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FAC: "How Successful Have Mahathir's Economic Policies Been?"

5/9/2001 12:05 am Wed

FAC News - 3 September 2001

"How Successful Have Mahathir's Economic Policies Been?"

Yesterday marks the third anniversary of Anwar Ibrahim's sacking. Mahathir justified his (Anwar) politically motivated prosecution by blaming Anwar for the economic calamity Malaysia was facing at the time. He even went on to self-proclaim how his 'economic prowess' was responsible for lifting Malaysia out of the vicious financial crisis of 1997.

Almost four years on, many begin to wonder whether Malaysia is on the right track to recovery. While stock markets in neighbouring countries gain points throughout last year, Kuala Lumpur Stock Exchange consistently paints a very bleak prospect of Malaysian market.

In fact many say that if not for the few blue chip companies controlled by the government, KLSE would have performed even worse.

To highlight the reality of Mahathir's 'economic miracles', FAC asked an analyst, who wished to remain anonymous for security reasons, to replenish readers with comparisons of how Malaysia fares with its neighbouring countries since 1998.

"How Successful Have Mahathir's Economic Policies Been?"

For over three years the people of Malaysia have been fed a steady dose of economic propaganda by the Mahathir spin control machine. Namely, that Mahathir's courageous decision to reject IMF advice and to impose capital controls have put Malaysia's economy back on the track to success. Even President Arroyo of the Philippines wants to learn economic wisdom from Mahathir, according to the usual suspects in Malaysia's press.

Day in and day out, Mahathir's mouthpieces in the government and the press trumpet the genius of Mahathir's go-it-alone economic policies. True, our economy is slowing down now, but that is because of the downturn in the American economy. Nothing is ever Mahathir's fault, you see. You never lose points in Malaysia by blaming America, the West, the IMF, the Jews, and so on. You only win.

So what is the truth? People can lie, but economic statistics don't. So here are the latest statistics from the Economist magazine of September 1, comparing Malaysia with the three countries that worked with the IMF. Maybe we should ask ourselves why we haven't read this in the Business Times. And perhaps the Business Times should ask itself whether its refusal to report the economic truth to Malaysia's businessmen is why the paper is losing both money and circulation.

Current GDP growth rates % change over the past year:
Indonesia +3.5%
South Korea +2.7%
Thailand +1.8%
Malaysia +0.5%

In other words, the countries that worked with the IMF are now experiencing growth rates 3 to 7 times higher than Malaysia.

Industrial Production, % change over the past year
Indonesia +4.5%
South Korea - 2.7%
Thailand +1.7%
Malaysia - 9.9%

Once again, Malaysia is the worst performer in the lot, by far. Indonesia and Thailand are moving forward, while Malaysia is losing ground.

Changes in the stock market index since December 31, 2000
Indonesia + 5.2%
South Korea +12.1%
Thailand +25.6%
Malaysia + 1.4%

Hands down, the KLSE is the worst performer. Yet Mahathir said in his Merdeka Day speech that our stock market "is now healthy." Compared to three years ago, when Mahathir's daily pronouncements would send the market into a spin, that is true. But compared to how our neighbors' markets are doing, it is not.


Four years after the financial crisis hit Asia, who is better off? The countries that worked with the evil IMF to turn around their economies and make reforms -- or Malaysia, which was forced to follow the Mahathir "My Way or the Highway" approach to economics? (actually, "Either Follow, or it's Sungei Buloh")

The numbers speak for themselves. This is not a commercial for the IMF -- rather, it is a dose of economic reality. The IMF's economic policies, despite their shortcomings, have produced better results than "Mahathironomics." Maybe that is because they understand the way the world economy works, and Mahathir does not. Maybe it's because they have experience around the world in dealing with financial and economic crises, and Mahathir does not. Maybe it's because they listen to expert advice, while Mahathir listens only to himself. Mahathir shouts and screams at the world economy, while the IMF and the World Bank try to understand it. So why should we be surprised that foreign investors listen to the IMF, but not to Mahathir?

Don't Blame America or the "IT Glut"

It is easy to blame the economic situation in Malaysia on the downturn in the American economy and the global information technology glut. But if that is the reason, then it should affect all the countries in Asia, from China to Thailand, because they also depend on exports of electronics, especially to the US market.

So why is Malaysia's economic performance so much worse than its neighbors in Asia? (China's growth rate, by the way, is + 7.8%, which is almost 16 times as high as Malaysia's.) Clearly there are other factors at work besides the downturn in the United States.

Foreign Direct Investment (FDI)

And if foreign businessmen are now convinced of Malaysia's great economic success, as Rafidah and others trumpet so loudly, then why does foreign direct investment (FDI) in Malaysia fall so short today, compared to its neighbors? Compare these World Bank statistics for foreign direct investment in the four countries in 1996 (before the crisis) and 1999:

Country1996 ($B) 1999 ($B)
Indonesia 6.2 -2.7
South Korea 2.3 9.3
Thailand 2.3 6.2
Malaysia 5.1 1.6

As the numbers show, there has been a substantial fall-off in foreign investment in Malaysia. The New Straits Times and others rush to interview American and Japanese businessmen in Penang, who say what they have to say in order to stay on the good side of the powers-that-be in KL. Perhaps they should interview foreign businessmen who are NOT in Malaysia, and ask them why they chose to invest elsewhere in Asia?

Political Stability

Another article of political faith in the Mahathir propaganda mill is that strong and stable governments are good for economic growth. Since the financial crisis began, Korea has had one change of government, and Thailand and Indonesia both have had two. Their changes all occured through democratic processes. If political stability is good and change is bad, then why does Malaysia have the worst economic track record among the four countries? Why have the more democratic, "politically unstable" countries, those with freedom of press and speech and assembly, grown faster? Meanwhile, why does Malaysia, blessed by the enlightened stable authoritarian rule of Mahathir Mohamed, have the worst economic record of all?

Two Final Thoughts

(1) President Gloria Macapagal Arroyo says she wants to learn economics at the feet of the Great Master, Mahathir Mohamed. Yet the Philippines economy is growing at 3.3% a year, compared to Malaysia's 0.5%. Its industrial production is up by 11.2%, while Malaysia's has fallen by 9.9%. That's a 21% gap. The Philippines has replaced Malaysia as the world's largest exporter of semiconductors. Who should be teaching whom?

(2) It is often said that one of the reasons Mahathir got rid of Anwar was because Anwar listened too closely to the IMF's advice. Mahathir said that was bad for Malaysia. Three years later, the numbers speak for themselves. The "IMF economies" are beating Malaysia badly. The worst thing that has happened to the Malaysian economy is Mahathir. If Anwar and his professional economic advisors had been able to implement their expert policies, Malaysia would be one of the leading economies in Asia today. Instead, thanks to "Mahathironomics," it is one of the laggards.

Perhaps it is Mahathir who ought to be in jail.

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