Malaysia Looks the Wrong Way

Malaysia’s controversial Prime Minister Mahathir Mohamad has cast new uncertainty over his nation’s economic and political future by imposing radical currency controls and sacking Anwar Ibrahim, his deputy prime minister and finance minister. In word and deed, the Malaysian leader has turned his back on open markets. Fortress Malaysia becomes a bad example for other Asian nations struggling to recover from economic collapse.

Ever since the crisis began last year, Mahathir has blamed foreigners, most pointedly financier George Soros, for his country’s problems, which in fact primarily stem from crony capitalism at home. Despite reform efforts led by the market-oriented Anwar, Malaysia conceded last week that its battered economy has slipped into its first recession in 13 years, marking the end of Mahathir’s much touted economic miracle.

Just two months ago, the prime minister abandoned Anwar’s fiscal policies of tight credit and cut spending on his favored government projects. The result: the central bank president resigned. Mahathir countered by making Malaysia’s currency, the ringgit, nonconvertible. Now foreigners selling Malaysian securities held less than a year cannot convert their ringgit proceeds to other currencies.

Mahathir came to power as a proponent of a “Look East” policy of self-reliance, shunning Western economic development models for those of Japan and South Korea. But the global economy has pushed open markets, including Malaysia’s. This is not the time to turn inward.