In 1998 James Gibb Stuart was asked to provide advice to the Malaysian government, which was then struggling against an IMF induced economic crisis. The following is taken from his Briefing Paper. Three days after receiving this material the Malaysian government announced exchange controls.
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-PRESERVATION
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. British experience of privatisation proves that selling assets to reduce national debt is only a temporaray expedient. They can only be sold off once, and when they are gone, the cycle of debt and borrowing continues.
In the matter of existing loans that have gone sour, it is impossible to generalise. Each situation must be dealt with on its merits, and acrimony and trade reprisals avoided. But, 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.
Even in conditions of economic crisis, the primary priority is not to pay the bankers or reassure the stock markets, but rather to see that the people are properly fed and housed. A child dying of malnutrition in the midst of plenty is a crime against humanity and a blight on the bounty of Mother Nature.
That is why IMF ‘bail-outs’ which hinge upon further foreign borrowing, liberalisation of markets and cutbacks in social expenditure, should be rejected in utter abhorrence.
Fortunately, support for this viewpoint is finally coming through from Western sources, where the more independent-minded economists are now contending that the IMF and its harsh methodology should be drastically revised or abolished.
We spoke about debt-inflicted Eastern nations turning back upon themselves, looking inward at their own basic strengths and resources. In this regard, and 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.
These five acts: Stopping the haemorrhage of national reserves by means of exchange controls; reversing the liberalisation of financial markets; rejecting the privatisation of public assets; avoiding foreign loans or further borrowing; and steadfastly maintaining social programmes, with government created debt-free money if necessary — all in the face of IMF outrage — will cause the charismatic leader to be smeared and ridiculed abroad.
So, lastly, he must look to his personal and governmental security, avoiding risk of physical or political assassination; losing no opportunity to tell the public what he’s doing and why he’s doing it; laying it continually on the line that the current financial crisis is not his crisis, or their crisis, but a crisis of Western economics which will ultimately devour the whole of civilisation if it is not resisted and amended.
Further reading: “East Beats West: Justin Marozzi on how Mahathir Mohammed rescued his country and made fools of the IMF”, The Spectator, 18 March 2000.
“Dr Mahathir has struck his own blow against the denizens of the Twin Towers without taking a single US life.” James Gibb Stuart, The Herald (Glasgow), 24 September 2001.