FINANCIAL LIBERATION NOT THE ANSWER

FINANCIAL LIBERATION NOT THE ANSWER

Bigger economic crisis ahead unless...
by Zakiah Koya

Prof Dr Jomo Kwame Sundram
KUALA LUMPUR (Dec 20, 2009) : A bigger crisis awaits Malaysia if we continue on the path of financial liberalisation and fail to learn the right lessons from the last economic downturn in the late 1990s, warns an economist.

Prof Jomo Kwame Sundaram, who is the assistant secretary general for Economic Development in the United Nations’ Department of Economic and Social Affairs, said financial liberalisation, as it showed in the 1997-98 Asian crisis, is actually the “bleeding of resources from poor to rich countries" and does not lead to development.

Jomo, who was giving a public lecture titled When Will We Ever Learn? last Wednesday, explained that the last financial meltdown not only prompted some rethinking of how to “manage” financial crises but also stimulated some serious rethinking about the character of the development model in Asia.

Lessons were supposed to have been learnt and new policy and institutional frameworks were put into place to avoid another crisis, he said.

However, after all that the country had gone through, the severity of the current crisis begs a question: did politicians and policymakers really learn the right lessons from 10 years ago?

Jomo said that the way Malaysia handled the last economic crisis was not very wise and pointed out that contrary to popular belief, it was palm oil that saved us then by spurring economic growth, and not the pegging of the ringgit to the US dollar.

“The truly local palm oil industry – everything was Malaysian about it from A to Z – which spurred the economic growth. It was not the industrialisation and setting up of the industrial zones,” said Jomo.

He also had harsh words about recent attempts to liberalise the local financial market, saying that it has been proven that this does not bring about development.

Instead, Jomo said, it bled out the capital resources of Third World countries.

“Half of the capital inflows in the year 2007 went to the US due to financial liberalisation,” he said, adding that it was imperative for Malaysia to start planning the real economy and not look to the US model.

"There is an urgent need for much more original and creative development policy thinking in the region," he said, and warned that if we continue on this path (of financial liberalisation), "Malaysia’s development status target of 2020 would be delayed by a decade."

How can Malaysia get itself out of its present economic predicament? The answer for us, Jomo said, lies with palm oil.

“If Brazil can be committed to research on bio-ethanol – fuel made from sugar cane – and today compete in the car world market, there is no reason why we cannot come up with such an answer,” he said.