Dr Mahathir alternative therapy

COPYING AND DISTRIBUTING ARE PROHIBITED WITHOUT PERMISSION OF THE PUBLISHER: SContreras@Euromoney.com

By:
Chris Cockerill
Published on:

Contraversy has dogged Mahathir Mohamad's 22 years' dedication to making Malaysia a healthy modern economy. Now on the brink of retirement the prime minister spoke to Chris Cockerill about his country's achievements and his refusal to bow to the prescriptions of the developed world.

DrMahathirsteps out of a proton:"the car industry has helped us leap into the industrialized world. And we have never lost money with Proton"
THERE'S A HINT of sadness and disappointment in the voice and eyes of the government aide. "We think it will be quite a low-key affair because it's Ramadan," he says. At the end of October, after 22 years as prime minister of Malaysia, Mahathir Mohamad will quietly relinquish his chair in his very large office in the administrative capital of Putrajaya to his successor, Abdulla Badawi.

The prime minister-in-waiting will find it an immense chair to fill. It was Mahathir, after all, who transformed the country from a colonial backwater into one of the most developed and prosperous nations in Asia. When he took power in 1981 few observers believed he was capable of such an achievement.

At the outset he was, from the perspective of those outside Malaysia, a less than obvious choice. Lee Kuan Yew, the senior minister of neighbouring Singapore, saw him as an alarming choice, famously referring to him as a Malay outlaw. Others viewed him as an over-the-top vocal nationalist who would put the interests of his ethnic group, the Malays, above the needs of the country as a whole.

Such critics could not have been more wrong. Instead of a racially segmented society Mahathir leaves behind one of the most stable countries in Asia despite Malaysia's ethnic diversity. "Stability is crucial," says Steve Brice, an economist with Standard Chartered in Singapore. "And this is perhaps his greatest legacy. Malaysia is not an Indonesia or Philippines. And such a perception to the outside world as we all know now, is very important."

Although Mahathir did introduce affirmative action policies for the Malays, the Bumiputra, it was not at the expense of the Indians or the Chinese. And so the respect and support he receives from the population cuts across all parts of society, regardless of race or creed. "He is loved by the Chinese and Indians," says a source at the economic research unit at Malaysia's central bank. "He is a very capable leader who brought about high economic growth. And the Chinese businessmen are extremely grateful for that."

Influence on the people

Albert Chan, managing director at RHB, takes a slightly different angle on Malaysia's success. "Mahathir changed the mindset of the people," he says. "It's an intangible but very valuable. He managed to excite the people into a different level of thinking and he spent a lifetime doing it. The material changes in the country are a by-product of that. That is his greatest achievement."

The country's economic figures speak for themselves. According to World Bank statistics, Malaysia's GDP had increased from $27.3 billion in 1982 to $95 billion at the end of 2002. The country has transformed itself from an agricultural commodity-based economy to one based on industrial and services exports. Agriculture now accounts for only 8% of GDP compared with 21% 20 years ago. At the same time exports increased from $13.6 billion at the beginning of Mahathir's tenure to $108.3 billion. Gross national income per capita is now $3,540, the third highest in southeast Asia.

Nevertheless Mahathir still attracts plenty of criticism. Some observers are all too quick to point out where he has failed and made mistakes. And a recurrent theme throughout his time in power has been cronyism and political patronage. It's an old story. A western economist based in Singapore says: "OK, so we can't compare Malaysia to Sweden or Finland, but you could definitely compare it to the US. In the States there are special interest groups and lobbyists. It's the same thing - institutionalized. And businessmen don't donate to political campaigns out of the goodness of their hearts. I think it's very hypocritical to just accuse Malaysia of crony capitalism when you just have to look elsewhere."

Even Mahathir now seems tired of having to field the question about the dubious mixing of politics and business. He emphatically denies he is involved in such practices.

The one blotch on the premier's impressive economic record that most economists and analysts still mention is the country's attempt to build up the local car industry, Proton. Few have positive things to say about the heavily protected and inefficient business. One investment banker based in Kuala Lumpur with a foreign bank is, however, slightly more generous. He claims that the jury is still out on whether it was a wise strategy to follow.

In Mahathir's defence, when it was all started, the country was following the policies that many others were trying to follow too. After all Japan, with its large car sector, seemed to have found the model for industrial and economic success.

Brice at Standard Chartered is less charitable. "The auto sector, if anything, is a negative legacy," he says. "And I would argue that Malaysia's car industry is one on the main impediments to free trade in the region, which has damaged Malaysia and the rest of the region. That is why [regional trade grouping] Asean is not as effective as one would hope."

Mahathir understandably disagrees with such a judgement. He believes that the car industry has brought only benefit to Malaysians in the form of jobs. And he is more than ready to blame what he calls the racism of Europeans and Americans for the Association of Southeast Asian Nations being nothing more than a toothless guard dog.

Mahathir and controversy have always gone together. His at times brutally frank opinions have made headlines all over the world as he attempts to stand up to more powerful nations. When the expressions "the despicable western media" (made in September after a spat with BusinessWeek) - and "Buy British last" (made after falling out with the UK in the 1980s) are put to him Mahathir giggles mischievously. He seems excited by the fact that, free from the constraints of political position, he will be able to make even more politically and diplomatically insensitive comments.

But those that cover Malaysia say that it's important for people on the outside to understand the reasons for such behaviour. "You shouldn't listen to the rhetoric," says one senior foreign banker based in Kuala Lumpur. "Look at the substance and look at the audience. He may be calling westerners profiteers, warmongers and sexual deviants but whom is he really addressing? The Malaysian people. When you have a potential Islamic opposition you have to counter it in some way. He is basically a friend of the west, so it's more a question of how he is interpreted. All western banks get deals from Malaysia, including the US banks, despite his rhetoric sounding very anti-American."

But what really brought Mahathir international recognition was the 1997-98 Asian financial crisis. Instead of following the dictates of the IMF, Mahathir took Malaysia on its own path to economic recovery. He was treated as somewhat of a pariah following his decision to introduce currency controls but as the same foreign bank head says: "Since then economists and professionals have realized quite rightly that he had the vision and the foresight much better than anyone else. They worked incredibly well and protected the economy. And without a shadow of a doubt I think growth would have been slower, the deficit would have larger and there would have been more turmoil."

So Mahathir, in the opinion of many economists, is handing Malaysia over to Badawi in very good shape. It's now up to Badawi to build on his successes.

How would you compare the Malaysia of 22 years ago when you became prime minister with the country you lead now?

Obviously Malaysia has made much faster progress in the past 22 years. That was the strategy adopted by the government. Not much has changed in terms of direction or policies. Only a speeding-up of the process.

How did you manage to speed up the process?

We believe in a hands-on approach. Ministers are required to go on the ground and to explain things so that people understand what the government wants to implement. In the past the cabinet used to make a decision and it was passed on very quickly to civil service officers. And it was up to the officers to translate them.

We decided in the first place after the morning cabinet meeting that we would meet with the officers to explain exactly what we wanted. We did not want them to go into the same debate that cabinet had been through. And we thought that they might carry out the same debate and reach a different conclusion, which would mean that government policy would not be carried out. We require ministers to go and see what has been happening on the ground and use their authority to overcome differences between different agencies and departments. Ministers have that sort of authority and if they can't do this then they are required to report back the following week to the cabinet and we will take a decision about what needs to be done. So things get implemented rather than not being attended to because the officers do not understand what is required of them or officers find obstacles in their way between them and other departments.

Are you worried that when you leave office things like the decision-making process will slow down?

That is something that may very well happen. But the system has been put in place. How we speeded things up has now become entrenched and the cabinet and the new prime minister will try to carry on the same approach. He may even improve upon it.

Because the handover to your successor has taken one year, it's suggested that policymaking decisions have slowed and investors have been holding back
Well it's not true at all because generally investors are not putting money in anywhere. They are going to China but they are just removing money to China. It's not new money. At the same time one has to agree that Malaysia's growth is much better than that of other countries in the region or in the world. So it's not true to say that there has been any slowdown because I am a lame-duck kind of prime minister. I am still making decisions knowing full well that they will be carried through.

What do you see as your greatest achievement?

When I was appointed deputy prime minister [in 1976] a lot of people were shocked. I was described, principally by [Singapore's senior minister] Lee Kuan Yew, as a Malay outlaw and that I was anti-Chinese. And that label has stuck. People believed that I would be grossly unfair to others and that I would only promote Malay interests. But over the years the Chinese and Indians have come to trust me and to believe in the need to live in harmony and the need to cooperate to strive for peace and stability and consequently success.
Which specific economic policies, such as acting contrary to the IMF and introducing capital controls, do you see as your most successful?

One of the things that we did was examine everything that we were doing in terms of administration, in terms of policies, in terms of how we handled economic matters. And we introduced innovative ideas like, for example, the Look East policy, when we looked at Japan and how it progressed so rapidly. We decided we should have the Malaysia Incorporated concept, where the government, the business community and labour worked together in order to develop the country.

We also introduced the privatization of government entities. And of course when we were faced by the currency crisis we examined the conventional methods and we found them wanting. We decided that if we followed them, it would only get worse. We examined the problem and found a way of stopping it. We also looked into the operation of CLOB (central limit order book), Singapore's under-the-table share trading, and put a stop to that too.

So, what would you now say to George Soros if he walked into your office?

I would tell him frankly that he has done a lot of damage to people and a lot of damage to countries [through currency speculation in 1997]. In Indonesia around 40 million people lost their jobs because of him. He has taken money from poor people. These are poor people and they lost their jobs. The subsidies that the government gave them had to be stopped. It makes matters worse for these people.

Our country also suffered. Our companies have still not fully recovered because of what he did. What have we done to him? Nothing. He says that it was the market. But the market is made up of people and they make decisions. He made the decision to devalue our currency because of what is called contagion. We hadn't done anything wrong. We were managing our affairs very well.

Thailand went under for some financial mismanagement and therefore we should be affected. Why? This is not a disease as I know it. I am a doctor and I know when things infect. This was not a disease. What happened to us was his decision to devalue our currency by selling money that he doesn't have. He did the classic short-selling. It impoverished us. And gave us many problems, which to this day we have not recovered from. He must understand that he makes money, but he makes it by impoverishing people. Even if he gives to some charity it does not make up for the number of people who suffered. He should have a conscience.

With hindsight would you have developed the car industry to such an extent?

I would. It's not just one objective, the production of a national car. We have to make our people understand engineering, the production of components, etc. And because of the Proton we now have a lot of small industries, with the capacity to grow very big, producing all kinds of engineering products not just for the car industry, so that has helped us take a leap into the industrialized world. And we have never lost money with Proton.

When the subsidies and tariffs are stripped away in 2005 do you think that Proton will be able to compete on the international stage?

Let's look at it from the other side. Supposing we had no Proton and we had this new competition - we would just be on the receiving end. We would be accepting everything, unable to compete because we would have nothing of our own. So in that sense it is a very good project.

The US is putting pressure on China to revalue its currency, which would affect the region as a whole. Do you thinks that the US is right?

By and large a country should be allowed to run its own economic affairs and financial affairs. There shouldn't be pressure from outside. If people find the situation uncomfortable then they should think about what they can do, not what others can do for them. We don't ask others to do things for us, we do it all ourselves.

If the US thinks that China's currency is undervalued then the US should undervalue its currency and make itself more competitive. And that is what has happened now. The US currency has been undervalued.

But you cannot just do one thing and correct a whole spectrum of difficulties. Like [US Federal Reserve chairman Alan] Greenspan. He likes to fiddle around with interest rates. Here, when we were handling our crisis, we sat down every morning three or four hours studying all the statistics and data that came in. And we took corrective action.

It was not one simple decision to peg the currency. We had to peg the currency, yes, but we needed to study the entire economy and take action where there are some signs that some particular sector is not doing too well.

And this we have been doing all the time, although now we don't have to meet every day. That is why Malaysia has been able to maintain stability. Despite Sars, despite the terrorists and the debts of the dot com companies and the fiddling around of accounts by accounting companies. Despite all that we have managed.

So you think there is a tendency for the US and Japan to blame others for their economic ills?

There is a tendency to do that. But there is also that tendency in Malaysia to say 'well, we are not attracting enough foreign direct investment because it is all going to China'. That is true but that is not everything. We have to see what we can do for ourselves. If we are going to cry over this unfortunate thing and wait for the FDI to stop going to China then we are never going to recover.

The 'despicable western media', as you described it last month, often quote you. But the statements that are quoted are often controversial. Do you think that has hindered the amount of investment coming into Malaysia?

Those statements were not made for nothing. Something happened that caused us to make those statements. We feel a need to state the facts. And we feel a need for the media to report things and not to distort things because they are doing a disservice to their readers who subscribe to them. Because the report is distorted, investors make the wrong decisions.

Malaysia is perfectly safe for investment. It has no terrorism and has no Sars. But at the moment when something happens in Singapore and Indonesia they lump Malaysia in with them. We suffer. The business people reading these magazines make the wrong decisions. They decide: 'I won't go to Malaysia because it is in a state of turmoil' - which it is not. The media has a duty to report things as they are. That is why we make criticisms against the media because there is a tendency for the media to have an agenda of its own. And that is wrong. So when we criticize, we criticize based on facts. If we say that this is a big country and a big trading partner, therefore even if they do wrong things against us [they feel] we mustn't say anything [If we keep quiet] then they will continue to do these things.

We feel a need to state facts as they are. When you do something that is wrong, we feel a need to point it out. You talk about democracy and say that Malaysia is not democratic but we have had lots of elections since independence. We have opposition. But we are accused of not being democratic. But is it democratic when one country goes against the rest of the world over the issue of whether it is right or wrong to assassinate [president of the Palestinian Council Yasser] Arafat? You must see that it is wrong. What would happen if I were like Arafat. Would they say well, they have the veto and the right to shoot me. I am talking about principles.

Do you think Asia can take more of a lead in the global economy?

I think it is fair competition. Look at China: it is a country of 1.3 billion very hard working, very intelligent, very skillful people. You can't keep them down. They are there - you can't wish China away. You will have to accept competing with China instead of trying to contain China. We will have to find a way of competing, if not in one field, in another field. China cannot excel in everything.

So when Asians try to build up their economy do not try and stop them. It's not right. When [in 1992] we suggested the formation of the Asian economic group, [then US Secretary of State James] Baker went all over the world, to tell people not to take part in it. He went to Japan and told the Japanese not to get involved because the man who proposes it wears a native dress. In Korea, he said to the [South] Koreans that America helped them fight North Korea, Malaysia did not. Why? At that time Malaysia was a colony of the British. We couldn't do anything. The Europeans can form unions, but Asians mustn't get together or even sit down and talk with each other. If that is not racist I don't know what is.

What are your plans in the short term?

I would like to get some rest. I will be moving around and avoiding direct contact with people. I have an obligation to my party, which put me where I am and I will return the compliment by working for the party. I will also record some of the things that I have done, which may be useful to others. And beyond that if I'm asked for some advice I would be prepared to give it.

So it will be a senior minister kind of role?

No. No way. No way am I going to do that. I don't believe in such a thing. I believe in leaving the new government to act freely not hampered by my presence.

Will you be able to act more freely without being hampered by the office of prime minister?

I think so. I can say more nasty things, perhaps.

About the western media?

I will say things that need to be said. You are misleading people and causing them to make wrong decisions and that is very bad. You should report things as they are and not in a twisted way because you have an agenda of your own.

What drives you?

I was born under colonial rule. I had lived through British, Japanese and Thai colonial rule, British military administration and then again British rule. I felt very small in those days. Nobody showed any respect for those living under a colonial power. I would not want to go back to that stage and we must stand on our own two feet.

You describe the Europeans as still having neo-colonialist tendencies. Do you believe that the younger generation and Europe's next leaders still have these tendencies?

You know, I believe in just going by the facts. There has not been a year where there have not been two European countries fighting. And then when you learned to cross the seas you took the land that belonged to others and declared them yours. Look what happened to the aborigines, they were shot on sight. The red Indians are confined to barren lands, now they are no more. These are lands belonging to other people and they are not compensated or allowed to take part in the government. This is the truth. I am not saying anything untrue.

But what about now?
Well the generation now is less prone to it. But there is still this idea that, in trade for example, you must dominate. You must have your way. Look what just happened in Mexico [at the September World Trade Organization ministerial conference in Cancún]. We had no vested interest, we are not producers of food for export, but others are very dependent on that. And you have huge subsidies for your farmers and this affects the livelihood of many people in the developing countries. We feel that they are in the right. It is better for us to agree with the rich than the poor but the poor is in the right and we had to be with them. If you talk to me about rights and wrongs, we feel strongly. We understand. We have been through many things and we don't think that people should suffer the way we suffered.

You are building up and subsidizing industries in your own economy and trying to dominate certain areas. Isn't that a paradox?

Yes, we will want to compete but not to dominate and to use our power to force people to accept what we want to do to them. We are not going to say to them: open your markets to our goods and send our boats to their harbours if they don't.

A lot of times we find that it's not fair competition. You know, our palm oil cannot be sold in the US because there is a campaign that says palm oil is bad for the health. That is not true at all. Five American laboratories, we gave it to them and said look, see if it's dangerous to consume or not. And they said no it's not dangerous. After the process of cooking it has some potential for causing high cholesterol. But it's not fair competition.

We sell timber. This country is green all the way through. Sixty per cent of this country is covered by original forest and 20% more is covered with tree plantations. And our timber is largely from tree plantations and yet we are accused of cutting down all of our forests. We cut six trees per acre of land. We are very careful. And yet they want to label our furniture the product of our exploitation of the forest. It's not fair. We have to say when it is not fair.

What lessons do you think that other Asian countries could learn from Malaysia?

We have to be serious about economic development. With no self-interest. No personal gains out of this. The country takes precedence over all. If you think that the country needs economic development, then focus on that and forget about the economic returns you get for yourself.

Is that why you get so annoyed by talk of cronyism in Malaysia?

Of course. Because it is not true. I know every businessman, whether they are Chinese, Indians or Malays. It is my duty to know. If they bring something that contributes to the development of this country then why should I be in the way? I should help them. Someone wants to develop a port and I think that this will help Malaysia. I will encourage it. I don't ignore it, why should I?

Anyone who does business, I used to tell all of them we have a share in your company. Twenty-eight per cent of your profit belongs to us [as tax]. We don't put in one cent of capital. When you lose that is your business but we don't want you to lose because in a way we lose too. But if you make money, 28% of your profit goes to the state. Why shouldn't I help you? I should help you because I am going to get money for the government.

That is what Malaysia Incorporated is all about. We tell the business, look you can make money in this country. And if you make money 28% of it comes back to us. But if you lose money the government will be out of pocket and won't have any income or tax to collect.

We need the business people and the business people need us because we facilitate things. We tell them don't quarrel with workers. We will get the workers to work with companies And what do we tell the workers? We say, look, you can go on strike and demand more pay. But if you do that you are not going to be competitive. Your products will be high-priced. In the end these people will have to close down and you will lose your job. More, if you keep on going on strike like this then no-one is going to invest in this country and then there will be no jobs. Then you will not have any income.

We have reasoned with them. And that is why in Malaysia they don't go on strike.

The way to increase wages is to be so productive that people come here to create jobs, and there are not enough workers and whether they like it or not they will raise your pay. And that has happened in Malaysia. That is why our pay in Malaysia is higher than in neighbouring countries. They are productive. We tell them look you can have higher pay, providing that you are more productive. We are trading with the best in the world, we have to be competitive. If your price is high you lose your jobs.

Our people have the capacity to reason things out. I used to tell them, frankly, don't adopt the European attitude. Europeans are confrontational. It's a winner-takes-all kind of attitude: a test of strength. You have to have a look out to see who can last longer.

Of course when someone has to give in and you get what you want for yourself the other party doesn't get anything. And what you produce will find no market and you are going to fail anyway. Don't have a confrontational attitude. Don't have this winner-takes-all view or have a test of strength. You must cooperate.

What is your greatest regret?

We have three communities in Malaysia. And the least developed community is the indigenous people. I am a member of that community and I have tried my level best to change their ways to make them understand the need for them to have better value systems, be willing to fight for themselves and not rely too much on government, on subsidies, on being privileged.

I am not happy with their attitude and that is my greatest regret. After 23 years I admit limited progress in that sphere.

What makes you happy?

To me, job satisfaction. You set out to do something and you accomplish, perhaps not 100%, but you accomplish something. That makes me happy. Sitting here and looking at the town growing just outside my window. That is very stimulating.