“Due to the Yen’s sharp appreciation, a few projects became saddled in debt as interest payments on loans just kept getting higher and higher. One of these projects was Perwaja Steel, a joint venture between the government-owned Heavy Industries Corporation and the Japanese owned Nippon Steel Corporation. By 1986, an accounting firm associated with Nippon informed Mahathir that the project was no longer viable and would be better off brought to a halt”
THE THIRD FORCE
Dr Mahathir Mohamad is 93 going 94. He is too old to know how the world currently spins and should best let the present Malaysian government do its job. There isn’t a cat in hell’s chance that the grand old man could do a better one should he be given a chance to run the county. Heck, he didn’t even do a good job back in the eighties and nineties when he served the country as Prime Minister.
The Lim Kit Siang led Malaysian opposition blamed it on the government’s decision to look east. Mahathir, on the other hand, blamed it squarely on an accord that Japan signed at the Plaza Hotel in New York. While it may have been a little of this and a little of that, Mahathir was ultimately to be blamed as he made very little effort to shift the nation’s gaze from Japan till the day he left office in 2003.
But why did Mahathir look east in the first place?
He was forced to.
Back when he was sworn in as Prime Minister, a wave of conservative market reforms that the Thatcher government had effected late in the seventies reverberated towards the US and rudely jolted the Regan economy. That led to the unexpected soaring of goods’ prices and the subsequent stagnation of growth. Had we depended exclusively on the West, our currency would have suffered in terms of Purchasing Power Parity (PPP) and plunged the nation into an out-and-out recession.
Okay, but why the focus on Japan?
We have the late Tan Sri Hamzah Abu Samah (Hamzah Samah) to thank for that.
Mahathir was initially inspired to “Look Hong Kong” by the then Minister of Finance, Tengku Razaleigh Hamzah. However, the late Hamzah Samah intervened in the nick of time and informed the then premier of the Kelantan prince’s associations with George Tan, the owner of the Hong Kong based Carrian Group. That immediately took Hong Kong out of the equation and forced Mahathir to settle for Japan.
Why not China?
Well, it really depends on which era you’re referring to.
If you’re referring to the era prior to the Plaza Accord, then, modelling our economy against that of China would have been tantamount to committing economic suicide. You see, the Chinese economy in the early eighties was hinged on policies that were Mao-Zedong-inspired (Maoist) and somewhat backward. These policies caused the People’s Republic to lag far behind the Four Asian Tigers – South Korea, Taiwan, Singapore and Hong Kong –and paved the way for Japan to become the strongest economy outside the Western world.
That having been said, the Japanese did offer the Government of Malaysia (GoM) some very attractive interest rates on long-term borrowings.
What was the Plaza Accord?
On the 22nd of September 1985, a group that referred to itself as the G-5 (France, Germany, the United States, the United Kingdom and Japan) agreed to impose protectionist measures to trigger the “orderly appreciation of main non-dollar currencies.” The primary goal of the agreement was to help both the European and Japanese economies shrink their current account surpluses by appreciating their currencies at agreed upon rates.
How did the Accord affect Malaysia?
Mahathir had parked many of the country’s development projects under the companies of his cronies. These companies went ahead and secured long-term borrowings from Japanese financial institutions. Mahathir was convinced that the low-interest rates offered by these institutions afforded room for his administration to engage in multiple ventures at one go. But when the Japanese unilaterally undertook to sign the accord, he felt cheated and knew that his cronies were about to be done for.
Were his cronies done for?
In a manner of speaking, yes.
Due to the Yen’s sharp appreciation, a few projects became saddled in debt as interest payments on loans just kept getting higher and higher. One of these projects was Perwaja Steel, a joint venture between the government-owned Heavy Industries Corporation and the Japanese owned Nippon Steel Corporation. By 1986, an accounting firm associated with Nippon informed Mahathir that the project was no longer viable and would be better off brought to a halt.
Still, things were not as bad as they seemed – a large number of investors associated with other government entities stayed put thinking that their ventures were bound to be secure. However, the minute Nippon divested its 30 percent holding in Perwaja, a significant number of these investors began packing their bags and bolted through the first exit door their eyes caught sight of. That triggered a wave of panic departures from the industrial scene that affected Mahatir’s cronies very badly.
So badly, he was forced to play it dirty by ‘bailing out’ the owners of some badly hit corporations. Desperate, these ‘owners’ agreed to assume some risk-taking positions in various institutions to manipulate circumstances in favour of his cronies.
Was there any other way to go about it?
Of course there was.
Mahathir could easily have shifted his gaze towards China, which, by then, had crawled out of the Maoist conundrum and was fast emerging as the region’s engine of growth. It’s government was actively seeking partnerships with Asian economies and was more than willing to bailout ailing government enterprises. That having been said, it is not as if Mahathir was against the idea of China taking control of Perwaja or companies that belonged to his cronies.
It is that every time he floated the idea, he would be stopped dead in his tracks by this one man, who’d tell him that the banks were perfectly capable of curing all of the government’s fiscal and pecuniary ills without the need to involve the Chinese.
Who was that man?
Tun Daim Zainuddin.
Thanks to him, the Mahathirists were never presented with opportunities to burrow their way through Chinese bureaucracy. Had they done so, they’d probably have learnt a thing or two about China’s post-Maoist ways and pushed for the implementation of a Look China Policy.
Yet, Mahathir has the cheek to tell us that Dato’ Seri Najib Tun Razak is doing us wrong by opening the nation’s doors wider to China. Did I not tell you that the former premier is too old to appreciate how the world currently spins?