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| ---------- Forwarded message ---------- Date: Fri, 06 Aug 1999 15:22:15 +0800 From: S Kamarulzaman Syed Kabeer <syedkamar@tnb.com.my> Subject: Malaysia's Mahathir Kowtows to China Yuan Policy: by:David DeRosa 8/2/99 16:33 Malaysia's Mahathir Kowtows to China Yuan Policy: David DeRosa (David DeRosa is president of DeRosa Research & Trading and manages an investment fund. He is also an adjunct finance professor at Yale School of Management. His opinions don't necessarily reflect those of Bloomberg News.) New York, Aug. 2 (Bloomberg) -- Malaysian Prime Minister Mahathir Mohamad is calling for China to devalue the yuan. Now that's something you don't hear every day - an Asian leader encouraging a devaluation of China's currency. Malaysia needs a devaluation of the yuan like it needs an outbreak of an infectious disease. If there is any silver lining in the Southeast Asian currency crisis of 1997-1998, it is that Asian countries have achieved a modicum of export-market competitiveness. But if China devalues, it may be second helpings of economic chaos for Asia. Most Asian countries are clawing over one another to gain or at least maintain competitiveness through devaluation. Japan committed to an unsuccessful policy of trying to weaken the yen. Korea is hell-bent on weakening its won. Thailand is protesting the strength of its baht. Yet here is Mahathir telling China to devalue, a step that would automatically siphon competitiveness out of his country and the rest of Southeast Asia! This is what Mahathir wrote today in his regular column in the Japanese daily Mainichi Shimbun ``It is really not fair to expect China not to devalue the yuan forever ... The yuan could be devalued a little without affecting the economies of East Asian countries.'' Heads Up? Does he know something we don't? Perhaps he knows that China is going to devalue the yuan? If so, then perhaps, given that he wouldn't be able to prevent this, he might as well endorse it. That way he gets out in front of the news, so to speak, and in the process plays up to the Chinese government. Yet if China were planning to devalue, why would it give Mahathir a heads-up? Mahathir also praised Beijing for ``holding steadfastly to its promise'' not to devalue the currency. This makes China his big pal. ``China is a friend indeed, much more so than some other so-called friends,'' he writes. Whether Mahathir has advanced knowledge of a major foreign exchange re-alignment or not, one thing is apparent. Mahathir wants to curry favor with the Chinese. I'm glad he has some friends because he's going to need them. I can see two crafty motives at work. The first is a little abstract. Mahathir might be playing some kind of ill-conceived geopolitical wild card. He is probably still smarting from U.S. Vice President Al Gore's face-to-face public rebuke during last November's ASEAN conference. China The Hero? China is giving the U.S. a lot of back talk these days. Relations with China began to head south when U.S. President Bill Clinton retreated from supporting China's entrance to the World Trade Organization during Premier Zhu Rongji's visit to Washington in April. Things got much worse when NATO mistakenly bombed the Chinese embassy in Belgrade during the air strikes against Yugoslavia. Moreover, China and Taiwan are butting heads in a dangerous war of words that could escalate at any moment. The U.S. is now getting flak from the Chinese for arms sales to Taiwan. Any military action by China against Taiwan would have grave consequences for U.S.-Sino relations. Washington says China stinks on human rights (Tiananmen Square 1989) and Beijing says Washington has no regard for human life because it kills innocent people (Belgrade Embassy 1999). For a guy like Mahathir, China must look like a winner for returning tit-for-tat with Clinton. Still another reason may be that China has cash, lots and lots of cash. And there is even more cash in Hong Kong. Malaysia needs money. Malaysia has already hit up Japan for lines of credit and it has had some success in floating a sovereign debt issue. Yet things are surely tough for Mahathir. He has offended just about everyone with his ranting and raving, much less his atrocious treatment of his former prot?g?, Anwar Ibrahim. Who would want to lend Malaysia money when Mahathir has capital controls and capital exit taxes? No wonder Mahathir is kowtowing to China. Watch your wallet, Premier Zhu. |
| 03/04 00:17 Winds of Political Change Are Blowing in Malaysia: David DeRosa By David DeRosa New Canaan, Connecticut, March 4 (Bloomberg) -- Big political changes may be brewing in Malaysia. Prime Minister Mahathir bin Mohamad appears to be rapidly losing his grip on power. Mahathir's position has worsened because his economy is deteriorating, and because of revulsion toward his persecution of his former handpicked successor, Anwar Ibrahim. If Mahathir steps down, as some observers believe may soon happen, it could be rightly said that he, like General Suharto of Indonesia, was a victim of the Southeast Asia currency meltdown of 1997. The difference is that the crisis, which erupted on July 2, 1997, in Thailand and subsequently consumed Malaysia and Indonesia, took out Suharto almost immediately. Mahathir managed to hold on to power for several years. Mahathir is an example of a man who is very fast on his feet but lacks a sense of where to go. He managed to survive the immediate impact of the crisis by conjuring up imaginary villains. He accused famed hedge fund operator George Soros of bringing his nation low for crass profit. Yet to the best of my knowledge, nobody has ever produced any evidence that currency speculators, especially Soros, were materially involved in the fall of the ringgit. Shadowboxing Next, Mahathir rejected advice and assistance from the International Monetary Fund. He reveled in spreading the notion that he knew how to handle the crisis better than the rest of the world, and in particular, the IMF. Fourteen months later, in September 1998, Mahathir attempted to eliminate foreign exchange trading in the ringgit by instituting a program of capital controls. He also fixed the ringgit at 3.80 to the dollar. A year later, in September 1999, Mahathir lifted the controls, but kept the ringgit pegged at 3.80 to the dollar. At first, many people, including some who should have known better, declared that Mahathir had indeed found what he termed a ``kinder and gentler'' solution to the crisis, by comparison to what the IMF had been advocating. And it is tempting to say so, except for the facts. The controls were put in long after foreign capital had fled Malaysia. Moreover, at the exchange rate of 3.80 to the dollar, the ringgit was then significantly undervalued relative to other currencies in the region. Anyone wanting to sell ringgits did so at substantially below market value. The wider implications of Mahathir's capital controls are now haunting Malaysia. That is one reason recent initial public offerings in Malaysia have gone begging. The country is going to take a long time to shed the image of having taken steps to imprison investor capital. Making a Martyr The crisis also created a martyr, though a living one, out of Anwar Ibrahim, Mahathir's deputy prime minister and chosen successor. As a supplement to his ranting against hedge funds and currency speculators, Mahathir chose to create an even larger diversion, one that was closer to home. He dismissed Anwar from office and had him arrested on trumped up morals charges in 1998. Anwar was found guilty of sodomy and sentenced to 15 years of imprisonment. If the truth could be told freely in Malaysia, it is doubtful there is even one person in the country who believes Anwar was guilty. Usually one assumes that a man as cunning as Mahathir would know the elementary rule of dictatorship: Never make an enemy into a national hero. But Mahathir is not the first strong man to make this mistake. Consider the late Shah of Iran, who once had his political nemesis, the Ayatollah Khomeini, exiled to France. When the Ayatollah returned to Iran in 1979, it was he who came to power with the Shah fleeing into exile. The thing about Anwar that seems never to be asked is: How good a guy could he be when he came up through the ranks of Mahathir's political machine? Doesn't matter. But if he survives prison, it's fun to think his day to rule will come. ------------------------------------------------- Commentary. David DeRosa, president of DeRosa Research & Trading, is an adjunct finance professor at the Yale School of Management and the author of ``In Defense of Free Capital Markets.'' The opinions expressed are his own. |
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