The IMF puppet show
I am amused by the altercation between two former Keadilan allies over Malaysia's economic policy and the role of the International Monetary Fund (IMF) in Asia.
I am amused by the altercation between two former Keadilan allies over Malaysia's economic policy and the role of the International Monetary Fund (IMF) in Asia.
Chandra Muzaffar
It would be nice to have jailed former deputy premier and finance minister Anwar Ibrahim explain what exactly he would have done or not done during the East Asian financial crisis, and how high he intended to push interest rates, but such is not the privilege of a Malaysian prisoner.
Rather than work up a tizzy about who had the right response to the Asian crisis, perhaps it is good to stare a little at the available facts.
As usual, when we do not act like a lawyer for the defence but as cool- headed independent judges, the picture inevitably is murkier than how partisans see the world. No amount of using selective quotes from like-minded people is likely to settle the dispute.
Consider the following facts from the latest statistical publication of the Asian Development Bank about the countries under dispute.
Malaysia was spared IMF control, while Thailand, South Korea, and Indonesia came under its arm-twisting either fatefully or happily, depending on your point of view.
Figuring it out
Comparing figures before and after the crisis, the fiscal balance (overall government balance as a percentage of GDP) of South Korea improved from 0.3 pecent in 1995 to 3.8 percent in 2002.
Things have deteriorated in the other countries - from 2.2 percent to minus 1.7 percent in Indonesia; from 3 percent to minus1.4 percent in Thailand, and perhaps most worrisome of all, from 0.8 percent to minus 5.8 percent in Malaysia.
In terms of foreign investment for 1997 and 2001:
- South Korea saw a leap from US$2.8 billion to US$8.9 billion
- Thailand also saw a rise from US$3.9 billion to US$5.8 billion
- Both Malaysia and Indonesia recorded declines, from US$5.1 billion to US$3.5 billion in Malaysia and from US$4.7 billion to a devastating minus US$1.5 billion in Indonesia, denoting capital flight.
It is nice to see all the countries return to positive growth rates, but one would be hard-pressed to claim that Malaysia has done better than the rest:
- South Korean GDP growth was 5 percent in 1997 and 6.3 percent in 2002
- Thailand recorded minus1.4 percent and 5.2 percent respectively
- Malaysia grew at 7.3 percent in 1997 and 4.2 percent in 2002
- Indonesia was the laggard with 4.7 percent in 1997 and 3.7 percent in 2002
Debt indicators (total external debt/GNI percentage) do not lead to any definite statement that the IMF route was superior or worse than Mahathir's (right) response.
In 1998 and 2001, there were declines in:
- South Korea from 44.7 percent to 26.1 percent
- Malaysia from 62 percent to 54 percent
- Thailand from 93.8 percent to 60.4 percent
- Indonesia from 167 percent to 97.2 percent
Posers prevail
What do these figures tell us? Indonesia, which fared the worst, was an IMF victim, and Korea which fared the best, was another IMF victim. Does this mean IMF polices were half-heartedly carried out in South Korea, and earnestly in Indonesia, thus accounting for the differences?
There are many other questions that need answering before we can wholeheartedly take one side or another.
How capable are countries in undertaking internal reforms without IMF supervision? Were the initial conditions radically different in each of the countries, and if so how does one isolate the independent effect of the IMF? Does IMF policy work to the detriment of weaker politico-economic systems and is it less problematic, even beneficial, for stronger systems?
Until we can answer these questions more thoughtfully and rigorously, it is no use jumping the gun and taking a Manichean view of the world - the evil IMF versus the White Knight Mahathir, and in more grandiose terms, the West versus the South.
Chandra Muzaffar goes on to talk about countries losing their autonomy once they succumb to the IMF, evidenced by the toady role of South Korea and Thailand over Iraq. This is part of the "us versus them" view that so deeply affects Malaysian thinking and ideological construction.
Let us not forget that Korea cut its umbilical cord to the IMF some years back. It went on to develop an independent 'Sunshine Policy" toward North Korea, much to the chagrin of America. It is certainly able to defend its national interests.
If there have been different attitudes toward Iraq, it could very well be that there are fundamental fault lines developing among Asian states over their perceptions of 'Islamic terrorism' or even how they calculate the geo-strategic benefits of their alliances.
In fact, the kind of US involvement in Malaysia over the 'war against terrorism' is far greater than one would expect from the highly charged anti-US rhetoric the country thrives on.
And how does one explain why IMF-dependent Indonesia did not send soldiers to Iraq unlike its fellow-sufferer Thailand? Canada is extraordinarily dependent on the US, and yet showed great assertiveness against its southern neighbour over Iraq. Can a simple model of dependence explain all these cross-currents?
Test of decency
I think that the issue of the IMF is, in the final analysis, a red herring. If one were to look closely at the Malaysian economy, one would quickly discover that it is a grossly unequal one, having one of the worst income distribution profiles in the world.
This really ought to occupy debates about the economy. The ratio of the highest 20 percent of income earners to the lowest 20 percent is 5.3 in Korea, 5.2 in Indonesia; 5.3 in Thailand, and a whopping 7.1 in Malaysia.
Does it matter whether a country is pro-Western, pro-IMF, anti-IMF, anti-Western or nationally autonomous, when none of these stances really determine the true test of a nation's decency - how the poorest fare. Did Malaysia reject the IMF because it wanted to protect the poor?
Undoubtedly, there are enough wrong-headed polices undertaken by the IMF in Africa and elsewhere, including Indonesia.
It is hard to put the IMF in good light. The IMF has put very little thought into the kinds of institutions that are first necessary before reform can take place (the World Bank only embarking on this very lately), and works on a tunneled vision of "balancing the books" at all costs.
This often causes severe short-term deflation and destroys minimal protections that otherwise useless states grudgingly give to the people. In places where it has extracted reforms with some long-term benefits, the costs could have be lower.
I therefore do not possess a benign view of the IMF, even if no country is forced to turn to it. A compelling conclusion is that the IMF is an ineffectual, fundamentalist organisation which has brought very little benefit to any American or Western agenda.
It is highly dubious if Washington wanted the IMF to produce prostrate economies in Africa. Is it of any benefit to the US to see Indonesia becoming a failed state? The picture is more complicated than has been presented by protagonists.
I cannot help thinking that the main drama in Malaysia has been the use of the IMF as a foil for contending power blocs, with some individuals skilled at playing both sides.
It is true that the consequences of Malaysia's actions were been as bad as some neo-classical economists, Nobel laureates among them, had predicted.
On the other hand, had Malaysia turned to the IMF instead, one could well imagine, from the examples of fellow Asian countries, that the consequences would not have been as bad as Mahathir's supporters portray.
I say this notwithstanding Malaysia's racial structure. The current discord over the IMF is yet another shadow play of the first fight - a signaling device as to where one stands in the power bloc.
The stakes involved are chances of gain and influence for the victorious camp. Let us not pretend it is a burning intellectual issue.
JAMES V JESUDASON is a Malaysian who teaches at a university in Colorado in the US.
