IN a rare splash of praise, the World Bank has profusely
lauded the Mahathir Mohamad government for its brainiac moves in the aftermath
of the Asian Financial Crisis or AFC.
lauded the Mahathir Mohamad government for its brainiac moves in the aftermath
of the Asian Financial Crisis or AFC.
While saying the Mahathir government took the classic steps
to prevent the economy from sinking further after the financial crisis started
to bite hard into the country, the World Bank said with high regards to the then
regime that its gambit worked.
to prevent the economy from sinking further after the financial crisis started
to bite hard into the country, the World Bank said with high regards to the then
regime that its gambit worked.
It further said the rest of the world should have learned
from the government of Mahathir on how it handled the catastrophe bravely and
with wisdom, in order to prevent such happenings again.
from the government of Mahathir on how it handled the catastrophe bravely and
with wisdom, in order to prevent such happenings again.
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The report is entitled ‘Turmoil to Transformation: 20 Years
after the Asian Financial Crisis’.
after the Asian Financial Crisis’.
Only parts and parcels related to the current government at
Putrajaya in the report is published in pro-government newspapers and portals.
Putrajaya in the report is published in pro-government newspapers and portals.
But in the report, the World Bank said the Mahathir
government quickly learned that the stabilization of the ringgit was crucial to
the success of the Government’s plan.
government quickly learned that the stabilization of the ringgit was crucial to
the success of the Government’s plan.
At that time, in 1998, the ringgit had plunged to its lowest
rate versus the US Dollar.
rate versus the US Dollar.
But Mahathir made a bold move by fixing the exchange rate at
RM 3.8 to US$ 1.
RM 3.8 to US$ 1.
This was “Perhaps Malaysia’s most controversial measure was
to introduce selective capital controls.” said the WB in its report.
to introduce selective capital controls.” said the WB in its report.
To explain it plainly for the laymen, the World Bank is
saying the move by Mahathir salvaged the country and this move might have saved
the country to be what it is today.
saying the move by Mahathir salvaged the country and this move might have saved
the country to be what it is today.
The World Bank said during the first months of the crisis,
Malaysia saw a huge amount of capital leaving the country. It is called capital
outflow. This resulted in the ringgit depreciating significantly (that is
losing its value rapidly).
Malaysia saw a huge amount of capital leaving the country. It is called capital
outflow. This resulted in the ringgit depreciating significantly (that is
losing its value rapidly).
To stabilize the currency and to create a higher degree of
certainty for exporters and importers, which will enable them to more
accurately forecast revenues and costs, the Government fixed the exchange rate
at RM 3.8 to US$ 1.
certainty for exporters and importers, which will enable them to more
accurately forecast revenues and costs, the Government fixed the exchange rate
at RM 3.8 to US$ 1.
The world was on the move, but Mahathir pressed on. And the
gambit paid out for the country, until today!
gambit paid out for the country, until today!
The World Bank said the implementation of this measure was
intended to enable Malaysia to regain monetary independence.
intended to enable Malaysia to regain monetary independence.
To control interest rates and to facilitate economic
recovery while at the same time stabilizing the exchange rate, the Malaysian
Government introduced capital controls against the will of the IMF, the WB
itself and the rest of the world.
recovery while at the same time stabilizing the exchange rate, the Malaysian
Government introduced capital controls against the will of the IMF, the WB
itself and the rest of the world.
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In this manner, the Malaysian Government tried to address
the so-called “impossibility trilemma,” which refers to the supposed
impossibility of achieving more than two out of three of exchange rate
stability; free international capital mobility; and national monetary- policy
independence.
the so-called “impossibility trilemma,” which refers to the supposed
impossibility of achieving more than two out of three of exchange rate
stability; free international capital mobility; and national monetary- policy
independence.
This “trilemma” is premised on the concept that with no
barriers to capital movement, an interest rate that is lower than the
international interest rate, adjusted by country risk, would encourage outward
capital outflows and hence a lower exchange rate, and vice versa.
barriers to capital movement, an interest rate that is lower than the
international interest rate, adjusted by country risk, would encourage outward
capital outflows and hence a lower exchange rate, and vice versa.
In general, the international financial community responded
skeptically to the selective capital controls, with many observers expecting
negative economic consequences.
skeptically to the selective capital controls, with many observers expecting
negative economic consequences.
At the time of their implementation, the measures were
highly controversial. Many observers predicted that the measures would scare
off foreign investors; that they would have a long-term negative impact on
foreign investments and so on.
highly controversial. Many observers predicted that the measures would scare
off foreign investors; that they would have a long-term negative impact on
foreign investments and so on.
Source: Theindependent.sg
