It was reported in the news media that Tan Sri Dr. Zeti Akhtar, Governor of the Central Bank of Malaysia in response to the FED’s ultra loose monetary policy which is stoking currency market volatility, something that has been a major issue for many emerging economies weary of additional capital inflows and currency strengthening [1], made the following remarks:
“Malaysia is not considering curbs on capital flows in response to US’ extension of its policy of quantitative easing… So far we have moved towards greater liberalization of capital flows.
“The increased volatility is something that we have to manage. It is a consequence of QEII.”
I read the above statement three times to ensure that I had not misread it and or that there was a misprint. The second paragraph in fact reinforces the first paragraph. So it is not possible that the media has misquoted the Governor of the Central Bank.
Why the defensive posture and the reluctance to consider all available and relevant options to defend Malaysia’s economy?
“Malaysia is not considering curbs on capital flows in response to US’ extension of its policy of quantitative easing… So far we have moved towards greater liberalization of capital flows.
“The increased volatility is something that we have to manage. It is a consequence of QEII.”
I read the above statement three times to ensure that I had not misread it and or that there was a misprint. The second paragraph in fact reinforces the first paragraph. So it is not possible that the media has misquoted the Governor of the Central Bank.
Why the defensive posture and the reluctance to consider all available and relevant options to defend Malaysia’s economy?
And the Governor of Bank Negara was awarded the title of the best central banker in Asia! Why am I not surprised by the heaping of such accolades by the leading global financial elites? What is the agenda?
Simple! Who would dare question such so-called wisdom and statements by a central banker who has been recognized by her peers as one of the best? She has therefore been positioned to play her assigned role – to allow hot money to flow into Malaysia and to pre-empt any opposition to such inflows of hot money.
Let us dissect her “wisdom” as a central banker.
If having observed that emerging economies are weary of additional capital inflows and that FED’s loose monetary policy is stoking currency volatility, thereby admitting the problem, why is the Governor offering “greater liberalization of capital flow”, which in turn creates more volatility?
Instead of offering a cure to the disease caused by the FED’s monetary policy (and she has admitted that the disease is a “consequence of QEII”), Tan Sri Zeti is fanning the fire of market turmoil!
And her misguided justification for allowing market volatility and the liberalization of capital flows is that,
“Unlike in the period of the Asian financial crisis a decade ago, the region’s banks have very rigorous surveillance that allows various countries to keep track of capital flows into various markets in nearly real time.”
If this statement suggests that she had a role in destroying the financial predators like Soros during the 1997 financial crisis, banish it from your minds. Yes, she was then the newly appointed Governor of the Central Bank, but her role was insignificant. Tun Dr. Mahathir Mohamad was the mastermind in crafting the policies and the tools that led to the defeat of the financial predators and speculators.
The 1997 financial crisis was a brutal financial rape of the ASEAN economies and one would have taught that being a woman, she would be more pro-active in ensuring that such rapes would never occur again. But, the opposite has occurred – “we have moved towards greater liberalization of capital flows”. Financial rapists are welcome to Malaysia armed with hot monies. We have to get used to having rapists around. It is "something that we have to manage”.
To the women of Malaysia, what this Governor is saying is that it is permissible to allow the rapist to enter the house armed with weapons, and if and when the rapist intends to rape, she and her neighbours will be able to respond “in nearly real time” to prevent the rape. She did not say in real time, but “NEARLY” IN REAL TIME! And this is when the rapist is already inside the house and has begun molesting his victims!
How can we trust her judgment and surveillance capabilities when the Bank Negara under her leadership could not and did not foresee the onset of the global financial tsunami in 2007? Even as late as June 2008, she was still in wonderland. She was even touting that Malaysia was on a path to sustained growth!
She was a leading member of the economic team which promoted the voodoo economics of the Badawi administration for which the Barisan Nasional paid the heavy price in the 2008 General Elections when it was denied the two-thirds majority in Parliament and lost five key states to the Opposition.
Recall:
On Sunday, 13th January 2008, Badawi boasted that the then so-called booming stock market was evidence “that there is confidence in our bourse and our economy. We continue to attract investment overseas.” The Governor’s silence on this false confidence was deafening.
I had on the day before, Saturday, the 12th January 2008 warned that “Malaysian stock punters are gluttons for punishment… the week beginning 14th January 2008, will see the KLCI taking a dive”.
The market collapsed on Monday, 14th January 2008.
The mass media reported, and I quote:
“The market which took a beating last week after posting a historic high in the previous week faced selling pressure not only in palm oil stocks but also government linked stocks…” [2]
“The KL Composite Index (KLCI) plunged from an all time high and ended the week at a four-week low. The index reacted bearishly with all Asian markets…” [3]
Recently, the stock market climbed to a record high. Malaysians are real gluttons for punishment. And once again, the Badawi’s mantra was repeated – “there is confidence in our bourse and our economy. We continue to attract investment overseas.”
We have short memories.
Recall:
The Badawi economic team and spin doctors worked tirelessly to convince Malaysians that Malaysia has de-coupled from the US market. Those who followed the pied piper were wiped out and till today have yet to recover from their humongous losses!
The same team went on to tout the success of the five economic corridors and that the economy would be transformed thereby as it would attract investments between RM800 billion to RM 1.3 trillion. The Governor of the central bank did not have the courage of her conviction to tell the truth that there was no such money in the coffers or that such monies would not be forthcoming from investors, foreign or local.
Sounds familiar?
On the 13th July 2008, Badawi gave an interview to the New Straits Times (NST) announcing that he intended to retire in 2010 and this was what he said:
Q: “In 2010, you feel that everything will show the desired results and success?”
A: “It is my wish that in 2010, many of the projects would have been completed and they are progressing well.”
We are now in November 2010 and none of the projects in the five corridors have been completed and or are progressing well. They have been abandoned.
In fact, the current Prime Minister can be said to have replaced the 5 corridors with his “new” initiatives – National Key Economic Areas (NKEAs)!
Recall also that as a result of the failure of Bank Negara to put in place safety nets for Malaysians and pre-emptive measures in 2006/2007 as I had advocated, to cushion the economy from the devastating effects of the global financial tsunami, Malaysia had to scramble a last ditch effort to stimulate the economy by pumping (money-printing out of thin air) RM67 billion!
We are now suffering the effects of this massive money-printing – high inflation. Food prices have all shot up. A modest link house in the Klang Valley goes for RM500,000 or more, beyond the reach of young couples. And it will get worse.
But, the Governor insists that she is right. She insists that hot money should be allowed. This is voodoo economics.
The Governor was also responsible for the proliferation of investment banks modeled on the likes of Goldman Sachs, Lehman Brothers, Bear Stearns etc. Had the global financial tsunami occurred a year later, Malaysia would have been worse off, as by then Badawi’s cronies would have brought en masse, the toxic wastes into our banking system. She was a novice in 1997 and remains a novice today in matters relating to Structured Investment Vehicles (SIVs), CDOs, Synthetic CDOs, CDS etc.
In recent articles, I have warned our government that by the first quarter of 2011, the third phase of the global financial tsunami will kick in and that we must take preventive measures now.
It is clear that my call has fallen on deaf ears. Worse, it is clear from the above quoted statements of the Governor of Bank Negara, she is encouraging the inflow of hot money into the economy, the key dynamic that will unleash financial turmoil.
It has been reported that the Prime Minister is considering a revamp of his cabinet. If our Prime Minister hopes to have a resounding victory in the coming General Elections in early 2011, which is already difficult to achieve, he will have to address the need not only to revamp his cabinet, but also to carry out a major overhaul of Bank Negara before 2010 comes to a close, failing which he may end up with a hung parliament.
Barisan Nasional is hereby forewarned.
There is a strategy for victory that is so simple and obvious, but I am only prepared to reveal to the political force that is deserving of such a victory.
A change in the leadership at Bank Negara is one step in the right direction.
No more spin. No more sell outs to vested financial interests. There is a lot of hard work to be done.
But, the strategy for victory is more than the above.
And time is running out!
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