EISUKE Sakakibara, Special advisor to the Japanese Minister of Finance,
said that he saw no
reason why Malaysia should remove its selective exchange rate controls.
And neither do the
Malaysian authorities.
Sakakibara, describing the measures first implemented on September 1 1998
as "courageous"
and argued that the exchange rate controls should in fact be "an instrument
in the arsenal of policy
options" available to a country.
The institutions to implement the measures must be in place and in Malaysia's
case Sakakibara
singled out Bank Negara, adding that "Malaysia has a very competent Central
Bank and that is a
must and crucial".
Malaysia's experience showed that selective exchange rate controls do work.
Contrary to
predictions of doom that there will be a "rush to the door" and that the
"move is expected to
uncork a stream of capital out of Malaysia" the outflow was very much smaller.
The forecast was for a minimum of US$3 billion (U$1 = RM3.80) and anything
up to US$10
billion. Many critics must have been dissapointed that on the first three
days of September just
US$462 million in portfolio funds found their way out. The net outflow
of funds works out to be
even much lower taking into account the inflow in the capital account.
Even following the relaxation of the controls and the imposition of a graduated
levy from February
15 1999 there has been a net inflow of funds to the tune of US$4 billion.
In addition, the
country's foreign reserves have risen to US$32 billion, more than sufficient
to cater to the outflow.
Some argue that Malaysia's economy has improved in line with those of the
region and those
under the International Monetary Fund's (IMF) tutelage. But they fail to
point out the "real story"
of recovery in each of the countries.
Even under the close supervision of the IMF and the conditions placed on
these countries there
continue to be reports of even more critical problems - the Bank Bali case
in Indonesia, the
Daewoo issue in South Korea and the renewed attack by a hedge fund on the
Thai baht by the
US-based Tiger Fund.
Malaysia, as Dr Mahathir said, did it on its own terms. It did not have
to go through "the misery
of massive unemployment; the tragedy of children thrown out of schools;
the decimation of the
middle class which we have spent a generation to build; blood on the streets
and political turmoil
throughout the land".
In addition the institutions in Malaysia remain intact unlike in other
countries where they have
come under severe pressure or have been totally destroyed. In other countries
much of the
corporate and financial sector has been "lost" to foreigners and they continue
to race and hope to
pick the prizes at fire sales and basement prices. "Economic colonialism"
is on the march.
In Malaysia at least the institutions, which are in much better shape and
healthy, remain within its
own control. Efforts are being made to strengthen the corporate and the
financial sector further
with enhanced corporate governance and merger and strengthening of banks.
Now that the dire consequences and the "rush to the door" to get the money
out on September 1
1999 did not materialise and the economy is clearly on the road to growth,
the critics now seem
to be changing their tune.
Among others they now claim that "serious criticism of the restrictions
has never claimed that they
would lead to immediate economic disaster". Unless one suffers from memory
lapses or selective
memory it will be recalled that the selective controls were described as
"voodo economics",
"outrageous", "worst possible choice" and that they would be a "spectacular
failure".
Malaysia was described as a "maverick" moving back to the "dark ages",
"shut its doors to the
global economy" labelled as a "pariah and a heretic" and "What Dr Mahathir
knows about
economics can be written on the back of a postage stamp".
The results however, speak for themselves. Now even some members of the
"Washington
Consensus" admit that Malaysia's measures have worked and Dr Amar Bhattacharya,
the World
Bank's Senior Advisor, said that Malaysia has proven that a consistent
"macro package" can play
a role during times of "large capital controls" adding that they "would
be studied".
The Group of Seven (G-7) at one of its recent meetings in Cologne, Germany,
admitted that
"under emergency conditions controls on capital outflow may be necessary".
Malaysia was condemned for its policies by the international community,
fund managers, market
players and many others, but the authorities were steadfast in their belief
that the "orthodox"
measures prescribed by the IMF would be even more damaging and disastrous.
The battery of criticism and opposition to its selective controls could
well be due, as Sakakibara
argued, to the fact that Malaysia and Dr Mahathir "challenged the US and
the world
establishment with his views and has succeeded ."
The existing rules of the financial world are biased towards Wall Street
and a number of people
there have vested interests in maintaining the status quo. Malaysia, a
small developing country,
with its policies and selective capital controls was seen to be changing
these rules and thus had to
be "stopped". Thus the violent and ballistic reaction and opposition to
the selective controls.
There is no one road that leads to Rome and thus no one option to solving
the global financial
crisis. The results speak for themselves and Malaysia has shown the world
that there is another
"softer" alternative to the painful text book solutions applied on a regular
basis.
Malaysian authorities neverthless are the first to admit that there is
still a lot of work ahead. Even
as recovery is clearly underway reform will take time and certainly cannot
be implemented
overnight. As Dr Mahathir said "we have suffered too much pain" and even
as the country moves
ahead "we will not forget that we need reform. But in the meantime don't
grudge us our
recovery".