Dr M's strategies looking sick - Mahathir Mohamed

Business Asia, Sept 21, 1998 by Cameron Cooper

One could never accuse Malaysian Prime Minister Mahathir Mohamed of lacking courage.

His judgment, however, has been the subject of considerably greater scrutiny.

By sacking his respected finance minister Anwar Ibrahim and imposing exchange controls on the economy in the leadup to the Commonwealth Games, Dr Mahathir has taken his biggest political gamble.

The stakes are high - for Mahathir and Malaysia. Since Asia's financial crisis hit home, the Prime Minister has been quick to apportion blame. Speculator George Soros, the central bank, the International Monetary Fund, and now Anwar have all earned the wrath of Dr M. He has run out of people to blame.

Taking on the finance portfolio and imposing his own home-spun brand of economics means Mahathir has nowhere to turn.

The fixed exchange rate of 3.8 ringgit to the greenback will reduce Malaysia's attractiveness for foreign investors by increasing costs in US dollars.

The short-term rally in the stock market following the imposition of exchange controls came on the back of trading by Mahathir-friendly companies.

Tellingly, those responsible for the Morgan Stanley Capital International stock market indexes immediately dropped Malaysia off their "developed markets" index.

Mahathir's policy stance smacks of the type of backyard economics that led to Asia's financial crisis.

Fund managers are in shock.

A typical response comes from David Baker, of Berkshire Capital Partners, New York:

"Malaysia's actions were terrible," he said. "At a time when they're trying to lure in foreign capital and beef up their coffers, they've really created a situation where foreigners will not put their money in."

Which brings us to Anwar, whose rift with Mahathir is based on stark philosophical differences. Anwar sees Asia's crisis as a chance to reform and end corruption. Mahathir, on the other hand, has blamed the turmoil on evil Western speculators determined to undo decades of good work by Asian administrators.

The dismissal of Anwar, credited as being the architect of Malaysia's economic growth in the past decade, means that an astute economic brain has been removed from the economic picture at a time when talent in the region is scarce.

The unknown factor in the equation is the investigation into Anwar for sexual misconduct, treason and other crimes. If guilty, Anwar's fall from grace is deserved. He stringently denies the claims and his supporters have been galvanised by the dismissal.

For now, Mahathir will be judged on the success of his economic reforms.

Unfortunately, his first steps do not inspire hope.