James Gibb Stuart and friends’ advice to Mahathir Mohammed, prime minister of Malaysia is relevant today
The editor thanks David Pidcock for agreeing to send the account of this interaction with the Malaysian prime minister in the late 90s..
David (right) sets the scene of the 90s currency crisis: “The Asian tiger economies were under siege but the IMF, World Bank and George Soros, had not reckoned on Dr Mahathir Mohammed having different views on the matter and sending out a number of trusted associates to see what could be done to defend Malaysia and its neighbours from the IMF (infant mortality fund) and their pernicious system”.
After that, David, Ken Palmerton and Muhammad Rafiq met Dr Mohammed’s associates in this London venue.
Alastair McConnachie records that James Gibb Stuart was one of those asked to advise the Malaysian government, which was struggling against an IMF induced economic crisis and the following is summarised from James Gibb Stuart’s Briefing Paper, which opens:.
It has been suggested that I might make some comment on the current financial crisis which would be helpful to our Muslim friends in Malaysia and elsewhere. Let us begin by noting that this is not a failure of Asia and its systems, but a reflection upon the creed of deregulated so-called “free market” finance capitalism which too many Asian nations have embraced. Those who embraced it least are least affected. Those who accepted it without question are now faced with several years of reduced expectations, deprivation and ruin. Why? Not necessarily because of their own faults and excesses, which could be many, but because the banking and financial model they so enthusiastically adopted is itself basically flawed, and possessed of a fatal instability.
It was not as altruists or benefactors that Western bankers ventured into Eastern markets, but as fugitives from a milieu which had reached the limit of its tolerance.
The deregulated “free market” finance capitalist system which prevails among the developed nations is based upon an ever increasing burden of debt, and when the societies within which it is practised approach their saturation point, it must find new outlets for its ever-increasing outflows. The Western institutional lender has a much greater compulsion to lend than his prospective client has to borrow.
But now the lending has to stop. Eastern nations should be looking inward towards their own indigenous strengths and resources, rather than importing capital from abroad. Once this fact is appreciated, some acts of self-preservation must follow:
FIVE ACTS OF ECONOMIC SELF-PRESERVATIONE
- First comes a measure of foreign exchange control, to prevent the nation’s reserves, its financial lifeblood, from being sucked out by speculators.
- Secondly, the progressive liberalisation of financial markets should be reversed, as this advance towards a global economy can rob developing peoples of the benefits of their own national resources.
- For the same reason, and thirdly, there should be no inclination to privatise national assets as a device for paying off government debt. Such assets belong to the people, and should not be put up for auction, where market forces can consign them to foreign ownership . . .
- Fourthly, there should be every endeavour to avoid further borrowing, particularly in US dollars. The recent round of currency devaluations has shown this to be a treacherous device whereby international entrepreneurs can buy up the local economy at bargain prices. At this stage a clear appreciation is needed of what constitutes money, wealth and resources. Even without the lure of foreign financial inflows, we must ask, to what extent is the nation impoverished? The sun still shines. The crops still ripen. The eager workman’s hands and skills and energies are in no way diminished — provided he can have faith in his Government to protect his earnings and ensure an adequate reward for himself and his family.
- Fifthly, money incentives to stimulate commerce, agriculture, industry and social programmes, need not be in the form of expensive US dollars. All recognised, legitimate governments can on occasions create their own debt-free money and use it for essential national objectives. Despite banking protestations, this expenditure is not inflationary, since it does not increase the volume of debt — and it is debt, not the supply of money, which causes inflationary pressures.
Three days after receiving this material the Malaysian government announced exchange controls.
Next week: 2000 onwards