FORMER Malaysian leader Mahathir Mohamad, the leader who steered Malaysia through the 1997-98 Asian financial crisis, said that the current global turmoil is far from ending and will soon spread to the region's export-dependent economies, in an interview with Bloomberg News.
'The worst is not over yet. We do not even understand what is happening,' Tun Dr Mahathir, who stepped down as prime minister in 2003, said in a Bloomberg Television interview yesterday in Putrajaya, Malaysia. 'Asian countries are going to feel the pinch of a world where the market has collapsed.'
Global leaders are starting to acknowledge the worst still lies ahead for their economies as stocks and commodities plunge, forcing a growing number of countries to shore up their battered banking systems.
Dr Mahathir bailed out Malaysian banks in 1998 and pegged the ringgit, ignoring advice from the International Monetary Fund (IMF), which later endorsed his capital controls.
Dr Mahathir, 82, reiterated his belief that governments worldwide should consider a new international monetary system that doesn't depend on any single currency.
'You may have to use a number of currencies for trading purposes, or you may have to use a special trading currency, probably based on gold,' Dr Mahathir said. 'Gold has intrinsic value. Money has no value, just pieces of paper and government assurances.'
[Terry Pratchet just has "Making Money", a Discworld novel out. In it, a sad character makes the same claim about the intrinsic value of gold. The protagonist however says that gold is just metal. A potato is food in a city or on a desert island. But gold is worth nothing in a desert island. Where's the intrinsic value in it? Mahathir needs to think deeper and look wider.]
The IMF this month forecast global growth would drop to 3 per cent next year, the dividing line between recession and expansion.
World leaders plan a financial summit in Washington on Nov 15 to discuss efforts to fix the crisis.
'A lot of people say rescue plans will work,' Dr Mahathir said. 'It's a question of confidence. You don't have confidence in money that is suddenly made to appear by magic.'
Dr Mahathir in 1998 defied the IMF's call to raise interest rates to stem a currency slide and instead provoked worldwide condemnation by pegging the nation's currency to the dollar and imposing controls on foreign money flowing out of Malaysia, insulating it from the external fallout.
The capital controls gave Dr Mahathir room to cut interest rates, overhaul banks and boost spending to help pull the country out of its recession.
To free up banks to lend, he set up a state-run agency to buy bad loans and infused them with fresh capital.
The US and several European countries this month announced plans to buy stakes in banks.
'I can't help feeling I'm vindicated,' said Dr Mahathir, who ruled Malaysia for 22 years, reported Bloomberg News.