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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

SEPTEMBER 17, 1999 VOL. 25 NO. 37

Gain Without Much Pain
Malaysia's Noordin defends capital controls



Chan Looi Tat for Asiaweek
Economist, think-tanker, speechwriter, adviser to Prime Minister Mahathir Mohamad. Noordin Sopiee, 54, wears many hats. He is chairman of the Kuala Lumpur-based Institute of Strategic and International Studies, a director of Malaysia's central bank, and a member of the crisis management executive group of the National Economic Action Committee, which is charged with reviving the country's economic fortunes. Noordin spoke with Asiaweek's Arjuna Ranawana in Kuala Lumpur.

September 1 marked the first anniversary of Malaysia's imposition of capital controls.
We provided enough funds to cover contingencies. So we felt very confident. Having said that, I am actually surprised at how little money has gone out. We never expected the sky to fall on our heads, although the members of the foreign media may have expected it to happen.

There are reports that funds are awaiting clarifications about capital and gains taxes and these are delaying the exit of money.
It is strange I haven't heard about this. I don't think there are any administrative obstacles to taking money out.

    ALSO IN ASIAWEEK
Counterpoint
Fund guru Mark Mobius says Malaysia's currency controls have scared off investors

Investors say the imposition of capital controls was a breach of faith.
Yes, I absolutely agree that the [hostile] reaction we are getting is because they feel there is a breach of faith. They came in under the presumption of certain set conditions, and that certain set conditions were changed. So they may feel betrayed. I am sorry - we should all say sorry. But the point is that this country, no country, should be run for the purpose of satisfying analysts and fund managers. It was unfortunate that we had to do change the rules, but we had no choice.

So no changes will be made again?
If you invest in any country, you should be aware that they can change their policies. Of course we can change again. Investors should take that risk into account.

Malaysia credits capital controls for its economic recovery, but others in Asia are further ahead without them.
There is a very interesting trap here. The argument you people make is that those guys didn't impose capital controls, and they have achieved the same result as you guys with capital controls. So you can argue that doing it their way is as good as [ours]. But by doing it our way, we didn't have to go through hell. We didn't have to dismantle many of the things we need to keep in place. We never had mass unemployment. We didn't have riots in the streets. We haven't gone into massive debt, to the International Monetary Fund or to anyone else. There are many things [such as economic policies favoring the indigenous population] which the IMF could not have tolerated. So in the light of everything else, isn't it incredible that we have achieved the same result as the other guys?
As far as I know nobody has dropped out of school, while in so many of these crisis economies, millions are today no longer in school. These are costs we did not want to bear, and we did not want to dismantle many things that were not kosher to the institutions that are located in Washington. They aren't here and won't be here for the next hundred years. We have to stay here and manage our society for the next hundred years. I think South Korea has done better than we have. I think Thailand has not done as well as we have. Good luck to them [the other Crisis countries] and they must be congratulated. But we were not willing to do those things [they did]. We are not willing to kiss anybody's feet.

Isn't it true that Malaysia hasn't gone through enough pain to sustain recovery?
That is the macho theory, that unless you have blood flowing, unless you have your brains knocked out, unless you have your left hand chopped off, you haven't made a good path to recovery. The only problem with that is that once you have had your brains knocked out, there are certain handicaps you might face. There is no way the IMF can understand the complexity of this country. You cannot get financial and economic experts to understand Malaysia. They would have listened to their own logic. A lot of people who lent us money would get their money back, but our country would have been in ruins.

How do you see the consolidation of the banking system, which some say is politically motivated?
When you make economic policy and you do not consider the political ramifications, you would be dishonest. If you do not take into consideration the political ramifications, you are absolutely stupid. You cannot run society without looking at the politics. Having said that, I am not aware, honestly, sincerely, as God is my witness, that the restructuring is politically motivated. Perhaps I am ignorant. Perhaps I am out of the loop. But you know, we have been trying since the early 1980s to merge the banks. It is preposterous to have so many banks, so many finance institutions, so many merchant banks in an economy this small. But even if you have the wisdom of Solomon and you bring the number down to six - I personally believe it should be brought down to three - you can't do it in such a way that people are not going to scream. Especially because there are so many ways of cutting the cake, of putting it together, use whatever simile you want. There is no way you can do it without a lot of screaming and heaving and sighing.

How important is foreign investment for recovery?
There are basically two types: foreign direct investment (FDI) and foreign investment in monetary instruments. FDI is very critical to the present, the past and the future. Foreign portfolio investment, in my opinion, is not at all essential. In Japan, the amount of foreign portfolio investment is abysmally small. They did okay for 50 years. Don't construe this to mean that I am anti-foreign investment in the stock market. But the truth is that it is not necessary to have foreign portfolio investment.

The stock market is generally seen as a barometer of investor confidence . . .
Whose investors' confidence? It depends on whether the yuan will devalue. It depends on whether you will have instability in Indonesia. It depends on whether Wall Street will have a nice or an ugly correction.

Many investors feel that full confidence will be restored only after parliamentary elections are held and the political and economic debates are settled. How do you respond?
There is no brave new world in the affairs of human beings. After we've had elections, people would say we should have known it was going to be like this.


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