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Thursday, November 08, 2007

Influence of Malaysia on Indian thinking on economic policy

Where do India's policy makers distill their frenzy from? Mahathir Mohamad?

Runs an elaborate system of discriminatory policies designed to favour Malays (the `bumiputra') over the economic elite - the Indians and the Chinese. Runs a less elaborate system of discriminatory policies designed to favour the `lower caste' over the economic elite - the `upper caste'.
The former prime minister indulged in vitriolic outbursts during which he said "immoral" currency speculation should be banned and rumour-mongers should be shot. He called George Soros, the US financier, a "moron" and suggested that a Jewish "agenda" might be behind the assault on the ringgit, Malaysia's currency. He ascribed great power to `currency speculators' : They can speculate with any currency, and their speculation is so designed that they can either revalue a currency or devalue a currency to any level. They hold this power, and they can literally make or break you by just by doing that. The petroleum secretary says that in the global crude oil market, supply and demand are not imbalanced. Rather, trading on exchanges like the New York Mercantile Exchange, or Nymex, is contributing enormously to high prices and the solution is to ban crude oil related futures trading at Nymex.
Was the only country affected by the Asian Crisis which tried to address the problem using capital controls. Is known to resort to capital flows hatao when facing implementation difficulties with a inconsistent monetary policy regime.
The former prime minister was suspicious of short selling: As far as the stock market is concerned, we know that players in the stock market can also destroy the stock market simply by short selling. And to short sell you don't even need to have the shares. That is why we decided that we would stop that, and as a result, the market has recovered.Policy makers have blocked short selling on the equity spot market.
The former prime minister said: We have welcomed foreign capital a long time ago, and they came in, they built factories, and they exported goods from our country, creating jobs for our people, improving our economy. Yes, that is the kind of globalization that we want. At the same time, of course, they respected our laws and our policies and allowed our own companies to be protected until such time when they were able to compete with the foreign countries. That kind of globalization, yes. But the sudden inflow and outflow of currency is too destabilizing: That we cannot accept as a part of globalization. Traditional policy thinkers have the same `goods illusion' -- support FDI but work to block financial globalisation.

However, the Mahathir breaks with the caricature in one respect: he criticises the system of reservations - it is not a long-term solution, it reduces the incentive for Malays to compete, moving towards a meritocracy is desirable. In India, reservations are, as yet, a holy cow.

I thought I was being clever with the phrase `goods illusion'. But it's been around since atleast 1959.


  1. Mahathir's florid comments were way over-the-top. However, from what little I can gather, Malaysia emerged the least unscathed during the 1997/ 1998 Asian financial crisis, vis-a-vis Thailand, Indonesia and Korea, which followed the textbook economic advice peddled by the IMF

    I'm libertarianish but currency pricing and exchange rate controls are one where I'm still not prepared to be a 100% libertarian.

  2. it is a fact that current oil price surging "beyond"demand despite increased output by oic countries like saudi...the speculators like soros are definetly at work...former pm mahathir probably gone overboard by blaming jews...but that does not make soros an angel


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