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The Mahathir-Soros confrontation

This like the earlier one on the Pacific Rim economies was written for the Boston-based WorldPaper.

Mahathir-Soros 1 of 1

>From M.G.G. Pillai in Kuala Lumpur

THE GREAT Search for Global Markets -- the mantra of post-Cold War politics -- has led to many a disastrous, ill-prepared advent into the Big League, with the Asia Pacific particularly annointed. The general Confucian ethic, combined with a vibrant society of immigrants of Confucian origin, with their astute knowledge of markets and business and an entre into the WEst's sensitive markets provided for a potential competitor. But in the march to that ideal, the economic spinoff generated a boom that strengthened every economy on the Asian side of the Asia Pacific. Within the Asia Pacific itself, the ASEAN region came in for particular attention, with its growing pool of management and people complementing an educated workforce and what passed off for a sound economy.

The world beat to its door, with the resultant economic takeoff making the region one of the fastest growing regions of the world. Malaysia became a potential tiger in the sustained growth of the dragons and the tigers at a time when it had a new leader called Dr Mahathir Mohamed, who quickly put his impramateur on a government wholly committed to the market place, underwriting a policy of creating a cartel-like profusion of inbred capitalists and entrepreneurs. The model was the sogososha, the Japanese multi-national company, but what emerged was a Malaysian version of the zaibatsu or the South Korean chaebol. The sogososha experience did not work out and it soon became known as "sungguh susah" (really difficult). But the Malaysian version was stymied by an emphasis of churning wealth through the stock markets and currency speculation while running down manufacturing.

So, when Dr Mahathir fired his opening shot at the Hungarian-born US financier, Mr George Soros, demonizing him as the cause of the currency turmoil in Southeast Asia, the Sorosian riposte was what hurt. Characterising Dr Mahathir as a loose cannon and a menace to his own country, Mr Soros coldly analysed the Malaysian situation that ensured a further uncertainty in the currency markets. Malaysian banking debt, he said, was 1-1/2 times the country's GDP and more than the total banking debt of the developing world, including Indonesia. And Malaysia's own central bank said last March that 40-45 per cent of bank loans were to properties and stock market speculation, with manufacturing loans declining from 20 to 8 per cent during the 12 months under review.

Dr Mahathir's counter-attack, in highly shrill terms, and widening his purview to demand a (virtually impossible) return to fixed exchange rates, and a general attack on the West for its "perfidious" attempt to rein in the newly emerging markets by unsettling the currency worsened the general uncertainties. That began when Mr Soros sold Thai baht and withdrew from the market. This brought the other foreign investors and speculators who had already done well on the region to pull out as well, causing a collapse, with the uncertainty leaning on neighbouring currencies, causing the Filipino peso, the Indonesian rupiah, the Malaysian ringgit and even the Singapore dollar to ease in tandem with the Thai baht.

The Malaysian leader, on his recent return from two months' leave, was in Hong Kong for the World Bank/International Monetary Fund meeting last month, where he crossed swords with the man he had characterised as a "moron". Mr Soros struck back with both rhetoric and reasoned argument, and that led to a further pressure on the ringgit, which moved from RM2.50 to RM3.40 for one US dollar, with each Mahathirian riposte only worsening the situation. Dr Mahathir, in Chile, this month, continued to insist on his right to speak out, to ensure the uncertainty remains.

There is much in Dr Mahathir's arguments, says one respected Malaysian banker, that makes sense. "But he overstated his case, which added to the confusion." Dr Mahathir's call for fixed exchange rates is unlikely to go far, nor would his call for a stop to foreign exchange dealings. The search for markets necessarily meant an increase in foreign exchange hedging operations, but that would also attract the speculator. Dr Mahathir knows that better than almost anyone else. He had authorised the Malaysian central bank, Bank Negara Malaysia, to speculate on foreign currency in 1992 on such a scale that other central bankers had to warn Kuala Lumpur, but not before a loss of about US$12 billion was incurred..

Dr Mahathir believes there is a hidden hand intent on ensuring that developing countries remain forever the industrialised countries' hewers of wood and carriers of water. He sees the Sorosian forays into currency markets as symptomatic of the larger scene to destabilise the developing economies. He makes a strong case for it, with persuasive arguments. But reason in the face of a disgruntled crowd -- as foreign investors and speculators are of the regional stock and currency markets noow -- is pointless and often dangerous. So, it is Mr Soros who leads the assault, and it is Malaysia and its neighbours that reap the harvest. Dr Mahathir has yet to learn that there is often more than meets the eye, and that has nothing to do with the soundness of one's arguments. All in all, the Mahathir-Soros confrontation pointlessly and needlessly piled on uncertainties on an already crowdedly uncertain profile. The only option now for countries in the region is to grin and bear it.

M.G.G. Pillai