At the annual World Bank conference over the weekend, two men on opposite sides of the region’s economic crisis--the speculator and the statesman, the accused villain and the alleged victim--had a showdown, firing off words like “moron” and “menace.”
“It’s ‘High Noon’ in Hong Kong,” said a World Bank official.
George Soros, an American financier who once made $1 billion in a day betting against the British pound, has drawn the ire of Malaysian Prime Minister Mahathir Mohamad after his speculative attack on weak currencies in Southeast Asia. The fall of the Thai baht sparked a devaluation domino effect across Indonesia, the Philippines and Malaysia this summer.
As a result, the central bankers’ main theme this week has become how to stop the meltdown of the Asian miracle.
Mahathir, 71, who has overseen Malaysia’s growth during his 16-year rule, charged that Soros aimed to stop the fast-growing region in its tracks. “All these countries have spent 40 years trying to build up their economies,” Mahathir said before the conference, “and a moron like Soros comes along with a lot of money” and undermines them.
The opposing views of Soros and Mahathir encapsulate a key issue that was a major topic of the conference and divides developed and developing countries: how to respond to financial crises tied to the movement of capital markets.
Since July, Malaysia’s ringgit has lost 20% of its value. Although experts say the country’s economic policies invited such a correction, the prime minister said Malaysia is the victim of a costly game.
“Currency trading,” Mahathir declared in a speech Saturday evening, “is unnecessary, unproductive and immoral. . . . It should be illegal.”
Soros denied that his hedge fund, the $9.1-billion Quantum Fund, had a role in devaluing the ringgit; in his own speech, he said that ironically the buying of Malaysian currency during the crash helped buffer the impact. Mahathir, he claimed, was using him “as a scapegoat for his own mistakes.”
But Soros admitted to zeroing in on the Thai baht and other currencies, sending regional stock markets spiraling downward. He dismissed Mahathir’s desire to ban currency trading, calling it “a recipe for disaster.” After the prime minister’s speech, Malaysian finance officials hastily reassured bankers that policies would not change.
“Dr. Mahathir,” Soros added, “is a menace to his own country.”
Economists point out that much of the economic growth in recent decades worldwide can be traced in part to the confidence of investors in open markets, which includes easy currency exchanges and values that adjust quickly to conditions and information.
In the past months, Soros has suggested meeting with Mahathir to discuss international economics. But Mahathir rejected such a meeting, calling Soros a “criminal” and a “moron.”
At the heart of their conflict is a fundamental disagreement over the free flows of capital and ideas--notions that underpin how countries should develop and interact in global society.
Their clash reverberates from past debates. It touches on the ideological: Malaysian autocracy versus Soros’ ideal of democracy; and the personal: On the day in 1992 that Soros broke the Bank of England and made $1 billion, Malaysia lost several billion dollars it had invested in sterling.
Just as Soros uses his billions as a tool to adjust the values of currencies he believes are off-kilter, he tries to nudge the moral values of countries as well. World Bank President James Wolfensohn, introducing Soros before his speech Sunday, described the 67-year-old as a philosopher and a philanthropist, “a man of powerful intellect who is not afraid to challenge orthodoxy.”
Last year, Soros gave more than $400 million to causes overseas and at home to further his ideals of an “open society"--including $1 million to the campaigns in California and Arizona to legalize medicinal marijuana.
The speculator and the prime minister are alike in several ways. Both are unorthodox, and seek controversy and publicity to pound home a point. Both think big.
It is a contest between the man who moves the world’s largest markets versus the man who claims the world’s highest building in his country and now has plans to build the world’s longest one. As a result of the devaluation, however, Mahathir has had to put on hold several “mega-projects” that had concerned critics.
Mahathir refused to meet Soros face to face at the World Bank meeting, so they addressed each other obliquely, in seminars on consecutive evenings.
In his speech, Soros insisted that speculators are doing the Asian countries a service, providing a kind of shock treatment for governments that had ignored warning signals to get their economic houses in order.
He cited the weaknesses in the fast-developing region that attracted his hedge fund’s attention: lax supervision of the banking system, overly lenient credit policies in Thailand and Malaysia, and a lack of economic information.
An International Monetary Fund committee announced Sunday it is seeking new powers to encourage member nations to gradually lift most constraints on the movement of investment capital in and out of their markets.
But the recent sharp drop of Southeast Asian currencies and stock markets has made developing countries wary of any infringement on their ability to protect against sudden large movements of foreign money in or out of their economies.