A Doctor in The House: A Memoir of Tun Dr Mahathir Mohamad (103 page)

I have learned that assets which are not put to good use deteriorate and are eventually wasted. What enriches some people and some countries is their ability to develop and maximise the potential of their assets. When Kuala Lumpur was a sleepy hollow, few could become rich and even those who owned land in the city centre could not realise the full potential value of their properties. Undeveloped or developed, there were simply no takers. Businesses, including basic retail, did not do well in those days and there were certainly no elegant shops selling branded luxury goods. Tourists did not come, especially not the rich shoppers. Money did not flow in and Malaysians could not accumulate wealth as no one, local or foreign, was spending big.

But after the Government prodded the private sector by example—after it built the supporting infrastructure and invested in development—Kuala Lumpur began to grow. It eventually became a great city with all the amenities of a cosmopolitan urban centre. With that growth the assets that people owned—not just their land but also their intelligence, business acumen and skills—all became valuable. There was no longer any waste of assets, of idle and underutilised resources, in any form. In a country’s development, what counts is the ability to amass, develop and exploit one’s assets, as failure to do so means you remain poor. Even if there is gold in the ground, it will not enrich the landowner until he is able to extract and sell it.

In Putrajaya we have invested in and created increasingly more valuable assets. By themselves they will not yield returns unless and until we make good use of them. If you do not know how to make use of the assets and how to derive tangible benefits from them, they will only be a burden and a waste, yielding no returns from their ownership. That attitude, which encourages people to sit upon idle assets, is what has long held back the economic development of many rural Malays, to our people’s and nation’s great cost. It is not the kind of attitude that would yield a progressive and dynamic national development philosophy. Whether Putrajaya becomes a worthwhile project or a waste of money depends on the owners of the assets that Putrajaya and its facilities represent. If their owners do not know how to use those assets, how to exploit them productively, then they are likely to condemn them as a waste which in fact reflects their lack of enterprise. It is a verdict not on the assets but on those who so poorly understand their potential use. When governments lack entrepreneurial ideas, a country is not likely to grow and prosper. As one Malay proverb wisely puts it, 
tak tahu menari, kata tanah tinggi rendah
 (not knowing how to dance, you say the ground is uneven).

Putrajaya may be the manifestation of someone’s ego and personal vision, but there can be no denying that it is more distinctly a response to Malaysia’s urgent need for a new administrative capital. Without Putrajaya, the transportation problems of Kuala Lumpur would have long ago become unmanageable. In another 10 or 20 years, it would have totally defied any solution. Putrajaya helped to solve much of Kuala Lumpur’s congestion problems while remedy was still possible.

We might have built just any dowdy town of simple standard buildings, just as we did immediately upon achieving Independence—it would certainly have cost much less. If Malaysians want to be proud of dowdiness, that is fine, but I sense that they want something better to be proud of; if so, then the striking architecture of Putrajaya is theirs to celebrate. It may have cost more to build but backward-looking sentiments and narrow pride, as I have indicated, also cost money. Government money is better spent on assets, like a new administrative capital that expresses and supports genuine national pride.

Putrajaya is a beautiful, functional city. When I visited the Versailles Palace outside Paris I heard the guide proudly extol its beauty. But when the Sun King Louis XIV built it, the people of Paris had no bread to eat. When we built Putrajaya, Malaysians had full stomachs. It was not built at the cost of neglecting their needs. It expressed the people’s own pride, not their leader’s vanity.

ENDNOTES

[
1
] Khazanah Nasional Berhad is the Government’s investment arm.
 

[
2
] Mont Kiara is a relatively new and wealthy suburb in the north of Kuala Lumpur.
 

I was not familiar with the international monetary or financial system when it faltered and soon after threatened to implode on us in 1997. As a boy, I had experienced high inflation rates during the Japanese Occupation, when things were priced in thousands of dollars and people had to carry gunny sacks of the so-called “banana currency” to buy anything. There were no banks then and all transactions were carried out in cash.

Everything was in short supply during the Occupation and prices tended to go up very rapidly. The Japanese Military Administration overcame this problem by merely printing more currency notes in higher denominations, and even resorted to printing over new figures on the smaller denomination notes to meet the ever more inflated cost of paying their local employees and for their supplies. Somehow, we managed. In my family, I was better off than my brothers because I chose to sell bananas and other items at Pekan Rabu, the weekly Wednesday Market. I soon learned to raise my selling price in order to pay the expected higher cost of my supplies. My brothers held salaried jobs with the Government and its agencies, but their pay increases always lagged behind rising prices and came too late to meet increased costs. All of us were involved in the black market, and we sold old clothing, jewellery and some of our few possessions. When we could get Japanese cigarettes from the soldiers, we would sell them too.

By 1944, the war was not going well for the Japanese and I believed the British would return sooner or later. In anticipation, I paid a huge amount of Japanese banana money for 100 dollars of the old Straits Settlement and Malay States currency notes, as I was sure they would become legal tender again when the British returned. The way prices went down to pre-war levels as soon as the old currency came back into circulation again was quite miraculous. Government servants were given three months’ pay to compensate them for not having been paid when the British left Malaya and in this way, the old currency was decisively returned into circulation. It flooded back into a battered economy that had been operating for some time without any effective, stable and credible currency. People then were not very sophisticated. They unquestioningly accepted the currency that the British Military Administration issued and got rid of the Japanese banana currency, which soon became worthless. That’s the thing about paper currency—it’s not worth anything in itself. It has value because, and only for as long as, people believe it does. That’s how money works.

Unfortunately, the restoration of the Malayan economy and the reintroduction of the Malayan dollar to replace the Japanese currency has never been properly studied and documented. Perhaps we could learn something from that experience and about how to handle currencies and currency crises. I worked as a temporary clerk at the office of the Custodian of Enemy Property early in 1947 and was paid 80 dollars per month. Permanent clerks were paid 60 dollars per month, the same pay for clerks before the invasion. It was as if there had been zero inflation during the Japanese Occupation.

There was also very little inflation during the early years of the British Military Administration, the Malayan Union and then the Federation of Malaya. Supplies improved but unemployment was high, and the Colonial Government quickly introduced price controls. That kind of measure is often taken in wartime, but the Colonial Government found it a good way to reduce inflation. Even today Malaysia still controls the prices of essential goods, as we do not think this contravenes free market rules. The idea that demand and supply must always determine prices is not completely correct as traders can always cause artificial shortages or oversupply and so influence, even manipulate, prices. The market is not always a pure and impersonal mechanism that can be relied upon to deliver the uncontaminated truth about proper price levels. In fact, we were to learn 50 years later that free market principles permitted the unregulated freedom to manipulate prices, whether of basic domestic commodities or national currencies at the global level.

I learnt a few lessons about dealing with high inflation during my wartime forays into small business, and I learnt bookkeeping in school. But none of this equipped me with the knowledge to handle the currency crisis which hit Malaysia in 1997.

In May of that year I decided to take two months’ leave, leaving Datuk Seri Anwar Ibrahim in charge as acting Prime Minister. I saw it as a good opportunity to observe how he performed as I was already thinking of stepping down in 1998. I wanted to be sure that when Anwar took over from me, he would be able to administer the country well.

While I was in Bledisloe in the Cotswolds in England, I received news about the Thai baht coming under attack by currency traders. Thai businessmen had apparently been borrowing a great deal of foreign currency at low interest rates compared with those of baht loans. Quick profits could be made from the differences between these interest rates—but only if the value of the baht remained stable. International currency traders, people who make a living from noting and exploiting such anomalies and vulnerabilities, thought the situation was suitable for their kind of trading. They spread the word that the baht was overvalued and that the Thai economy would prove unsustainable. The currency traders then sold large qualities of baht, causing it to depreciate against the US dollar, and throwing Thais who had borrowed US dollars into difficulties. They had to find more baht to repay their foreign currency borrowings for if their trading profits were insufficient, they risked defaulting on their loans. If they defaulted, then the currency traders’ allegation that the Thai economy was weak would appear vindicated. The traders then dumped more baht and the currency weakened further, causing more foreign currency loans to default. Yet the traders could appear to be simply responding as innocent bystanders to a crisis that they themselves had triggered.

A vicious cycle quickly developed: the more the baht depreciated, the more loan defaults increased and the more the Thai economy weakened. The Thai Government tried to buy baht with its US dollar reserves to sustain the baht’s value, but the currency traders seemed to have limitless supplies of the currency to dump into the markets. Eventually, the Thai Government was landed with a lot of badly depreciated baht and greatly reduced foreign reserves. This started another round of selling as the baht weakened from a perceived lack of foreign currency reserve support. By the time I came home from leave in August 1997, things were looking very bad for Thailand. We decided to lend it some hard currency to strengthen its reserves but it was to no avail—the baht kept falling.

Malaysian finances were in good shape at the time, as neither the Government nor our business people had needed to borrow much foreign currency. Our interest rates had always been low and foreign currency borrowings would not have given us any advantage. Bank Negara’s foreign currency reserves were also sufficient; at least we thought it was sufficient enough to support the ringgit if it came under attack. But that seemed hypothetical. We had not made ourselves vulnerable as the Thais had, through their foreign exchange borrowings and dealings with currency traders. What did we have to fear?

Then we began to hear talk about financial “contagion”, and how our neighbour’s troubles might soon infect us. It seemed that despite the soundness of our economy and finances, the ringgit might still come under attack. If the traders caused a loss of confidence in Malaysia as well, then the ringgit too would be devalued. I simply could not understand why this should be so, but the economists were certain it would happen.

They were right. Currency traders began selling the ringgit in huge amounts and it soon began depreciating. Before the attack began in mid-1997, the ringgit exchange rate was RM2.50 to the US dollar, but it would lose half its value by the end of the year. We did not know who was selling the ringgit nor did we know who they were selling it to. I was told about a man named George Soros who had attacked the British pound and the Italian lira—both England and Italy had a tough time fending off his attacks and their currencies were forcibly devalued. Not knowing who the currency traders were, I assumed that Soros was one of them. Whoever it was, I was furious. How could outsiders impoverish our country and our people? How could they knowingly and intentionally do such a thing? Even if that was not their main purpose, how could they choose to ruin us as a casual by-product of their own currency trading strategies? It made no sense to me, economically or morally.

Malaysians, particularly the business community, soon felt the effect of devaluation. Importers could not earn enough ringgit to buy the dollars needed to pay for the goods they had purchased from foreign suppliers, leaving them cash-strapped and unable to service their debts. Malaysians who were used to enjoying overseas travel suddenly found foreign trips too expensive. While our exports should have earned us more ringgit since sales were often denominated in US dollars, foreign buyers demanded to pay less. Malaysia’s costs, they insisted, had gone down because the value of the ringgit had fallen. But imported raw materials and components were costing more, as were the capital goods. The fall in the ringgit did not make us more competitive, certainly not against our neighbours whose currencies were also devalued.

We felt helpless as the ringgit continued to sink and the economy moved further towards recession. Only recently we had been growing at eight per cent per annum for almost 10 consecutive years, but now we faced the prospect of negative growth. But I could say nothing about the currency traders—every time I made a public statement, the ringgit would immediately fall further.