'Bailout good then, but won't work now'
Bailing out companies, such as General Motors Corp is not the solution to the current financial crisis that the United States is facing, said former prime minister Dr Mahathir Mohamad.
Bailing out companies, such as General Motors Corp is not the solution to the current financial crisis that the United States is facing, said former prime minister Dr Mahathir Mohamad.
Saying that the global environment was not supportive of such a move, Mahathir said, "It may have solved the problem for countries like Malaysia during the 1997/98 financial crisis but the condition then varied from now. Then the world economy was still intact."
During the Asian financial crisis, bailed out companies could continue with their business and even banks had the money to give to businesses.
"But today’s crisis has impacted every single person and the economy is in bad shape. So, even if you give money to bailout a company, that company cannot recover because the environment does not support a recovery".
“As such, even after a bailout, General Motors cannot recover as the environment is still depressed and people do not have the money to buy their cars," said Mahathir.
“Giving billions and trillions of dollars, as is the case of the United States is a wrong move. In our case then in 1997/98, it was the right thing to do," he said in his keynote address on crisis management delivered at the Industry Insight Seminar 2009 yesterday.
Crisis today needs different solution
The former prime minister said the present situation required a separate solution and one needs to know the root cause of it.
"The cause of the malaise now is different than the 1997/98 financial crisis. This time around it is due to the abuse of banking, financial and monetary systems. It is a systemic failure," said Mahathir, adding that supervision of the system must be restored, regulated and monitored by the
government.
He added if regulatory authorities disallow banks to lend beyond one's capacity, these institutions will recover, albeit, slowly.
"Even Malaysia's economy is yet to fully recover to the pre-1997/98 Asian financial crisis days", he said, judging from the ringgit's exchange rate then which was about RM2.50 per US dollar.
Mahathir said today the ringgit is about RM3.50 per US dollar while per capita income is between US$7,000 and US$10,000.
"If the ringgit appreciates to its good old days of RM2.50 per US dollar, it would than signal a full recovery for the Malaysian economy.
"Similarly, the United States will also not return to its previous level, as the per capita income has declined now. They will be poorer than they were before the crisis, that is something they have to accept," he said.
- Bernama
