Malaysia's Self-Prescribed Rescue Debated

Despite Pressure, Country Refused Outside Aid to Fix Its Ailing Economy

As more countries become enveloped by the financial pandemic that began in the United States, some in the Southeast Asian nation of Malaysia are warily watching the events with a dose of schadenfreude.

After all, it was just a decade ago that the commodities-rich exporter was lambasted for ignoring the blueprint world leaders and the International Monetary Fund had urged.

Instead of taking tens of billions of dollars in aid from the IMF, Malaysia did what was viewed then as a radical move: it self-prescribed its recovery. It stopped outflows of capital for one year, stabilized its volatile currency rate by fixing it to the U.S. dollar and refused to rein in spending.

"We were criticized by everybody but we believed strongly we only had the people of Malaysia to answer to," said former Finance Minister Daim Zainuddin yesterday in a phone interview from Kuala Lumpur. "We had seen what had happened with African nations that had taken aid from the IMF; they never are freed."

Malaysia defied the prevailing orthodoxy of the day and closed its doors to outside aid even as Asian financial markets, including its own, were collapsing. It also took over the toxic debts of its banks, banned short-selling of stocks and lowered interest rates -- moves U.S. regulators have implemented here in the last month to stave off a credit market meltdown.

Months after Malaysia implemented its rescue plan, markets rebounded and the economy grew.

As world financial leaders gather in Washington this weekend to discuss the global financial crisis, there continues to be debate over whether Malaysia's approach worked or if its recovery was simply luck.

South Korea and Thailand were strengthened under strict controls by the IMF. Even Daim credits part of Malaysia's turnaround to the country's ability to export oil, electronics and textiles.

But most economists agree that at the very least the plan did not sink the economy into further depths.

"It's very difficult, even with the benefit of hindsight to say the Malaysian controls were effective because they closed the stable doors after the horses had bolted," said K.S. Jomo, an economist now serving as secretary general for economic development at the United Nations.

As U.S. Treasury Secretary Henry M. Paulson Jr. announced yesterday that the government would be willing to take equity stake in some banks, some questioned whether there's a double standard for western nations and everyone else.

"I remember how well we were told never to bail out failing companies . . . better still they should be sold at fire-sale prices to American investors," former Malaysian prime minister Mahathir Mohamed wrote last week in his personal blog.