BANK Negara governors seldom give interviews. Which makes those they had granted in the past rather easy to recall. Sitting down with the present governor, Tan Sri Dr Zeti Akhtar Aziz, with other colleagues last week and listening to her speak about what the Malaysian economy is going through now somehow brought back memories of the devastating Asian financial crisis, which began in 1997. She was the central bank’s chief economist in charge of reserves and foreign exchange at the time.
What started as ripples in Thailand’s financial market some time in May that year quickly descended into chaos when, in early July, the Thai central bank devalued the baht, an event many would mark as the point when the Asian economy started to buckle. Malaysia, too, was standing on shaky ground.
At the crisis’ height, when the stock price screen was bathed in red and when the ringgit was under threat of becoming just a worthless piece of paper, the central bank, then helmed by its governor, Tan Sri Ahmad Mohd Don, was right in the vortex of the financial whirlpool, rapidly sucked in by marauding and merciless currency speculators taking advantage of the vulnerable ringgit, which was, at the time, traded internationally.
As if that was not enough, a top billing fight was shaping up at the time between two political gladiators in the form of the then prime minister, Datuk Seri Dr Mahathir Mohamad (now Tun), and his deputy and finance minister, Datuk Seri Anwar Ibrahim.
Making the situation worse was talk that the central bank itself was split down the middle, with a section beginning to favour Anwar, who himself was seen as being inclined towards economic prescriptions dished out by the Washington-based International Monetary Fund (IMF). The Bretton-Woods institution essentially wanted the government to allow market forces to have their way, which, in the layman’s language, meant letting companies struggling within the weak economy collapse.
The other section was more for measures put forward by Dr Mahathir, who wanted IMF to be kept as far away from Malaysia’s shores as possible. Dr Mahathir knew that following IMF’s prescriptions could possibly mean having to let go of Malaysian assets at firesale prices. He would have none of that.
When I covered Anwar at the Commonwealth Finance Ministers’ Meeting in Port Louis, Mauritius, in September 1997, it became clear to me which prescription was favoured by the then finance minister. One of the first things he said upon arriving at the Berjaya Le Morne Hotel was that he had blocked an application for a financial lifeline from a struggling Malaysian shipping company, Konsortium Perkapalan Bhd, then owned by one of Dr Mahathir’s sons, Mirzan Mahathir.
Zeti herself attended the meeting, where, among others, the Commonwealth finance ministers passed a resolution on measures to handle volatile capital flows, especially those coming from excessive speculation. Back home, she continued with her work quietly, focused on the wobbly economy, among others, seeking on-the-ground information about how the commercial sector was coping. Indeed, the public was getting increasingly restless at the time, with interest rates escalating to unbearable levels, choking individuals as well as commercial borrowers.
We met at least twice for breakfast in a quiet part of the city, where, for the first time, I saw Zeti carrying a handphone, the one with the then fashionable flip speaker, possibly made by Motorola, as she was on call round the clock. I thought at the time that one of the numbers stored in her handphone may well be that of Dr Mahathir, who, by then, was also beginning to take charge himself in managing the crisis.
I remember telling Zeti of grave concerns in the commercial sector about high lending rates and that traders had warned that the economy might grind to a halt should interest rates be kept at their high levels. She listened, but never once revealed what the government had planned. She only wanted to know how the man in the street was coping at the time.
Much has been written of what happened in the ensuing months, and years, after the crisis. The Malaysian economy, though bruised, escaped a meltdown, with the government’s capital control measures in late 1998 having stopped the decline in the exchange value of the ringgit and halted damaging capital outflows. Anwar lost all his positions in government, and was sent to jail after being convicted of abuse of power and sodomy. The latter conviction was overturned in 2004. His nemesis, Dr Mahathir, continued as prime minister until his retirement in late 2003.
Zeti was appointed acting governor after Ahmad Mohd Don tendered his resignation just prior to Malaysia imposing the capital control measures. She was eventually made governor in May 2000, becoming the first woman appointed to the post.
At her acceptance speech for the Wharton Dean’s Medal a couple of years ago, she spoke of being surprised at being appointed acting governor at the height of the crisis. “I don’t know why. Maybe it was because I was always able to answer Dr Mahathir’s questions during those economic council meetings without having to tell him I’d have to check for details,” she said.
Since the crisis, Zeti and the central bank have been working tirelessly to strengthen the Malaysian financial system and create more orderly financial markets. As a result, the financial system remained solid even during later crises.
When Zeti said the current dampened economic sentiment in Malaysia was nowhere near the situation in 1997, it is easy to believe her.
She was there in the thick of action then.
The writer is NST group editor