by M. Bakri Musa

It must be frustrating to be a leader of a developing country. Just as you are becoming convinced on the virtues of free trade and globalization, there emerges a countervailing viewpoint suggesting that those are nothing more than attempts by the developed world to maintain their economic dominance.

To me, the differences between the two viewpoints are more apparent than real. To former Prime Minister Mahathir however, this merely vindicates his conviction all along. And the man can speak with considerable authority.

He defied the then prevailing economic thinking – the so-called Washington consensus – and successfully steered Malaysia out of the treacherous 1997 Asian economic contagion. Mahathir made those brilliant economists at the IMF and US Treasury Department eat more than their share of humble pie with the success of his unique if unorthodox initiatives that were at variance to the accepted wisdom.

The surprise is that Mahathir’s remarkable achievement is not more analyzed or appreciated. The 1997 economic crisis and Mahathir’s bold and contrary approaches to solving it provided one of the rare “experiments of nature” in economics.

It is interesting that with America currently experiencing severe economic squeeze as a result of its sub-prime mortgage mess, many of the solutions adopted by the champions of free market in the Bush Administration bear remarkable resemblance to the methods of Mahathir. These include the government’s prompt and unhesitating “rescue” of a major Wall Street firm (Bear Stearns), the lowering of interest rates (with scant regards to its negative impact on the dollar), and the priming of the economic pump with generous tax rebates.

When Mahathir did similar “rescues,” he was accused of bailing out his cronies. Nobody would dare suggest that Treasury Secretary Paulson, a former major Wall Street figure, of doing the same thing. As for the decline of the dollar, the direct consequence of lower interest rates, it is deemed acceptable to avoid recession and unemployment! Exactly what Mahathir had uttered then!

Malaysia came out of the 1997 economic crisis much faster and with fewer scars than countries like Indonesia that followed the “severe but necessary” prescription of the Washington consensus. Mahathir was right then; I hope that Paulson would also be right. Read the rest of this entry »