Article: 1998.2
Date: 2 January 1998.
If 1997 was the year when the Asian economic crisis began, 1998 may see its resolution, either for better or for worse. In Malaysia, there will be a great battle to keep the domestic economy afloat and to keep its place in the driver's seat instead of giving it up to the IMF. 1998 should also be used for rethinking the role of liberalisation, and for developing countries to fight for their right to determine how they want to respond to the globalisation process. That's a very tough fight ahead. By Martin Khor
NOW that we have almost put the turbulent 1997 behind us, what can we expect of 1998? Some more turbulence, of course, before calm is finally restored. And this may take some time. How long, no one can honestly predict at this stage. The economic slowdown in Malaysia will be painful, to say the least. What we have seen so far of price increases and job market softening is only the beginning. As the ringgit depreciation's effects wind their way through the system, inflation will go up further. And the government spending cuts, the hike in interest rates and the tightening of credit will cause a squeeze on business, on jobs and consumer spending. As a silver lining, we can expect an about-turn in the rise of housing prices. Flats, apartments and houses should become more affordable as the year proceeds, although this may be offset somewhat by higher interest on housing loans. The biggest questions are what will happen to the ringgit and the stock market in 1998. This is the time of year for economists and analysts to make predictions. The reality is, no one knows. Based on "fundamentals", the currency and share values are both undervalued and should therefore recover some of their lost ground. This may well happen, especially if the trade account and the current account improve significantly (as we can expect them to). On the other hand, with the mood being so jittery, events such as further turbulence in other countries of the region, and reduced earnings or losses in some companies (or even a few bankruptcies) could keep sentiments low. An important issue is how the banking system will weather the storm. If under the guidance of the financial authorities the financial institutions (either each by itself, or helped by mergers among themselves) are able to come through safely, albeit with reduced profits, then this would be the sign that the economy is on track for recovery. The immediate task for 1998, not only for government but for ordinary Malaysians, is to steer the economy through the raging seas of turbulence and avoid the giant icebergs. The aim is that the country must retain control of the wheel and of the ship. As the experience of the other Asian countries has shown, resorting to an IMF rescue would mean losing control of economic and social policies, the full opening up of the economy to large foreign enterprises, and the demise of local firms and autonomous development. There is a very good chance that we can sail through in 1998 without going to the IMF, but this will require great policy skills, political will, putting the public interest above that of any individual corporation or any individual, and lots of good luck as well. Ordinary Malaysians too have their key roles. As investors and depositors, they have to avoid the temptation of panic-rushing to the exit doors, but keep calm in the face of rumours. If someone shouts "Fire" and everyone in the hall were to believe it and stampedes for the doors, lots of people will be hurt, even if there was absolutely no fire. As consumers, they should make every effort to "buy local". If each consumer were only to switch his or her spending pattern by 20 to 30 percent by consciously cutting down on imported products or services, and buying locally-made items instead, we would have licked the current account deficit and made it a surplus. Of course, it is more logical and fair that luxury imports be more discouraged, compared to imported essentials, and tax measures can be introduced to reflect this. Besides the domestic and regional economic crisis, 1998 will also being many other challenges. The industrial nations will keep up their pressures to get developing countries to rapidly "liberalise" and open up their economies. For this, the most important event will be the World Trade Organisation's second Ministerial Conference in May in Geneva, in which the heads of the Group of 7 are expected to attend. Fresh from their success in having launched three agreements in 1997, all of them in sectors (information technology, telecommunications and financial services) where their corporations dominate, the G7 countries will try to use the occasion to launch new initiatives to further prise open the doors of the South countries. Also in 1998, the OECD (the club of 29 rich countries) will try to conclude a Multilateral Agreement on Investment, making it compulsory for governments to give up control over the entry and regulation of foreign investors and making it illegal to give preferences to local firms or farms. Developing countries, which have no say in negotiating this treaty, will be invited and pressurised to sign on. There will also be high-level fora such as ASEM (Asia-Europe Summit) and APEC (which Malaysia will host later in the year), during which the developing countries, already battered by the financial crisis, will be pressured to liberalise further. Thus, we have to be very much on guard in 1998, to ourselves formulate and push for a position on liberalisation that is suitable for our own development and interests, at our own pace and in a manner of our own choice, in which local firms and people can still exist and compete in our own domestic markets. Otherwise there is a real danger that together with other developing countries we will be pushed around to accept the rich nations' agenda of forced and rapid liberalisation, sealed with legally-binding rules. Then the giant transnational corporations and financial institutions will totally or overwhelmingly take over the local economy. Indeed, 1998 should be the year where Malaysia and other countries take stock of the positive and negative aspects of liberalisation, starting with the lessons of the currency and economic crises. In 1998 then, we should quickly formulate guidelines and policies on how to deal properly with liberalisation (in finance, in services, in industry, even in culture and social life). The appropriate strategy should strike the balance of the need to protect the domestic economy and society from the negative aspects, with the need to obtain benefits from the positive aspects, and with the realistic understanding that it is impossible to altogether avoid liberalisation. Whilst the goals can be quite easily put together, finding the right strategy is difficult enough. And getting such a strategy implemented, in today's world where the liberalisers of the North are in such control of world politics and economy, is probably the most difficult task of all. However, there is still a lot of hope that some sanity will return to a global market that is running out of control. As the fallout of the Asian financial turmoil spread and affected other continents, an increasing number of establishment figures have added their voices to call for international regulation of the markets and of the giant firms. The US administration court action against the revered Microsoft company for violation of anti-trust laws is a sign of resistance to the almost unlimited freedoms of the market. Still, it is most unlikely that the US or other developed countries will ever agree to multilateral action to monitor and regulate the currency and financial trades, until their own economies are badly hit, or unless the global financial system itself faces serious threat. Many serious analysts think it is only a matter of time before speculative activities severely hit one or more of the G7 countries, or put to risk the global system. After all, 1997 showed how much problems can arise in a financially integrated world, to the point where strong Asian economies could face systemic failure. 1998 should be the year where the international community (and that means, most of all, the rich countries) realise that globalisation must at last be managed, and managed well and equitably. Martin Khor is the Director of Third World Network.
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