Mahathir’s regional legacy

Mahathir Mohamed’s legacy is fast unraveling.

Southeast Asia has seen its fair share of authoritarian leaders. Malaysia’s Dr. Mahathir Mohamed is one who still endures, albeit now on the sidelines. Ascending to the premiership of Malaysia in July 1981, and ruling until his forced retirement in October 2003, he reigned in impressive fashion.

Among the many titles that were bestowed on this poor boy from a Malaysian backwater were ‘respected Muslim’, ‘Third World leader’, and ‘spokesman for developing nations’. Within the country, as overseas, he was both loathed and loved. In his quest to transform Malaysia into a ‘developed nation’ he used all possible means, both domestic and external, to achieve his grand vision. Seven years since his departure, what has been his legacy?

Mahathir gave Malaysia a new profile through his larger than life personality, ambition and action. He developed the role of ‘Third World leader’ when he took on Malaysia’s colonial masters through his ‘Buy British Last’ policy. He regularly attacked the West while encouraging developing nations to work together through his frameworks of ‘Asian Values’, the ‘Look East Policy’ and ‘South-South Cooperation.’ He weighed in on international issues such as the global environment, Antarctica and even what he termed a ‘New World Order.’ He also stood up for the Islamic ‘Ummah’ by speaking out against its perceived opponents, and provided strong support for Palestinian and Bosnian Muslims in their struggles.

His actions in the region were more pragmatic. Mahathir—alongside other ASEAN leaders from Indonesia, the Philippines, Singapore and Thailand—saw ASEAN within the framework of regional security and as an expanding market for Malaysian goods and services. In ensuring regional security, Mahathir continued Malaysia’s longstanding hybrid form of neutrality.

Since independence Malaysia has relied on Britain, Australia and New Zealand to underwrite its security but has concurrently endorsed the view that ASEAN should be free of big power influence. Mahathir continued this awkward tradition. It has now been revealed that in 1984 Mahathir signed a secret defence agreement with the United States; an agreement which he deemed beneficial to Malaysia. It vastly expanded military cooperation between the two nations. This revelation contradicts the vehement public statements that Mahathir made about not indulging foreign, especially US, influence in Malaysia or the wider ASEAN region. This was classic Mahathirism: pragmatic to the point of hypocrisy.

To further strengthen ASEAN both in regional security and economic terms, Mahathir encouraged the consolidation and expansion of the organisation. He strongly supported the ASEAN-UN International Conference on Cambodia that eventually led to a negotiated settlement between the warring sides. Mahathir also played a key role in promoting the membership of Burma through the much-maligned policy termed ‘constructive engagement’. During the Mahathir era, ASEAN eventually came to include all ten countries of the region.

With the end of the Cold War and the rise of China, Mahathir and ASEAN realised that a new platform was needed to ensure regional security and to contain China. Mahathir therefore took an active role in the shaping of the ASEAN Regional Forum (ARF), ASEAN’s post-Cold War regional security apparatus. The ARF brought together the regional powers and the United States in an effort to guarantee regional peace.

In expanding its markets and in response to the formation of the European Union (EU) and the North American Free Trade Association, Mahathir and ASEAN responded with another free trade agreement called the ASEAN Free Trade Agreement.

Notwithstanding these contributions, Mahathir’s legacy seems to be fading. This began with his treatment of Anwar Ibrahim, his able deputy whom he humiliated. Mahathir’s credibility as an Islamic leader was damaged forever with that action. Malaysia celebrated his resignation by giving his replacement, Abdullah Ahmad Badawi, the biggest-ever mandate for an incoming prime minister. Furthermore, since his departure, the effects of his authoritarian rule are increasingly felt. The use of democratic institutions to protect corrupt leaders and to attack the opposition, the unprecedented rise of religious bigotry, and the weakening of the country’s economic fundamentals all point back to Mahathir’s years in charge.

On the regional front, Mahathir tried his best to keep Australia and the US out of the region to satisfy his own prejudices. While the US was too powerful to be ignored, Mahathir relished vetoing Australia’s involvement in ASEAN-related forums. Since his departure, Australia has been granted its relevant memberships and Malaysia is now more closely aligned to both Australia and the US than ever before.

While Mahathir held sway over domestic and global politics for 22 years as a courageous Third World leader, his departure was welcomed, not only by Malaysians but also by Malaysia’s neighbours. Malaysians now have the task of cleaning up the messes he left behind.

This article first appeared in East Asia Forum.

ASEAN economies on the slide?

How serious is the Global Financial Crisis to ASEAN economies?

Chaos in Thailand, a controversial new PM in Malaysia, uncertainty in the Philippines, ASEAN as an institution searching for a role in the crisis. Hal Hill and Gregore Lopez ask: how serious is the crisis in Southeast Asia?

Even though the recent East Asian Summit was aborted in dramatic circumstances, this initiative underlines the diplomatic clout of the 10-member Association of Southeast Asian Nations, ASEAN. Put bluntly, Australia would not have a seat at this table if ASEAN had not acquiesced. ASEAN will also be critical to the success of Prime Minister Rudd’s proposed Asia Pacific Community.

These countries are also hugely significant economically and socially to Australia. For example, they are a larger share of our trade, our immigrants, our international student community, our overseas travel destinations and our aid program than is the case for any other OECD member.

Se we have a vital stake in their progress and, in particular, how well they are currently managing during the global financial crisis.

Crisis impacts: Initially there was a feeling in the region that the crisis was a problem for the rich countries. The ASEAN countries had put their houses in order after the deep crisis of 1997-98. As the accompanying table for the six major economies shows, the economies were growing strongly immediately prior to the crisis, in the range 5-8per cent, as they have been for most of this decade. Budget deficits were generally modest. Where they were larger, as in Malaysia and Vietnam, they were funded by buoyant domestic savings or large foreign aid flows. Moreover, all but Vietnam – the one country in the regime displaying crisis vulnerability symptoms – were running current account surpluses, resulting in rapidly accumulating foreign exchange reserves, especially in Singapore and Malaysia. There have been no cases of serious financial collapse or bank runs.

By late 2008, two factors began to quickly undermine these comfortable assumptions. The first was the impact of the rapid decline in international trade volumes. Most of the ASEAN countries, especially Singapore and Malaysia, are highly trade-dependent. The impact is particularly severe in Singapore, where growth has declined from a trend rate of 8per cent to a likely 5per cent contraction this year, the most serious in the country’s history. For the region as a whole, growth will contract sharply from over 6per cent in 2007 (the last full non-crisis year) to about zero this year.

The second factor undermining growth in the region has been the flight to safety in capital markets. Perversely, capital has flowed back to the very countries that caused the crisis, owing to their perceived fiscal capacity to protect their financial sectors. In ASEAN all but Singapore are regarded as ‘emerging markets’, and they have suffered as a result.

Most governments in the region have the flexibility to significantly loosen both fiscal and monetary policy. Fiscal stimulus packages of around 2per cent of GDP, and in some cases more, have been the norm. Inflationary concerns have quickly abated, thus relieving the need to continue with the monetary tightening that was pursued for much of 2008. Exchange rates have been allowed to drift down, although in no major economy have they fallen as far as the A$. In the four countries that experienced a major crisis in 1997-98, most especially Indonesia, there is still some hesitation to let their exchange rates weaken further. This factor, plus the quasi freeze in international debt markets, limits their ability to introduce greater stimulus. It also explains the recent flurry of currency and fiscal support packages. However, it is unfortunate that regional architecture remains under-developed. For example, the much-vaunted ‘Chiang Mai Initiative’, developed in the wake of 1997-98 to crisis-proof the region, is still not functional.

While the short-term effects can be contained, there are potentially worrying longer-term effects, as the already substantial distrust towards globalization and global institutions strengthens. Liberal reformers will find it more difficult to continue the much-needed trade, investment and regulatory reform agenda, as is for example already evident in Indonesia.

Whether the crisis leads to regime change remains to be seen. Ironically, the country that experienced regime collapse during the last crisis – Indonesia under Soeharto in May 1998 – now looks one of the most stable, as illustrated by the successful conduct of nation-wide elections recently. By contrast, two that handled the 1998 crisis adroitly – Malaysia and Thailand – now look shaky, albeit for different reasons, neither particularly related to the global crisis.

The role of ASEAN: ASEAN, now approaching its 42nd birthday, is the developing world’s most durable regional association, and it has contributed greatly to regional harmony. But the global crisis has again illustrated that ASEAN is not yet capable of playing a major role in difficult and sensitive areas. That it is not adept at crisis management was illustrated during the region’s last serious economic crisis, in 1997-98, as well as in various major political challenges, such as Timor.

The origins of the problem are two-fold: in one way or another, the leaders of all the major countries are pre-occupied with events at home; and the ASEAN Secretariat has been deliberately constructed to be a ‘light-weight’, unable to act decisively and powerfully on any issue of real substance.

In the current crisis, ASEAN could play a major role: it speaks for 550 million people, five of its members have been among the world’s fastest growing economies at various times since the 1960s, and it had two seats at the London G20 summit earlier this month (Indonesia as a member and the Thai prime minister as an observer representing the grouping). However, we have yet to hear an ASEAN announcement, much less a concrete proposal of any significance, on how the crisis issues might be tackled.

ASEAN Economies on The Slide

Country Variables 2007 2008 2009 (f)
Indonesia GDP growth 6.3 6.1 3.6
budget -1.2 -0.1
current account 2.4 0.1 -0.6
Malaysia GDP growth 6.3 4.6 -0.2
budget -3.2 -4.7
current account 15.6 17.9 14.0
Singapore GDP growth 7.8 1.1 -5.0
budget 9.6 5.7
current account 23.5 14.8 10.0
Thailand GDP growth 4.9 2.6 -2.0
budget -1.1 -0.3
current account 5.7 -0.1 8.0
Philippines GDP growth 7.2 4.6 2.5
budget -0.2 -0.9
current account 4.9 2.5 1.0
Vietnam GDP growth 8.5 6.2 4.5
budget -5.5 -4.7
current account -9.9 -9.3 -11.5

(f) = forecast; budget is budget balance; current account is current account balance, both as per cent of GDP.

Source: Asian Development Bank, Asian Development Outlook 2009

Originally published in the Australian Financial Review on April 29, 2009 and reproduced in the East Asia Forum.