Dr Mahathir Mohamed’s much-trumpeted Vision-2020 has been forced to have corrective lenses installed in the last few weeks. Used only to hearing voluminous praise for his policies, the doctor, who now competes with colonel Mu’ammar Qaddafi of Libya in eccentricity, has had to eat humble pie recently.
He has lashed out at the wicked foreigners; no querrel there. He has taken on the ulama in Malaysia for taking their job too seriously and he has urged his countrymen to invest in the stock market because the good doctor has prescribed that the ‘economic fundmentals’ are all sound. People can be forgiven for not following his advice; their common sense tells them that things are not all right.
After proclaiming that the economy was sound and no corrective measures were necessary (‘don’t panic’, he said), he has had to back down on a number of fronts. The August 28 ban on short selling of shares (people do not own shares but speculate that their price will decline after a certain period and if it does, they collect the difference in price as profit), had exactly the opposite effect. Even more people fled the market.
On September 4, bowing to market pressure, Mahathir lifted the ban on short selling and announced the postponement of a number of mega projects, the best known of which was the M$13.6 billion (US$4.5 billion) Bakun Dam. Only a day earlier, he had announced the setting up of a M$60 billion fund to support the country’s stock market. Even so, he insisted that the Putrajaya project - building of the brand new, paperless capital city - would go ahead as planned.
Mahathir left the latest retreat to his deputy, Anwar Ibrahim, who is also the country’s finanace minister, to announce. Only phase one of the three-phase $6.8 billion Putrajaya project would go ahead at present, Anwar said on September 10. This also put into jeopardy Cyberjaya and the multimedia super corridor (MSC), showpieces of Mahathir’s grandiose plans to enter the twentyfirst century with a bang.
Cyberjaya was to be Malaysia’s equivalent of the US Silicon Valley where information technology companies would set up shop. Mahathir was sweet reason on September 16 when appealed to foreign investors to come to Malaysia and invest in the MSC. He said that there were ‘good investors’ and there were ‘rogue investors’. Naturally, all those listening to him were good.
Whether Mahathir’s grand retreat has chastened him enough to see sense and not take on everyone at once, is a moot point. What is more important is that no matter how much he blames others for his misfortunes, he cannot have it both ways. Last year, the Southeast Asian countries attracted $60 billion in mutual funds. This was welcomed by the governments and seen as a sign of vitality of their economies.
Money flows where fund managers see prospects for growth. It flows out when investors suspect financial trouble. Malaysia and several other Southeast Asian countries took the get-rich-quick route by investing in the real estate market. There is no productivity there; only concrete blocks going up. These are bound to collapse sooner than later as happened with Thailand. Coupled with corruption and one gets the surest recipe for disaster.
The Saudis built massive concrete apartment buildings in the blistering desert heat in the seventies and eighties, at the advice of their western friends. The idea was to accommodate the desert-dwellers in city apartments.
Their western friends did not care if it was impractical. They were only interested in making money. Those who have spent a lifetime in the tent, however, cannot live in an apartment building - a concrete oven hanging in the sky. Besides, there is no place to park the camel! Ask colonel Qaddafi. He may be eccentric but he knows a thing or two about the pleasure of living in a tent.
In Malaysia, an additional problem has been that many companies involved in mega-projects had borrowed heavily from the banks using their shares as collateral. With a sharp decline in share prices, banks have been forced to call in their loans. This has added to economic uncertainty.
Renong, the country’s largest infrastructure company, is involved in both Putrajaya and Cyberjaya. Despite tremendous pressure, its shares had not fallen below M$3, the bench-mark which would force banks to call in their loans. This is no longer certain because of the government’s September 10 announcement. Numerous other companies are in a similar predicament.
Malaysia’s basic problem is that its economy is based on the stock exchange. Its industrial base, notwithstanding how well it is, is still essentially a screw driver operation, and that includes the Proton motor car. The heavy industries have not really taken off, with Perwaja leading the list of failed projects. The industrial base is still based on construction, the same as in the sixties, without a fallback position on commodities production.
The government decided the future was in industries and quietly wound down the estates: it is often forgotten that the proposed Putrajaya is on what used to be the Prang Besar Estate. Growth is based and measured, whatever indicators are used by officials, on a resurgent stock and commodity markets, not on what is produced. And stock market officials are prone to changing rules halfway through the game. The government allowed this in the past. When investors, including the wicked foreigners, decided to pull out, the government cried foul.
Stock market decline is not the only problem that has hit Malaysia in its midlife crisis (it celebrated its fourtieth anniversary on September 1). It has registered a consistent trade deficit over the last few months. It was RM1.6 billion in July; even higher in August. Fiscal mismanagement over the years has been in the context of overconfident growth which would fill the gap.
As M G G Pillai, a political commentator, pointed out, the Mahathir regime was busy building castles in the air but it forgot to build the bridge. The regime also does not tolerate any criticism, however well meant, of its policies. In the absence of any criticism, it assumes that all its policies are sound.
The evidence clearly shows otherwise. But would Mahathir learn? No one should hold their breath.
Muslimedia: October 1-15, 1997