Sunday, May 01, 2005

What if there had been no Mahathir?


Jakarta Post, Jakarta, Indonesia
November 23, 2003

By Thang D. Nguyen, Program Coordinator, United in Diversity Forum, Jakarta

As Prime Minister Mahathir bin Mohamad of Malaysia retired after 22 years of leadership, it is interesting to ask, how and what would Malaysia be today, had he not been there? The answer to this question depends on whom you ask. My take is as follows.

First, the Malaysian economy would not be strong as it is now. Since its independence in 1957, this former British colony has been transformed from a commodity-exporting country to one of Asia's "tiger" economies and the world's 18th biggest trader -- with a per-capita GDP of about US$9,300.

As one lands at the new Kuala Lumpur International Airport (KLIA), drives on its clean highways, and takes a lift to the top of the Petronas Towers, it is hard not to wonder how all of Malaysia's progress has been made.

Malaysia's economic development has arguably been most influenced by Mahathir's Look East Policy (LEP), which encourages Malaysians to look after Japan and South Korea as model economies and adopt their working ethics and methodologies. At the same time, this policy also calls for increased intra-Asia trade, as the region's diverse economies do have their own comparative advantages.

In retrospect, Malaysia would be one of the most prominent victims of the Asian financial crisis of 1997-1998, had it not been for Mahathir's Cassandra-like monetary decisions. At the peak of the crisis -- a contagion that started out in Thailand and spread to Indonesia, Korea, and the Philippines -- Mahathir called for a fixed exchange rate of $1.00/MR 3.80. His rationale was that a floating exchange regime would beget more financial speculation and make foreign assets -- which were borrowed in dollar and yielded their profits in local currencies -- more expensive to pay back if and when the Malaysian ringgit depreciated against the U.S. dollar. At the same time, he authorized a recall of Malaysian assets from abroad.

What made Malaysia's capital controls stand out was that they were implemented against the advice of the International Monetary Fund (IMF). Whereas other Southeast Asian victims went to the IMF cap in hand, Malaysia rejected the Fund's recommendations, which Mahathir called "the IMF's bitter medicine."

Were these capital controls the right thing to impose? Yes. In his influential book, Globalization and Its Discontents, Joseph Stiglitz, Nobel laureate economist and a former World Bank official, wrote: "There was little evidence that the capital controls discouraged foreign investors. Foreign investment actually increased." This, he argued, was because investors were concerned about both economic and political stabilities, and Malaysia did a far better job than its neighbors in keeping itself stable and secure.

Second, Malaysia would not be a stable and harmonious society as it is today. Few would deny that managing a society as diverse as Malaysia is extremely difficult. The Malaysian populace is made up of 48 percent Malays, 36 percent Chinese, and 9 percent Indians. This means that the economic pie must be big enough for everybody, and each group must have its share, if society is to be in order and peaceful.

When this arrangement is tilted, social violence becomes the solution to which the destitute and powerless come. This happened in May 1969 when riots broke out in Malaysia and took almost 200 lives. A state of emergency was declared and lasted for two years. Tun Razak, Malaysia's second prime minister, came to the conclusion that economic tensions were the root cause of these riots and, therefore, called for a New Economic Policy (NEP) to reduce poverty. In a nutshell, NEP was a 20-year plan designed to bring about economic balance among Malaysia's ethnic Chinese, the indigenous Malays (bumiputeras, or sons of the soil), and the rest of the population -- the equivalent of the U.S. "affirmative action" policy.

Even though Mahathir -- who lived through the 1969 riots himself -- did not invent the NEP, the Malaysian government has under his leadership successfully implemented it. The result is a stable place, in which both Malaysians and foreigners can work, invest, and live well. The proof of this is the ironic fact that the U.S. is still the biggest investor in Malaysia, despite Mahathir's views on globalization and other international challenges, which many perceive as to be anti-U.S., anti-West, and anti-Semite.

Finally, Malaysia would not be as progressive and, therefore, respected nation in the international community as it is now, had it not been for Mahathir's visions, boldness and convictions. A trained medical doctor who is known for his outspokenness, Prime Minister Mahathir always stresses open-mindedness, education, and diligence as keys to success.
He has initiated such projects as the Petronas Towers (the world's tallest building); the Proton (Malaysia's national car); the Multimedia Super Corridor (Malaysia's Silicon Valley); and the car-racing track Formula 1. Even though some have criticized them as expensive projects, they do reflect well on Malaysia's economic success and promote a strong sense of national unity and pride among Malaysians.

Whatever one thinks of the man and however one perceives his views, one thing is certain: Many developing countries want to achieve the same progress that Malaysia has, and the Muslim world can certainly use a few more Mahathirs. The problem is, leaders like him don't come by often.

Thang D. Nguyen is also the author of The Malaysian Journey: Progress in Diversity, and this article is a personal comment.

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