(Petaling Jaya, Wednesday): The Prime Minister, Datuk Seri Dr. Mahathir Mohamad should review whether his recent speeches are again causing negative sentiments in the market at a time when the priority of the government should be to restore investor confidence.
In his speech yesterday, Mahathir returned to his old theme in July last year putting the whole blame of the economic crisis on currency speculators, in particular George Soros.
Speaking at the Seminar on Virtual Reality at the Mines Exhibition Centre organised by the Universiti Malaysia Sarawak, Mahathir virtually blamed the Asian economic crisis on "virtual reality" in the international market place, citing currency trading as an example, "where a trader can borrow millions of units of any currency without actually taking or handling the money" and which could impoverish whole countries and regions because of currency trading, in some cases by 400 per cent.
Mahathir is surely going against all good economic advice, whether in the Finance Ministry, Economic Planning Unit and the National Economic Action Council, when he persists after a period of quiescence to continue to make speeches which can only fortify general impression that there is a resurgence rather than an abandonment of the "denial syndrome" at the highest councils of economic policy-making in Malaysia in refusing to acknowledge the internal policy, systemic and structural weaknesses which are the bigger causes as to why Malaysia is facing the worst economic crisis since the Second World War.
The latest International Monetary Fund publication on the 1998 World Economic Outlook, for instance, conceded that several factors had contributed to the Asian economic crisis, both domestic and external - but mainly domestic.
This is what the IMF 1998 World Economic Outlook said on the Asian Crisis:
"The economies of east Asia at the center of the recent crisis have been some of the most successful emerging market countries in terms of growth and gains in living standards. With generally prudent fiscal policies and higher private saving rates, these countries had become a model for many others. That this region might become embroiled in one of the worst financial crises in the postwar period was hardly ever considered - within or outside the region - a realistic possibility. What went wrong? Part of the answer seems to be that these countries became victims of their own success. This success had led domestic and foreign investors to underestimate the countries� economic weaknesses. It had also, partly because of the large-scale financial inflows that it encouraged, increased the demands on policies and institutions, especially but not only in the financial sector; and policies and institutions had not kept pace. The fundamental policy shortcomings and their ramifications were fully revealed only as the crisis deepened. Past success may also have contributed to a tendency toward denial by policymakers of the need for action when problems first became apparent."
Despite the third 1998 budget announced by the Deputy Prime Minister and Finance Minister, Datuk Seri Anwar Ibrahim in Parliament on March 25 on a new package of economic measures, market reactions have been lacklustre. Anwar�s third 1998 Budget could not revive the KLSE Composite Index which ended 3.90 points lower at 731.89 on the same day. Since then the KLSE CI has been on a generally downward slide.
Yesterday, for instance, after Mahathir "Virtual Reality" speech, the KLSE CI fell another 2.09 points to 664.84, and at the close of trading today, the KLSE lost another 20.34 points to reach 644.5 points.
There are of course other factors apart from Mahathir�s speech for the crash in the KLSE CI as for instance, fears that another 70 companies risked to be dissolved after more companies, like the Wembley Industries Holdings, the SCK Group Bhd and Bescorp Industries Bhd. face liquidation proceedings.
However, Malaysian investors have a right to expect that the Prime Minister, after his adverse influence on market sentiments during the economic crisis last year - which he had publicly admitted - should be careful in his speeches and statements so as not to undo all the efforts the government had been doing to restore confidence. I therefore call on Mahathir not to make speeches which can only evoke negative sentiments in the market at a time when the priority of the government should be to restore investor confidence.
(15/4/98)