(Note: I was unable to get the exact date when this article was published but it probably appeared towards the end of 2000. -GPJ.)

Mahathir's Mantra: Resonances Beyond Malaysia

By Shastri Ramachandaran

Malaysia’s Prime Minister Dr. Mahathir Mohamad should be feeling on top of the world. His mantras have worked wonders. Less than three years after the Asian currency crisis destabilised the economies of Malaysia, South Korea, Thailand, Indonesia and Philippines, it is only Malaysia that has bounced back with revived vigour.
The mood in the country is upbeat. It does not take the visitor long, after landing in Kuala Lumpur, to figure out that the dazzle is not only because of the tropical sunlight in which Malaysia is basking. It is also the brightness of the halo that Mahathir has acquired for pulling his country back from the brink, as it were, to remake the economic miracle. Asiaweek’s casting of its Dream Team — listing Mahathir as the ideal Interior Minister for an Asian Cabinet headed by Indian Prime Minister Atal Behari Vajpayee — and Malaysia leading the Commonwealth team to resolve the crisis in Fiji, could not have come at a more opportune time to focus attention on the combative Malaysian leader.
Mahathir’s strong points are economic and ethnic management. But where is Malaysia, under Mahathir, headed? Will he succeed in carving out for the country a larger role in the region and Asia? That certainly seems to be his ambition, to create a new economic community and a different financial climate. Mahathir is ready, but can Malaysia be the springboard that he sees it to be? The answers are not easy, but there are many pointers. The most stunning being the country’s remarkable economic recovery and how this was accomplished. And this economic recovery is pregnant with implications for Asia and the international financial community. These, in turn, have relevance for South Asia and its dominant power, India.
While Mahathir’s success in ‘ethnic management’ is no less celebrated than Malaysia’s economic prowess, of late the former is facing challenges. There is an Islamic surge that Mahathir’s United Malays National Organisation (UMNO) is hard put to cope with, and which in the long run may force changes and radically alter the balance of power in Malaysian politics and society.
To take the economy first. Since Independence from British rule in 1957, Malaysia has modernised faster than South Asian countries which won freedom a good decade earlier. It had inherited a legacy similar to that of India and Pakistan in 1947 — multi-ethnic, multi-lingual, surviving kingdoms that were out of joint with the political times, backward with little or no industrialisation and infrastructure for development such as transport, communication, education, health, etc. Like South Asia, Malaysia, too, witnessed a communist insurgency — which was ruthlessly crushed — and ethnic conflict was contained by a series of measures, including the son-of-the-soil Bumiputra policy.
At Independence, Malaysia could boast of nothing more than being the world’s largest exporter of rubber. The other export was tin. Imports drained the exchequer, and the economy was excessively dependent on foreign services for earnings in shipping, banking and insurance. Well-to-do Malaysians found that the best things were to be had abroad and they went for them — tourism, education and shopping. The immediate post-colonial condition was not different from that of the newly independent countries of South Asia, but that is now in the past.
Malaysia quickly proceeded to strengthen and diversify its economy. While sustaining rubber and tin exports, it embarked on rapid modernisation and development of industries. The emphasis on plantation shifted from rubber to oil palms. Since the second half of 1980s, Malaysia has emerged as the world’s leading exporter of palmolien oil, mainly to India, Pakistan and West Asia, while rubber remains a major export. Most of the high grade oil from the South China Sea is exported to the United States while the country imports petroleum for its own use from West Asia. In recent years all these exports have been overtaken by manufactured goods — microchips, electrical and electronics — which have become the No.1 foreign exchange earner.
Alongside this were efforts, launched in 1972, to boost tourism and reverse the trend of Malaysians travelling abroad for university education, recreation, holidays and shopping. With the creation of several colleges, the ranks of those going abroad for basic university education — which was unavoidable till the 1980s — has fallen to a trickle. Now tourism brings in over eight million people, a leap over the 5.5 million tourist arrivals recorded as recently as 1998. The new Kuala Lumpur International Airport, with five storeys to facilitate hassle-free arrival and departure, is a city by itself spread over 800 acres — the master plan provides for 8,000 acres — with a capacity to handle 25 million passengers annually.
Such approaches to tourism development — the conception as well as delivery through tight construction schedules — are worthy of emulation, as is the resolve behind increasing hotel rooms from 65,000 to 95,000 in less than five years. Malaysia has much to offer the tourist — its many islands, communities and cultures, sun, sand, sea and clear waters, all accessible and enjoyable because of the facilities for sport, adventure and amusement. But this was always there, what is different now is the aggressive marketing.
The Malaysian economy’s strengths in key sectors which give it a competitive edge in the international market are all too evident. It has made its own Proton car a popular brand, and confidently welcomes foreign investment in all kinds of arenas. Some of the biggest electronic companies, like Sony and Matsushita, now have their factories in Malaysia. And the Malaysian consumer being highly brand conscious, domestic manufacturers have had to pull up their act to be on par with the best available elsewhere. The domestic industry has been forced to upgrade in order to compete in quality and cost to cater to all classes of people.
Even as Malaysia was riding the boom, with its currency strong and free-floating, valued at RM 3.8 to a US dollar with billions of ringgits stashed by Malaysians in banks abroad, (particularly Singapore because of the high interest rate on savings in the city-state), it was derailed by shock effects of the currency crisis. The crisis was attributed to the mischief of the "rogue speculator", George Soros, the US-based financier whom Mahathir called a "moron". It is estimated that Malaysia lost US$40 billion in the crisis, and much more — the gains of 20 years of development. There was a titanic clash between Mahathir and Soros, with the latter calling for the former’s removal from office and the uncompromising Prime Minister not only sticking to his guns but pouring scorn on international counsel for recovery and insisting that he would manage Malaysia’s recovery "my way". Even as Mahathir and Soros exchanged colourful epithets, the international financial community demonised Mahathir as a "lunatic" and forecast — and perhaps even wished — a catastrophic end for Malaysia and Mahathir. Experts, economists, global crisis managers and international financial institutions, including the IMF and World Bank, came out with predictable prescriptions of tight fiscal and monetary policies, multi-billion dollar bail-out packages and conditionalities such as freer trade and capital flows. While the other crisis-hit countries — Indonesia, Thailand, South Korea and the Philippines — went hat in hand and head bowed to the superior wisdom being doled out from the West, Mahathir went his own way.
Even during the worst moments of the crisis, there was no severe recession in Malaysia. Nor did it witness the kind of political and social unrest that other countries such as Indonesia succumbed to. Mahathir turned conventional economic wisdom on its head and imposed a regime of strict short-term capital controls. The ringgit was made non-convertible and pegged to the dollar — from a pre-crisis high of RM 4.2 to 3.8 to a dollar. Holding of ringgits in accounts abroad — mainly in Singapore — was banned and these had to be brought into Malaysia. Government employees were forbidden to travel overseas and the facility allowing Malaysians employed abroad to bring home imported cars was scrapped. Foreign investors and industries were not allowed to repatriate profits for one year. Tough credit restrictions were imposed across the board.
Three agencies — for corporate debt restructuring, for asset management and for refinance — were set up which together helped industry to recover and achieve recapitalisation; and ensure that there were no sick or collapsing industries throwing workers out of jobs for want of expertise or resources for revival. In a radical departure from the prescribed antidote of curbing money supply and spending, Mahathir’s government declared 1999 as a tax-free year with no corporate and income tax being payable for one year. This was intended to increase spending and consumption and had its effect of staving off recession. More than that, it saw a higher offtake of home-produced goods, and forced Malaysian industries, till then dependent on loyal domestic consumers, to seek and find new export markets. What dropped was the sale of luxury, particularly imported, goods.
With more money in people's hands, the government enthused citizens to ‘spend, spend and spend’, one upshot of which was a boost to domestic tourism. This generated enough income to ensure that the hotel industry, including new properties, did very well, albeit less than normal, business.
Malaysia’s recovery is almost as full-blooded as it is dramatic. Today the ringgit is once again stable at 3.8 to a US dollar and it would be stronger if made convertible. And Mahathir’s vision is the talk of the international financial community. Meanwhile, it is his ideological foe, George Soros, who has had to eat the humble pie. Not only has Soros admitted that — "I screwed up" — which should be music to Mahathir’s ears — but he is the poorer and the wiser for the lessons learnt. Soros has opted out of global market speculation and many of his top executives are jumping ship to find greener pastures elsewhere. The assets of his flagship US$8.5 billion Quantum Fund have crashed by US$5 billion in the NASDAQ nosedive.
Mahathir has not only worsted Soros but also discredited doomsayers, particularly the strategists and economists of the IMF-World Bank, and all others who predicted certain disaster for Malaysia because of Mahathir’s go-it-alone strategy. Now the czars and Cassandras are talking about a new mindset triggered by Mahathir’s accomplishment. In a startling reversal, the World Bank has given up its opposition to short-term capital controls.
His success in the Malaysian turnaround could prove to be yet another launching pad for Mahathir’s ambitions, as he seems unlikely to retire from battle with a sense of triumph. There is a whole new ballgame that those presiding over the Western world’s financial architecture, founded on the might of the Bretton Woods twins, will now have to contend with. And this has to do with Mahathir’s larger ambitions, chiefly an Asian economic community, to which the United States has been explicitly hostile.
Mahathir has not only been inspired by the Japanese model but never fails to point to it as a beacon for others — particularly in Asia and Africa — aspiring to economic success. He has been ardently advocating the case for an Asian economic community that could acquire stability and security by delinking itself from the dollar. Instead of the dollar, Mahathir suggests, Asian currencies should be tied to the Japanese yen.
In good times, the West could simply ignore such suggestions and take comfort from the fact that conservative Japan is not inclined to break with conventional West-driven financial institutions and their practices. Japan has gone along with the tides of globalisation and swallowed theories of barrier-free trade and free capital flows as the accepted wisdom. Now with the World Bank itself retracting on short-term capital controls, Japan might be tempted to utilise this and justify its own resort to capital control measures. And should Japan opt for such a course, which it could if adequately goaded by Mahathir, it might be the axis for a new Asian economic community to begin taking shape. This will be a serious threat to the supremacy of so- called "master race economics" and the hegemony enjoyed by the international financial institutions. Mahathir has spoken enough on the subject to indicate that he has a whole series of arrangements thought out to humble the dollar and dollar-driven international capital flows.
This is a development to which South Asian countries should not only wake up to but remain cued in to, particularly when they are warming up to strengthen ties with ASEAN. Other than economic, there are security dimensions to what Mahathir is talking about, that ought to be of special interest to India and, therefore, to its neighbours as well.
Despite his somewhat blotted record on democracy at home, as exemplified by the repressive tactics he adopted to silence political critics and challengers like former Deputy Prime Minister Anwar Ibrahim, Mahathir has a lot going for him. His voice matters the most in ASEAN and Southeast Asia, and not only because of his formidable achievements on the economic front. He is also winning new friends and influencing other countries in Asia and Africa by exhorting them to look East — at models like Japan — and at the same time pressing for what he calls "smart partnerships" with Europe, arguing for cheaper transfer of technology. No South Asian country, including India which claims the mantle of regional leadership, has been able to push an economic and strategic agenda with such force and conviction in international forums in the interests of itself and its neighbours as Malaysia has been doing under Mahathir.
Mahathir has good reasons for doing what he is doing. Much of his aggressiveness, wherein he has cast himself as the spearhead of an alternative liberated from the ‘dictates of the dollar’ is also a shrewdly calculated bid for leadership of the Muslim community the world over. His berating of Soros as being "anti-Muslim" was intended to warm the cockles of every Islamic heart. He might well be aiming for leadership of the Islamic countries as his vision of the Muslim world, unlike that of many others, is a global one.
But in this race for global leadership, Malaysia will have to contend with Indonesia, which will certainly have no intention to play second fiddle to Mahathir. Leading the country with the world's largest Muslim population, Indonesia’s new President Abdurrahman Wahid has lent new impetus to regional initiatives on cooperation to realise his own vision of an "Asian renaissance".
New Delhi has compelling reasons to look East, although it may not be the reasons for which Mahathir is persuading African countries to do so. There are enough openings for India to more than make its presence felt in the ferment caused by new visions of Asian power and influence. This was highlighted by Singapore’s Foreign Minister S. Jayakumar during the recent visit of India’s External Affairs Minister Jaswant Singh to the island state. In Jayakumar’s perception, India will be a "part of whatever new equilibrium or security architecture or geopolitical balance" that eventually emerges in the context of the strategic shifts the region is going through now in matters both economic and security.
The question is whether India should await its "part" or take the lead for which it has enough motivation, including the fact that Singapore and Indonesia would prefer India as a counter-weight to Mahathir’s growing clout and also as a strategic counterpoint to China. Moreover, there are countries in the region which are not entirely at ease with the Islamic thrust of Mahathir.
Ironically the challenge to Mahathir’s Islamic battle-gear comes from within Malaysia itself. His ruling National Front, may have done a patch-up job of the crisis created by the representative of the Chinese party, Transport Minister Dr. Ling Liong Sik, quitting his ministership — the Minister has since returned to his job. But the cracks the episode revealed in the ethnic balance of the ruling coalition — of Malays, Chinese and Indians — are there to be seen.
In the elections held last Nov. 29 under the shadow of the ouster and disgrace of his No.2, Anwar Ibrahim, Mahathir and his party, UMNO, swept back to power albeit with a reduced majority. More significant than Mahathir's victory is the sweep of the Parti Islam Se-Malaysia (PAS), which won the mandate to rule in two states (Terengganu and Kelantan) and is now growing in appeal and support to seriously disturb the equilibrium of Mahathir's UMNO as well as the National Front.
Although Islam is the state religion, Malaysia’s Islamic society is very liberal in comparison. Now, as a result of the rising popularity and strength of PAS, it is UMNO which finds itself forced to appear more Islamic while the Islamic party for its part is projecting its liberal credentials to gather wider support. It is all too evident that Mahathir's drive for leadership of the international community of Muslims may well face its severest tests at home.