ASIA: Mahathir’s Call to Tame Speculators Gets Second Look

By IPS Correspondents Reprint | | Print |

Analysis - Mohan Srilal

SINGAPORE, Oct 13 1997 (IPS) - After drawing an avalanche of harsh criticism, Malaysian Prime Minister Mahathir Mohamad’s campaign against unscrupulous currency speculators is spurring a second, more serious, look in the region.

Last week, Malaysian finance minister and deputy premier Anwar Ibrahim announced that the International Monetary Fund (IMF) and the World Bank have agreed to discuss his country’s proposal to seek ways to regulate currency trading.

This seems to have triggered a chain reaction in the region, with even some of Singapore’s traditionally conservative analysts warming up to Mahathir’s campaign.

Until Anwar’s disclosure — since confirmed by the IMF — Mahatir’s attacks on speculators were seen in a grim light here and abroad, and with a lot of nervousness.

Many called Mahathir irresponsible, and his suggestion unrealistic in a world of free markets. Others dismissed his remarks, saying they were intended only for his home audience and smacked of efforts to paint a conspiracy theory against Asia when there was none.

But shorn of these factors, analysts say Mahathir’s point lies not in complete agreement with his call to stop currency trading but to find a way to rein in excessive speculation of the type capable of seriously damaging developing economies without sound bases.

When Mahathir called for curbs on international currency speculation at the IMF-World Bank meeting in Hong Kong last month, the Malaysian ringgit went into a rapid spiral and dragged down the region’s already battered currencies — Indonesia’s rupiah and Thailand’s baht.

A few days later he repeated these calls at a Pacific Economic Cooperation Council conference in Santiago, Chile, sparking off the same jitters. The ringgit fell by 4 percent within two hours to an all-time low against the U.S. dollar.

The rupiah fell to a historic low, and even the usually unflappable Singapore dollar fell to a 39-month low against the U.S. currency.

Currency dealers were exasperated at Mahathir’s remarks. “I don’t know why he has to say these kinds of things over and over again. He knows by now that each time he opens his mouth, the ringgit gets hit,” one senior currency dealer with Malaysian banks told Singapore’s ‘Strait Times’ then.

Currency speculators are “rich people from rich countries” who “have no compunction about impoverishing the poor in order to enrich themselves”, Mahathir said.

While they make money by hedging on the value of Asian currencies, ordinary folk are sideswiped by the effects of currency speculation that in recent months have seriously undercut the value of their money, he argued.

“Currency trading and short-selling only benefits the few speculators and those who invest in their funds. They are shadowy figures whose trading is far from open,” Mahathir said, adding that “there seem to be no published record of the transactions, the volume, the funds and the individuals involved”.

Noting that free trade is not a religion, Mahathir reiterated: “I would like to suggest that currencies should be linked to the economic indices of the countries concerned. I would like to propose a return to rationality rather than self-serving sentiments.”

Interestingly, Mahathir himself had predicted that the ringgit would drop in value after his speech in Santiago.

But by keeping up his attacks on foreign speculators despite criticism that he was hurting South-east Asian economies, analysts say he was perhaps trying to make a point — that the currency fluctuations are often more political than economic.

As one former Singaporean business writer observed, the currency movements did not reflect any dramatic changes in the economic indicators in the region’s economies.

“This is not economics, it’s purely political,” the writer told IPS, asking that his name not be used. “There is a clear attempt to stop Asian leaders speaking out their mind on world affairs.”

Analysts say sentiments in the region may finally be turning around to giving Mahathir’s remarks another look, at a time when some western media have gone to the extent of calling for his resignation.

In an article called ‘Were Mahathir’s Words So Outrageous?’, ‘Straits Times’ economic analyst Tan Sai Siong pointed out that despite strong solidarity in the region with Mahathir’s call to rein in speculative hedge funds, these views have been articulated only mutely.

Explained Tan: “Any country which says unequivocally that there may be a point in Dr Mahathir’s call could find itself the next lightening rod.”

Though he called Mahathir a “loose cannon” and “a menace to his own country”, the U.S. hedge fund manager George Soros — the target of the Malaysian premier’s attacks — in essence does not disagree with most of what Mahathir has said, Tan contends.

“If markets cannot correct their own mistakes and opening up the domestic financial sector isn’t the best remedy, then shouldn’t we at least give Dr Mahathir a hearing?” Tan asked.

Mahathir’s deputy, Anwar, says the premier’s outspoken style has shocked international bodies and gotten the IMF to study Malaysia’s proposal to introduce laws on hedge fund activities.

The IMF has asked Malaysia to come forth with its proposals, which Mahathir has hinted would include proposals to set up a currency trading market, similar to that of the stock and commodities bourses, where participants are registered with a regulating body.

Malaysia has also been asked by the WB to second a Malaysian to official work on its study to regulate currency trading.

Mahathir said he was honoured by the IMF gesture, which he called “a shot in the arm” for his crusade to fight manipulation and ensure more transparency in currency trading.

World Trade Organisation (WTO) chief Renato Ruggeiro has also asked for more information from Malaysia about its proposals for curbs on currency trading.

The WTO is worried about a backlash in Asia against the rapid liberalisation of financial markets, as a result of South-east Asia’s currency turmoil. Its deadline for reaching an international agreement on financial liberalisation is Dec 12.

But Thailand has already told the WTO it is unable to further open up battered financial markets to outside competition. In a last-ditch effort to get support for the accord on financial markets, Ruggeiro is visiting Kuala Lumpur at the end of October.

Meantime, Malaysia is keeping up its campaign to drive home the risks of excessive currency speculation at fora such as the upcoming meetings of South-east Asian economic ministers and the Group of 15 (G-15) developing country leaders.

The lesson Malaysia and South-east Asia must learn from currency woes is that “we must strengthen our defences with urgency,” said a former banker, Malaysia’s Ramon Navaratnam.

“They (the West) would encourage and coerce us to liberalise so that they will be able to gain much more from open competition because of their superior strength,” he pointed out, adding that WTO and other free trade obligations must be set aside until Malaysia’s balance of payments situation improves.