Malaysian Defends Handling of Economy

Malaysia’s outspoken trade minister on Monday defended her government’s decision to bail out several troubled companies such as the powerful Sime Bank, arguing that letting them go bankrupt would lead to increased joblessness, social instability and a slowdown of the nation’s economic recovery.

In an interview in Los Angeles, Minister of International Trade and Industry Rafidah Aziz said the tough economic medicine forced on Indonesia, Thailand and South Korea in return for financial aid from the International Monetary Fund was fiscally inappropriate and politically explosive. Those countries have closed down dozens of bankrupt financial institutions in order to meet IMF conditions.

Malaysia has felt the repercussions of its neighbors’ financial turmoil, having seen a flood of illegal job seekers from Indonesia and Thailand since last summer’s currency and stock market collapse throughout South Asia. Since January, the Malaysian government has arrested and deported thousands of illegal immigrants, arguing that it needs to keep jobs open for domestic workers.

“In Indonesia, now, industry has come to a halt,” said Rafidah, who is visiting Los Angeles, Seattle and San Jose this week to recruit high-tech investment into her troubled economy.

Malaysia vigorously resisted turning to the IMF for help, even when its markets tumbled further after Prime Minister Mahathir Mohamad lashed out at foreign currency speculators and threatened to tighten market regulations.

While Mahathir has toned down his strident criticisms of the West in recent months, the government has not changed its basic tune. Rafidah said Malaysian officials still believe the root cause of last summer’s meltdown was not domestic corruption or fiscal mismanagement but currency speculation that sparked a crisis of confidence and massive outflows of capital from the region.

As the host of this November’s summit of the Asia-Pacific Economic Cooperation forum, Malaysia plans to focus attention on the need for a global strategy to manage currency speculation that can destroy “20, 30 years of economic development in one month,” according to Rafidah.

She said the Manila plan adopted by the APEC nations last fall--which includes the establishment of a regional emergency fund and the creation of a surveillance plan to alert governments to problems--is a good start. But she said countries also need some kind of global mechanism to control currency speculation.

“No economy can withstand the long-term depreciation of your currency,” she said. “No currency should be allowed to drop to such levels.”

In fact, Malaysia has weathered the financial crisis better than its neighbors and the IMF recently praised the government for pursuing prudent fiscal management and credit control while warning against bailing out troubled corporations.

Rafidah acknowledged that the Asian fiscal crisis had unmasked vulnerabilities in the Malaysian economy, such as an under-regulated banking system and government policies that kept the prices of imported goods artificially high.

By encouraging the mergers or takeovers of weakened banks, Malaysia intends to keep money flowing through the economy, particularly to the manufacturing operations whose exports will be critical to the nation’s economic turnaround, Rafidah said.

The Malaysian government has also eased restrictions on foreign investment. Foreigners already own 23 of the country’s 37 banks and are now allowed to hold a majority interest in insurance and telecommunications companies, according to Malaysian government officials.

The Malaysian government has come under fire for its recent decision to revise a decades-old policy designed to improve the economic condition of the ethnic Malays, known as bumiputera or “sons of the soil.” The policies provide economic benefits such as reduced rate loans, relaxed admission standards to universities and set-asides for government projects and other programs.