The house of cards that Mahathir built
(LSS) – The Pakatuns frequently praise Tun Dr Mahathir Mohamad and Anwar Ibrahim for the growth of Malaysia’s economy in the early 1990s when it expanded at a rapid pace.
This was a period when growth was generated by the manufacturing sector attracted by our low labour cost, cheap land, tax holidays and subsidised energy along with lax bank loan policies, easy entry by foreign funds into the stock market and a tolerance for stock market speculation where Mahathir was even on recorded for encouraging the likes of famed speculators like Repco Low to “support” the stock market. (There is a signed letter by Mahathir admitting this).
During this period our stock market index jump like crazy and we have T+7 where we can buy shares without paying for it for a week and both foreign and local speculators jumped in. In fact, during this period of time, Malaysia’s stock market daily trading volumes actually overtook New York Stock Exchange despite the USA’s economy buying dozens of times bigger than ours and their companies being much bigger.
At that time, too, property prices increased the most during the early part of the 1990s. According to the Valuation and Property Services Department, house prices rose 25.5% and 12.2% in 1991 and 1992 respectively.
In 1995, house prices increased 18.4% and in 1996, they were up 12.9%.
Off course, inflation during this period was high and averaged around 5% to 5.5% yearly (even last year when we introduced GST, our inflation rate only peaked at 4.2% and then fell back down to 1.1% right now).
Clearly any fool can see that this situation of a lack of proper economic management and policies was unsustainable and is essentially artificial bubble that would burst.
And then, the Asian Financial Crisis struck, crippling the property market. House prices went up by a subdued 1.9% in 1997 before crashing by 9.5% in 1998.
The stock market crashed too, with an 80% drop within a couple of months as did our currency which dropped from RM2.50 to as low as near RM4.80.
The property market did not recover in 1999 as house prices declined by another 2.4%. It only recovered in 2000, when house prices rose 6%. Over the first half of the Noughties, prices increased at a low single-digit rate.
The property market crash in 1998 caused many projects to be abandoned as developers could not service their debts as interest rates soared. At the same time, house buyers were having a hard time as they still had to service their mortgages although their properties were abandoned.
Banks, companies, tycoons and individuals had to be bailed out at enormous cost and pain to our economy. Bodies such as Danaharta and Danamodal were set up to bail out these companies but many did not survive this and became history.
While taking credit for the boom of the early 1990s, Mahathir never acknowledged the bust and for many years he blamed it on George Soros even though it was him and Anwar that put us in a situation where we could be easily attacked by speculators who can see how unsustainable our bubble economy was like then.
It was easier to blame others rather than to admit responsibility.
But in Dec 2006, Mahathir finally admitted that it was not Soros’ fault and forgave him!!
And now if Soros is no longer responsible for the crash then who is responsible?
If you take credit for the loosely-managed fast growth years then who should take the blame for the subsequent devastating crash?
This is why the Najib’s govt is doing such “strange” things which includes imposing “cooling measures” and limit bank loans to cool down and limit growth in the property and car sales even though it will affect our current economic growth.
If you really wanted strong growth, all govt can do is to encourage speculations, make loans easily available, change back the stock market to T+7, and allow foreign speculators to come in. And of course the party will eventually end again with many people hurt.
Which is why this current govt is putting long-term, responsible and sustainable growth instead of out of control growth that will inevitably bring us to tears eventually.
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http://www.thestar.com.my/
http://www.theedgeproperty.
My post yesterday about the cooling measures.
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