Tun Mahathir Case Study

MALAYSIA’S DEBT IN THE ERA OF MAHATHIR AND NAJIB
(A) Legacy of Tun Mahathir
Mahathir has been premier since mid-1981, and have led the government for well over two decades until 2003. But while observers may agree on his greater political authoritarianism over time, his economic policy legacy is far more complicated. According to Jomo K.S. (2012), due to heavy industrial policy, rapid development and his Look East Policy, Malaysia began borrowing heavily from abroad, primarily from major Japanese (and South Korean) government, at very low interest rates. Thus, Malaysia’s foreign debt built up primarily and the Malaysian monetary authorities had little choice but to allow the ringgit to depreciate against the US dollar to secure competitiveness

The government adapted quite different policies from International Monetary Fund (IMF) (Ryoichi Mohri, 2013). Dr. Mahathir reacted by pegging the currency against the US dollar, implementing exchange controls and adopting deficit financing to stimulate domestic demand as well as regulated the outflow of international capital to avoid speculation and economic confusion. Mahathir argued that IMF or World Bank loan would push the nation further into debt and delay the country’s recovery period. While other nations are still reeling from the effects of the 1997 crisis, Malaysia has rebounded with minimal aftershocks. The Malaysia government had resorted to public borrowing, which means the government had to find economic sources from borrowing or public debt, essentially through internal or external sources of money, capital, manpower, expertise and so forth. The internal sources of Malaysia government in public borrowing were from the Central Bank as well as Financial and Commercial Banks. Moreover, the Malaysia government had introduced Danaharta, Danamodal, Merger of Financial Institutions, Corporate Debt Restructuring Committee and Bond Market in order to overcome the financial crisis

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