Malaysian Maverick: Mahathir Mohamad in Turbulent Times, Barry Wain [best mystery novels of all time .txt] 📗

Hong Kong after the British colony's return to China in 1997.[69] With Malaysia one of the world's "emerging markets" then in vogue with foreign fund managers, portfolio investment deluged the Kuala Lumpur Stock Exchange, later renamed Bursa Malaysia. Foreign funds invested in shares and corporate securities increased by more than nine-fold from 1991 to 1996.[70]

Big or small, other countries were impressed with Malaysia's performance. Sometimes-smug Singapore was jolted by Kuala Lumpur's investment in container ports, a "super" airport and an enlarged financial centre. "This made us re-examine our competitiveness, improve our infrastructure and work smarter to increase our productivity," said former Singapore prime minister Lee Kuan Yew.[71] Stunned by Malaysia's visible progress since a visit 16 years earlier, Indian Prime Minister V.P. Singh in 1990 asked his economic adviser to prepare a paper that would help New Delhi emulate Kuala Lumpur's "spectacular success".[72]

The only economic problems in the mid-1990s seemed to be the stresses and strains of success. Demand for power began to outstrip supply. A growing shortage of skilled and semi-skilled workers drove up wages, eroding Malaysia's competitive edge in labour-intensive manufacturing. But the government dismissed suggestions that the economy was overheating and should be allowed to take a breather.

Despite Vision 2020's lofty rhetoric about balanced development, "acquisitive, profiteering, short-termist behaviour proliferated" as the good times rolled. "It was a regime of accumulation and speculation...Rapid growth became entrenched as a desirable objective for its own material ends...".[73] Many Malaysians "saw nothing else but wealth".[74] With higher incomes, lifestyles changed. The wealthy adopted fetishes that "followed the footsteps of the rich and famous of the world", while members of the middle-class nouveau riche competed with one another over status symbols: blue-chip stocks, expensive houses, imported cars, golf club memberships and the latest cell phones.[75] "We are developing our unique Malaysian Dream," economist banker and former official Ramon V. Navaratnam told a reporter for a U.S.-owned newspaper, "just as you have your American Dream."[76]

The dream turned into a nightmare in 1997, the tenth year of Malaysia's boom. As Thailand capitulated to market pressure and allowed the baht to float on 2 July, other Southeast Asian currencies pegged to the dollar also came under speculative attack. They were targets because, like the baht, they were overvalued, and these countries had long maintained large current account deficits. The pegs, which made the economies more competitive as the dollar declined for a decade after the Plaza Accord, became a growing liability from the mid-1990s as the yen began depreciating again.[77] Almost no one, however, could have predicted that the baht's collapse would reverberate throughout East Asia, devastating Malaysia, Indonesia and South Korea as well as Thailand.

Herd-like panic by currency traders and inexperienced fund managers based in London and New York, treating the region as one instead of a series of quite distinct economies, created a contagion that spread rapidly. As investors abruptly withdrew their funds, share and property market bubbles in Malaysia burst, undermining the country's heavily exposed banking system. Having traded as high as RM2.493 to US$l in April 1997, the ringgit crumbled to RM4.595 in January 1998, as the Malaysian authorities abandoned its loose peg to a dollar-dominated basket of currencies. The Kuala Lumpur Stock Exchange's market capitalization plunged from RM806.77 billion in 1996 to RM375.8 billion in 1997. The exchange's composite index, which stood at 1300 in February 1997, touched a low of 262 in September 1998.

Dr. Mahathir's Vision 2020 was imperiled as more than RM30 billion net in portfolio investments fled Malaysia in the last nine months of 1997, much more than net inflows since 1995.[78] Elaborate symbols of the vision then under construction — among them Putrajaya, a new administrative capital for the country, the Bakun hydroelectric dam in Sarawak and the high-tech Multimedia Super Corridor — would have to be postponed, downsized, or abandoned with the end of the high-growth era. More seriously, international financial forces that had intruded so dramatically would almost certainly require the sort of structural and market reforms in Malaysia that might compel Dr. Mahathir to dismantle his entire development project.

Initially, Malaysia followed Thailand's example in trying to defend its currency, with similar results. Bank Negara intervened in the market, wasting more than RM9 billion in foreign exchange vainly attempting to maintain the value of the ringgit.[79] Government spending was cut drastically, interest rates were raised and the definition of non-performing loans was tightened to three months in arrears from six months. All this was conventional wisdom, standard prescriptions urged by the IMF — and it aggravated the situation. Such contractionary measures helped turn what began as a currency and financial crisis into a more general economic crisis for the country.[80]

In August 1997, Malaysian authorities banned the short selling of 100 indexed-linked stocks, but rather than arrest the slide in share prices it sent them skidding further. Similarly, the creation of a RM60 billion fund in early September, to buy stocks selectively from Malaysian companies or shareholders, was interpreted negatively, as a move to bail out cronies. Although the use of the special fund was never fully explained or implemented, government-controlled public funds were deployed to begin rescuing some of the most influential groups.

Particularly vulnerable were the UMNO-connected conglomerates, formed around privatized projects and nurtured by government policies and patronage, which had found it easy to fund their often frenzied expansion by raising capital in the local stock market, or by borrowing abroad. They had evolved into politically protected market leaders, oozing wealth and power, but not distinguished by productivity or innovation and were completely untested in export markets. With the onset of the crisis, they seemed to be "living on borrowed time and not just borrowed money".[81]

The most damaging case, in terms of loss of investor confidence, was the protracted RM2.34 billion bailout, from November 1997, of Renong Bhd., UMNO's own holding company. After takeover rules were bent in January 1998 to permit United Engineers (Malaysia) Bhd. to acquire 32.6 per cent of Renong, its parent company, at the expense of minority