April has been a cruel month for the rulers of Malaysia. Standard & Poor's lowered its rating of the country's currency, citing the fear that bad loans may reach 20% of local banks' portfolios by yearend. The local stock market dropped 2.4% in one day, in part because of rumors that Malaysian Airline System, the national carrier, was preparing a complex restructuring that would also cover its chief executive's personal debts. The deal renewed foreign investors' concerns that the country was sanctioning rescue attempts for politically linked conglomerates at the expense of minority shareholders.
Yet Prime Minister Mahathir Mohamad is sticking to his own formula for fixing the nation's ills. He hopes high interest rates and some bank reform will force Malaysia Inc. to get more competitive. But he's also keeping banks and giant corporations afloat to minimize social instability. "Our model is [doing it] our way," says Daim Zainuddin, Mahathir's top economic adviser. The fear is growing, however, that a quick rebound is impossible. "The worst is yet to come," warns Mohamed Ariff, executive director of the Ma-laysian Institute of Economic Research.
In an Apr. 20 interview, the 72-year-old Prime Minister seemed more subdued than at the start of the crisis but remains a sharp critic of the International Monetary Fund and the doctrine of free currency flows. He spoke with Asia Regional Editor Joyce Barnathan and Singapore Bureau Manager Michael Shari in his office.
Q: What are the lessons of the Asian financial crisis?
A: That we are not invulnerable, that our currency is no longer determined by our banks, that others can devalue our currency at will.
Q: You remain critical of how exchange rates are determined by market forces.
A: Market forces are motivated not by the desire to discipline governments but to make money. It's not in their interest to stabilize currencies.
Q: In a recent speech, you still imply that fund managers are responsible for the collapse of the ringgit.
A: Well, that's what I believe. I may be wrong. But since they refuse to expose the manner of their determining the value of a currency, I assume what I said is right.
Q: Do you expect to see a consolidation in the banking sector in Malaysia?
A: The banks should not default, at least not because of what they did. They were quite capable of lending the money and quite capable of collecting their debts. But when you devalue the currency and you depreciate the value of the banks' shares, people assume the banks must be in trouble.... As far as the government is concerned, we will have to help the banks remain viable.
Q: Are you concerned that financial reform will lead to social upheaval?
A: If in the process [of reform], you cause massive unemployment, social problems, political problems, you're not really doing yourself a good turn.
Q: But the argument is that after some short-term pain, in the long term, you come out more competitive.
A: I don't buy that idea. After you have killed a whole lot of people, killed a lot of companies, decimated all banks, reduced confidence, then you say: `Now, we are strong again?' No, it doesn't happen that way. It took us 40 years to reach where we were [before the crisis]. Today, we are set back by more than 25 years.
Q: Do you stand by your comments blaming George Soros and a Jewish conspiracy for the crisis?
A: Yes and no, as far as George Soros is concerned. I am quite sure he had a role to play. And when he does something, the rest of the herd follows. It's not a good commentary on our civilization that we behave like buffaloes who swing from one side to another depending on the direction of the leader.
Q: What about a Jewish conspiracy?
A: As far as a Jewish conspiracy is concerned, what I said in the speech is that since most of the currency traders are Jewish, and it affects Muslim countries in East Asia, people will think this is a Jewish conspiracy. I didn't say I think this is a Jewish conspiracy.
Q: Do you think Jewish traders intended to hurt Malaysia?
A: No. I think they want money. It is profitable for them. When you devalue currency and you short-sell, you make a lot of money. Everybody wants money. And here is a cheap way to make money. You just push figures on a computer screen, and you make a billion dollars. I would do that, too, if I got a chance.
Q: So it's not an ethnic issue.
A: It's not an ethnic thing. It's just perhaps greed, which can be found among Jews, among anybody else. I am quite sure some of the traders are not Jews, but they are also motivated by profit.
Q: What about the IMF study that says domestic investors are responsible for the crisis?
A: I would like to see on what basis the IMF concludes that Malaysians devalued their own currency and caused unhappiness for themselves.
Q: Have you seen the IMF study?
A: I have not. I have had communication with [IMF director] Michel Camdessus, who explained that the hedge funds amount to only $180 billion but that banks are also involved in currency trading. And the banks have got $23 trillion. How can you counter that?
Q: You can't. But what the IMF is saying is that hedge funds police the currencies.
A: But every time a policeman arrests a person, he makes a lot of money. Would you trust that policeman?
Q: What about charges your son Mirzan is seeking a bailout for his company?
A:Our practice is whenever our relatives are concerned, we don't get involved. If you think I have tried to help my son, you are entitled to think so, but as far as I am concerned, I don't get involved.
Q: Are you disappointed with Japan's leadership role in the region?
A: Yes and no. When the trouble started, Japan offered to raise $100 billion to support these countries. But others objected because they said this would undermine the IMF. I am disappointed with Japan because they have $200 billion in U.S. government bonds, which they can sell off to strengthen the yen--and maybe even buy ringgit. They haven't done so.
Q: Is China taking a greater leadership role in Asia?
A: We have to thank China for not devaluing their renminbi. But one has to remember China is a developing country.
Q: Is the government united? When Deputy Prime Minister Anwar Ibrahim was in the U.S., he talked a lot about reform, but the tone of this interview is quite different.
A: He said that there should be openness not only for governments but accountability on the part of those who deal in currencies and that the movement of short-term capital is not well-documented. People keep on wanting to publish what he says about liberalization. I say the same thing, but nobody mentions it. He admits and I admit we have done things which may be considered wrong in the eyes of foreign investors.
Q: What are you referring to?
A: About crony capitalism. We don't have a monopoly on that. In other countries, they have this. We are willing to do away with that. We are not corrupt because we want to be corrupt. But people...talk about crony capitalism as if we go and find cronies. What we do is when people have the capacity to do well, we give them a hand.
Q: What is your greatest worry now?
A: It is the continuation of these kind of [currency] attacks. There is no guarantee that they will not start again.