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Wed, May 15, 2002 - Page 19 News List

Mr Mahathir goes to Washington

By William Pesek Jr  /  BLOOMBERG , TOKYO

For strategic reasons, the Bush administration has looked the other way -- a move it may live to regret one day. By saying nothing, even indirectly, the White House is giving tacit approval to Mahathir's post-Sept. 11 policies.

The bigger issue for investors, though, involves economic policies. Here, too, the reality isn't all it seems. Sure, Malaysia has managed to shore up its economy. However, the economy isn't thriving because of Mahathir's controversial policies during the Asian crisis. Rather, the success comes in spite of those policies. Remember, most other Southeast Asian countries recovered too.

Malaysia's recovery left Mahathir with the mistaken impression that his 1998 efforts worked. Given that belief, why wouldn't he clamp down on markets again if things went bad? To this day, many pundits miss that point. It wasn't Mahathir's decision to eschew the policy orthodoxy favored by the IMF that spooked investors, but his attempts to demonize market activities. He said currency trading was "immoral" and should be made illegal and condemned investors. He even blamed Jews for Malaysia's woes.

For better or worse, Mahathir has become famous for blaming everyone and everything for Malaysia's troubles, except himself and his policies. Bank Negara Malaysia, the country's central bank, for example, was one of the world's most active currency traders prior to the Asian currency crisis. In fact, Nor Mohamed Yakcop, the current central bank adviser, was a central banker in 1994 when Bank Negara Malaysia lost billions in foreign exchange transactions.

Nowadays, observers talk about other nations whose leaders risk "Mahathiring" their economies.

At the same time, some of the optimism over Malaysia's post-crisis reforms and recovery is overdone. Many returning investors rightly point out that great strides have been made in cleaning up the banking system, forcing banks to write down bad loans, for example. Others point to Kuala Lumpur's success in corporate governance.

In reality, the government has moved more aggressively against companies associated with Mahathir's political adversaries than those friendly with the prime minister. Malaysia Inc may be trying to do away with crony capitalism, but it's doing so selectively.

If Mahathir wants to attract investors and keep them engaged in his country, sound economic policies will do the trick. Solid banking systems, transparency and sober leadership are what attracts capital. Without them, investors leave. And many know it's time to go when politicians and policy makers begin railing against markets. Investors know officials tend to blame markets for their own failures out of desperation.

Perhaps, as some argue, we are indeed seeing a changed Mahathir these days. Investors may still want to be wary of the one they know too well re-emerging when things in the global economy go bad.

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