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  • Dec 27, 2014
  • Updated: 2:58pm
My Take
PUBLISHED : Wednesday, 27 March, 2013, 12:00am
UPDATED : Wednesday, 27 March, 2013, 3:09am

Malaysian PM was ahead of his time

Dr Mahathir Mohamad is having the last laugh. Rather than going cap in hand to the International Monetary Fund, the former prime minister of Malaysia was called an idiot, an ignoramus and a pariah for introducing capital controls during the Asian financial crisis. Now look what's happening in Europe, especially with the latest rescue of Cyprus' banking system.

Back then, Western savants and pundits were almost unanimous in denouncing Mahathir's measures. Why? Well, free-market fundamentalism - the (un)holy gospel of Washington, London, the IMF and the World Bank.

Now the Cypriot government is expected to impose capital curbs as part of the rescue package sanctioned by the so-called troika of the European Commission, European Central Bank and IMF. Measures will include restrictions on bank withdrawals severe enough that they may limit the ability of people to take money aboard. Umm, isn't this the euro we are talking about, the free currency of the euro zone?

Iceland, another tiny country, has also imposed capital controls since 2008. It is not part of the euro zone and was denounced by Western savants and pundits. Now its economy is recovering rather nicely. In December, the IMF effectively changed religions by claiming capital controls may sometimes be necessary and be the lesser of evils. Previously, it had favoured unfettered flows of money across borders. It's obvious that surging hot money moving swiftly in and out of developing economies without deep markets and well-functioning financial institutions could be highly destabilising. Since 2010, emerging countries such as Brazil, Indonesia, Thailand and Korea have introduced capital curbs to counter the ultra-loose monetary policy pursued by beleaguered Western economies.

As Paul Krugman of The New York Times has pointed out, capital controls were common in the post-war era, a much more stable time. But since we allowed international capital to go on steroids, he points to crises in Mexico, Brazil, Chile and Argentina in 1982; Sweden and Finland in 1991; Mexico again in 1995; Thailand, Malaysia, Korea and Indonesia in 1998; Argentina again in 2002; and recently Iceland, Ireland, Greece, Portugal, Spain, Italy and now Cyprus.

Mahathir, I salute you.


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This article is now closed to comments

Mea culpa as well. I held the opinion similar to the majority of Western economists toward Malaysia at that time -- that the country should be punished because its central bank had actually speculated -- not to be mistaken as managed float -- in foreign currency with ringgits. My position wasn't based on the same silly faith in free market capitalism of media ideologues. Instead, it was an outrage against its irresponsible monetary policy.
What a difference two decades make? With 20-20 hingsight, Malaysia's central bank behavior is no better or worse than the rich OECD countries. If anything, Western democracies have shown their wrongheaded fiscal policies are much worse because they are being held hostage by entitlement babies, warmongers and morons, who should not be given direct votes for a nation's leaders at the highest level.
Call me an atheist of the Democracy God. Though worshipped throughout the world, the internal conflicts of the concepts of such a beast are totally illogical and incomprehensible to me. Experimental governance with a scientific perspective is the only reasonable approach.
Did the horribly corrupt and despotic multi billionaire Mahathir pay Alex Lo to write the glowing article to sing the evil man's praises ? Malaysia landed in the ditch partially because of its central bank arbitraging the wrong way(with the full sanctioning of the evil man himself), and lost billions in the process.The ringgit traded at 1.8 Ringgit to US$1 before the crisis, and now sits at approximately 3Ringgit to US$1, a 66% depreciation of the Ringgit currency. Not bad compared to the Rhodesian Pound,or other ICU currencies,but compared to the stable Singapore and Brunei currencies,I won't call it any accomplishment. Malaysia was saved by the strong foreign exchange of its oil exports (>50% of government receipts),and not by Mahathir. The country ranked second recently, just behind China (the world's second largest economy, in the dubious winner's award for "illicit submarine money laundering out of the country" in $ amounts. Thats a staggering dubious record for a country of 20+ million people. Mahathir destroyed the country's judicial,policing,electoral monitoring,and etc etc etc. "Salute to Mahathir ?" Alex,I am afraid the vast majority of Malaysians would beg to differ with you.
Although Mahatir made the right move at the time, it's unlikely that he was driven by sound economic thoughts and principles. As a decision maker, survival instinct for his nation overcame any ideological disputes.
But you can’t say the same about many ideologically hardened Western economists. Whatever financial crises might confront them, they will stick to their guns on either side of the fresh water salt water divide.
GOP diehards like Michael Boskin, John Taylor – best known for his eponymous rule of Fed’s monetary policy, and even the expert growth theorist Robert Barro, will never deviate one iota from their entrenched positions. Financial economists like Gene Fama loves his efficient market theory so much that lack of a clear definition of “information” matters none at all. Robert Merton is totally blind to black swan events by walling himself inside the Gaussian Castle of Probability Density Functions.
Although I agree with Krugman’s opinion expressed in his NYT Op-ed, his Keynesian advocacy for all fiscal problems has similar paucity of empirics as his adversaries, his fresh water cousins at the University of Chicago.
You make great bedfellows: two more blatantly racist individuals would be hard to find.
Completely agree. The blind zeal by which the IMF and western economy pursued free capital flows should have been replaced by tempered empiricism. Mahathir was no visionary genius; but he is a practical man. The symptoms of currency speculation were blatantly evident to all at that time, except the ideological zealots.
There is always room eventually for common sense to have the last laugh. IMF and WTO should save themselves by accepting common sense without pretense and prejudice.
Your own Freudian projection is duly noted by sensible readers of Mr. Lo's column.


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