

But can we do that?

-Sin Chew Daily