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Obviously, telling the capital markets to fuck off and die does financial stability no favours.

Greeks `skimp' while IMF `stinks' in Malaysia

Former Malaysian Prime Minister Tun Mahathir Mohamad, who rejected International Monetary Fund policies during Asia's 1997-98 financial crisis, speaks on the Greek debt crisis.

Greece agreed this month to cut wages and pensions, raise sales, fuel and alcohol taxes and overhaul the state-run pension system in return for 110 billion euros (US$136 billion) in emergency loans from the European Union and the International Monetary Fund.

Mahathir made these comments in an emailed response to queries from Bloomberg.

"The IMF hasn't learnt from its mistakes. Its solution is still the same, that is extending loans for payment of debts and making recipients indebted to the IMF instead. The Greeks will now be debtors to the IMF and will have to skimp and stint in order to repay the IMF loans. I'm glad the IMF now agrees that in certain cases capital controls are okay. But the situation in Greece is not similar to Malaysia. They are euro-poor. We were poor because our currency was devalued."

On why Malaysia rejected the IMF:

"The IMF standard formula for countries in debt is to bail them out. The Greeks would simply be using the IMF euros for paying their debts to the foreign banks and end up owing the IMF the same amount of money. To repay the IMF loans the Greeks would have to accept becoming poor with less earnings for very many years. Malaysia rejected borrowing from the IMF precisely because of this. We would have had our economy run by the IMF whose principal interest is to get back the money it lent."

On Malaysia's answer:

"We bailed out our companies, but that worked simply because we applied currency control with a fixed exchange rate."

On over-spending:

"Whatever solution for a country in debt must involve accepting becoming poorer. Greeks had been living on borrowed money. The wealth they enjoyed was not theirs. Even Malaysia had to accept being poorer when we fixed the exchange rate at RM3.80 to US$1 from RM2.50 before the crisis. Our GDP and per capita income were lowered in US dollar terms.

All the countries of the world must accept becoming poorer because they had all been spending money they did not have. Bailouts will not restore the wealth enjoyed before. Much of the profits earned will go towards paying the bailer. The huge profits by Goldman Sachs, for example, largely belong to the government, not the shareholders."

On the IMF's reputation in Asia:

"I cannot say for other countries, but certainly the IMF still smells bad in Malaysia. But it is likely that it is not yet smelling like roses in other Asean countries."


"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Tue May 25th, 2010 at 07:29:53 PM EST
[ Parent ]
What Mahathir is arguing here is that Greece withdraw from the Euro.
by santiago on Wed May 26th, 2010 at 01:18:56 PM EST
[ Parent ]
Actually, that it suspend the EU's internal market rules while staying in the Euro:

On Malaysia's answer:

"We bailed out our companies, but that worked simply because we applied currency control with a fixed exchange rate."

By laying out pros and cons we risk inducing people to join the debate, and losing control of a process that only we fully understand. - Alan Greenspan

by Migeru (migeru at eurotrib dot com) on Wed May 26th, 2010 at 01:52:51 PM EST
[ Parent ]
Yes, that's certainly an implication applicable to Greece and its relationship with the EU.  But what Mahathir actually says here is that they didn't maintain a fixed currency. Rather, that they devalued it:

Even Malaysia had to accept being poorer when we fixed the exchange rate at RM3.80 to US$1 from RM2.50 before the crisis. Our GDP and per capita income were lowered in US dollar terms.

By Mahathir's own recollection, it's not the fixed part that allowed Malaysia to cure itself without IMF austerity.  It's the fact that it retained it's own monetary policy, which Greece doesn't have anymore, like Krugman keeps saying.

by santiago on Wed May 26th, 2010 at 03:23:33 PM EST
[ Parent ]

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