Friday, October 24, 2008


Today, I continue my controversial remarks on the Kursus and the mentality of some students in ANU. Allow me to say, that I respect all views but it seems like some people have not given the issues a proper process of consideration and thinking.

These have led some of my friends to come up with emotional words and comments. I have to say, whatever I say here will tend to cause controversies and perhaps some might not take my words lightly and feel offended.

Nevertheless, my blog stays professional and I will say with liberty and sound arguments all that is in my mind.

On day 2, Encik Amer (left) conducted the Unity and Integration Course with a lecture on Friedman’s book – The World Is Flat.

He then led us through a path of reflection on the challenges of globalization. The final event was a discussion on the Asian Financial Crisis and students were told to make some presentations on

Why Malaysia survived? Why Indonesia suffered? If you were the PM, would you have done the same? Why?

The speakers for the night had to be different, so I could not voice out my opinions on these questions, although I did use the Q&A session to explain certain misleading points by my fellow friends.

When it comes to a fixed exchange rate regime, there are two different types which many didn’t know. A fixed exchange rate policy is not just in the form of pegging but can also be in the form of an active managed float.

Malaysia chose the former in 1997 to tackle the sudden shocks. Some of my fellow friends vaguely slammed Tun Dr Mahathir and the Malaysian policy. Comments by other students on the other end include :

  • Tun manipulated the crisis to make it seem like a national crisis and united us against the Western propaganda, thus disallowing us the opportunity to think rationally to tackle the issue.

  • To blame George Soros is not right. He is a speculator and investor and has every right to short sell or make profits. He might not be a winner in moral terms but he surely has the right to do what he did back then.

  • Bailouts in US and Malaysia are different. Back in 1997-99, Malaysian companies bailed out are cronies to the ruling political parties.

  • Thailand, Korea and Indonesia who adopted the IMF prescriptions have recovered with growths as compared to Malaysia. Yes, their currency might not be as valuable as us, but they have better recovery and growth than us.

  • There are reports that Malaysia’s pegging system did not achieve the full desired results. We could have approached it in another way. The pegging seems only good for the short term but not the long run.

  • Capital controls during the financial crisis where Malaysia forbids outflow of the Ringgit. Is it necessary?

Now, allow me to begin by refuting some clearly misguided things. I started off my comments on the currency outflow controls.

Malaysia implemented the capital control and put a cap of about RM 20,000 that could be allowed to be taken out of the country.

Soon after, Malaysia allowed flexibility where travelers and investors can take money out as long as they declare them. Today, Malaysia has removed all restrictions on capital controls from the strict policies implemented just 10 years ago.

With news starting to spread like wildfire of an unavoidable Asian currency crisis, Tun had to take the immediate response. The plan was to peg the ringgit and execute strict capital controls.

Imagine when we hear a recession coming our way. If we have a fixed amount of money, say RM 1000, in our wallets, and we walk in to a food stall with a range of options. In good times, we eat a plate of rice even if it is RM 5. But in view of a recession coming soon, as rational consumers, we choose a cheaper option of around RM 3.

Money in the economy is not circulated well enough. There will then be a situation like what Malaysians like to say “no money”. If we allowed Ringgit to flow out also, I am really sure that we would have experienced a condition of “NO MONEY” because we would get an economy of low money circulation and low sum of ringgit.

Based on psychological and economic thoughts, I personally agree with the capital control system implemented during the financial crisis.

In South East Asia, Thailand’s economy headed for the crash first. Their crash was sort of expected before financial speculators caused a big drop in the value of the Baht. The Thai Government was vigorously promoting rapid economic development, emulating the successes of Tun Dr Mahathir and Lee Kuan Yew.

In Bangkok itself, commercial and residential properties saw prices soar to high levels. Investments ballooned under the Government policies back then.

However, sadly, the investments were mainly based on questionable estimations of future consumption patterns. That resulted in excess capacity based on property – percentage terms.

Approximately 465000 apartment units were unoccupied in Bangkok with ongoing projects too, before the financial crisis hit. It was said that there were enough excess space to meet its residential and commercial needs for five years comfortably!

In the financial sectors, Thai financial institutions faced great default debt. The banks had been borrowing USD from international banks and lending Thai baht to local property developers, in view of the investment boom.

That led Thailand’s lowly regulated currency trade exposed to dark waters. True enough, financial speculators stepped in, knowing that Thailand practices a de facto pegged system (managed float where the Government attempts to keep the Baht/USD at a targeted rate).

Thailand’s foreign reserves soon dried up and they had to kowtow to the pressure and asked IMF for financial assistance.I have to say, Thailand was lucky to have Thaksin Shinawatra and his party’s policies.

Thaksin came into power and governed Thailand CEO-style which led to an early repayment of Government debt. Growth was also stable because Thaksin gave out cheap loans to the agricultural and micro industries. That helped to boost growth tremendously and reduced the economic burden of the people.

Of course, someone in the hall started to say that if he was such a great leader, why did he run to London now?

I was surprised at how I can be interrupted on a question about the morality of Thaksin, when I was clearly talking about economic managements of Thaksin because there were presentors who controversially said Thailand and Indonesia recovered better than Malaysia.

If that’s true, it will only be sensible for me to compare economic policies. Malaysia did not give out soft loans and assistance to the economy as much as Thailand.

We approached it in other development and Government spending methods where we looked at the long term of our manufacturing, finance, telecommunications and technology industries.

Sadly to say, we were all misguided that night. Allow me to present to you the Real Growth Rate of Indonesia, Thailand and Malaysia.

Indonesia GDP Real Growth Rate

2002 4.4%
2003 4.9%
2004 5.1%
2005 5.7%
2006 5.5%
2007 6.3%

Thailand GDP Growth Rate

2002 5.3%
2003 6.9%
2004 6.1%
2005 4.5%
2006 5.1%
2007 4.8%

Malaysia GDP Growth Rate

2002 4.1%
2003 5.6%
2004 7.1%
2005 5.3%
2006 5.8%
2007 6.3%

Source : Asian Development Bank

Looking at the figures, some students at the hall have clearly misled the students and officers.

Indonesia is recovering but still in debt (to IMF too, if I am not mistaken), rupiah still comparatively less valued than Ringgit and not as developed as Malaysia.

Thailand experienced greater growth than Malaysia in the early years of my data here.

To refresh your memory, my friends, that was the time when Tun retired from politics in Malaysia to be succeeded by Pak Lah who adopted the “budget surplus” approach while Thaksin came into power (2001-2006) with economic policies comparable to Tun Dr Mahathir’s era – soft loans, rapid development policies, Government spending mechanisms and many more.

Nevertheless, the sweeping statements that these countries are recovering faster than Malaysia is nothing less than a fairytale bedtime story to mislead the people in the hall.

I have a friend in New Zealand who always try to get me to comment on issues, policies and current happenings. I have always told him this phrase whenever I am unsure, “I am sorry, I do not know this well so I cannot comment”.

For the first time, I have to agree with Khairy Jamaluddin. He once ticked off an audience who tried to debate with him during a Q&A.

Seemed like that person did not have facts supporting his arguments with KJ. Professionally, KJ said that before we have an informed debate, please be informed first.

That, I have to agree and I hope people do not just make sweeping statements that are controversial and can mislead many people.

In that hall for the Kursus, many were not Economics students and presenting false information and misrepresentations of data like this will be bad for our country.

Let me move on to other matters raised. Back then in 1997, many of our parents were worried with job securities, money and the stability of our economy. What more to say about prospects!

In 2008, now, we start to criticize the Government for the pegging system. Let us reflect on ourselves. If Tun did not peg the ringgit and did not implement the capital controls, all of you would not be taking scholarships to study in Australia today.

Some of our families would be poorer than now and I am confident many will call our Government a stupid one. Thankfully, we did not experience debt, poverty and poor economic conditions.

As such, we are now blessed with a liberal environment to comment anything we want because we really survived. Working with backward inductions from the current state of our economic conditions to the 1997 crisis, aren’t we glad to have leaders who knew how to steer our country in the short run?

We laugh at our country being poor, being incompetent and comparatively weaker than other countries in many aspects. But to think that a very poor and lousy Malaysia to have successfully steered through the waves of the Asian Financial Crisis, aren’t we the Mighty Ant?

I can understand why some students were critical of the Government’s policies. Humans are always like that. We always say we could have done better. But since many describe our country as incompetent, poor and weak, how then did we miraculously survive the Asian Financial Crisis?

I do not need to answer that, I am sure. As for the comments of Malaysia vs George Soros, it was Tun who blamed George Soros for sending South East Asia into crisis. Was he wrong to do such a thing?

Tun made the Asian Financial Crisis a national issue because it was indeed a Malaysian dilemma. We had to face the waves of financial setbacks. At that time, Tun Dr Mahathir with his information in hand, blamed George Soros for it. I do not know why some of my fellow friends slammed Tun for this.

Of course our Government came out and explained all their financial control policies like the mergers into 10 anchor banks, the peg, and the capital controls. Given all these explanations, there had to be reasoning. These were informatively directed at the financial speculators.

On a lighter note, some other individual commented that “George Soros is a financier and he had every right to take the profit-making steps of short selling currencies. We cannot blame him for doing so, although morally he can be judged”.

I can agree with this. However, if he has the right to perform his magic as a financier, why can’t the Malaysians and the leaders have the right to criticize George Soros for what he did?

And if he as a financier can enter currency trade, the Government obviously has every right to intervene and regulate the markets.

I personally do not know why there were people who defend George Soros’ rights as a financier but cannot accept the role and the rights of the Government of Malaysia in a sovereign and democratic country.

Again, I have to say, be responsible with your comments. But as advised, I will make a declaration here that “I agree to disagree”.

I stand corrected and welcome any comments. Thank you and this ends my blogging on the Kursus.


winter said...

I have to say that because you were well-read in these aspects, the kursus was sort of more beneficial to many in a sense. Your knowledge about pegging, alongside with Aimran's knowledge has definitely gave me more insight about the issue.

To many, this is yet another typical course by the MOHE. Frankly speaking, I think it has not fully achieved its aim. Towards the end of the night, while there were differences in opinion, it is also obvious that students weren't thinking intellectually. Most of us were somewhat influenced by our political point of view about the current government.

Just like any other ordinary Malaysian, many are pressing for a change in Malaysia. But what change are they hoping to see, nobody knows for sure. I posed the question to Encik Amer, asking him, as a special officer, what else can he do and what does the MOHE has in mind to stop recurring issues like the university entrance issue from being used as a trump card to fire the racial sentiment in Malaysia.
I don't know about you, but while the course has a very objective aim, a good platform for many to speak their mind, however, I think many questions are left unanswered.

Like what most of us agree, we were very fortunate to be able to have the hind sight in this matter. Should we be in that position Tun M was in back in 1997, I for one, cannot make such a decisive move. And just like any other decisions, one is bound to have its pros and cons. No doubt pegging was detrimental in some sense and our PM was slammed by many back then, without this measure, we wouldn't be able to weather the storm as well.

When it was discussed that the government propagandized it as a national issue, something crossed my mind. Had it not been the same in all other countries? The world is round (or rather, sphere). I think it is a very bias comparison to make between the U.S and Malaysia. For one, we don't know much about the policies in the States. Thus, it is hard, not to mention unfair, for students to say that our bailouts were meant for cronies. How would we know if the same thing isn't happening in the U.S?

I have to agree with P that all of us weren't well-informed with regards to the issue of financial crisis back in 97. P commented that we might be better off doing some research before hand, if the speakers did mention, rather than going up front and speak without the facts. While it was meant to be educational, the lack of time and all only further opaqued the views of many.

Just like any other economic model, there isn't one perfect one. Just like any finance model, there isn't a perfect comparison. Before we condemn what others have done, maybe it will be good to take a step back and think of what could we have done instead. I know that many really want to contribute back to the country, but we just never know how to (or never put our heart into doing it?).

Jimmy Tham said...

lol.. my friend,

too bad I can't participate in that forum, else we'll have hell of a time enjoying an educated debate.

george soros as a financier has every rights to earn a meagre income by shorting ringgit and tun M has every rights to do what he thinks is right in the short span of time to protect our interest (open to debate as some claimed, his cronies interest) and mind you, in financial words, every second counts.

Till now, I could not locate a quality local article that could put the blame on Soros but there were a few articles that absolves Soros of his guilt (they might be western funded think tank but they have the stats data to show Soros' actions, albeit unethical, is not the main catalyst) and ironically, after tun M's statement, Bursa continued to drop further (record high of 73% from the peak).

My dear ah hia,
My point is, no 1 higher up at the echelon foresees the telltale signs of Asian financial crisis and the administration just has to find a scapegoat to blame and it just happened to Soros who did the same thing to England in the 70s.

Let's get our perspectives aligned here. I personally do not see any credible link between ringgit peg and our growth. I have to agree it was the right thing to do then but it's about time we dismantle the pegging slowly. Business Week is a good magazine and it lists its articles free on the web for public consumption. One of the articles in the Asia column analyses how the countries fare 10 years after the crisis, and sadly, they conclude, Malaysia giant corps, after that hard lesson (98 crisis), did not dare to commit itself intenationally relative to pre crisis and vis-a-vis other SEA countries

Ahmad Amzar said...

to those critics,maybe they can try and read books like "Globalization and Its Discontents" by Joseph Stiglitz