Friends for all seasons - priceless

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People who are friends in good and bad times are priceless

Monday Starters - By Soo Ewe Jin

THE MAS-Air Asia alliance remains very much the talk of Corporate Malaysia. In the many analyses so far, the recurring theme seems to be about how erstwhile enemies are going to work together as friends.

My colleague used the Sun Tzu quote, “Keep your friends close, and your enemies closer,” to lead off the cover feature on the deal in StarBizWeek on Aug 13. Somewhere in the story, there is this quote by Tony Fernandes: “You don’t have to be an enemy forever, life is too short.”
Image via Wikipedia
Actually, there is not that much that separates the corporate world and politics as far as alliances are concerned.

In politics, it is said that there are no permanent friends, only permanent interests. Politicians are fond of referring to their adversaries as “strange bedfellows” but will not hesitate to climb into the same bed if it suits their interests.

In the world of high-finance, bitter rivals can easily sleep on in the same bed, so long as it is good for the bottom line.

For some business people, however, friendship is not a word that exists in their vocabulary. Many good friends who go into business together learn the hard way that years of friendship count for nothing once the business issues get into the way.



A friend told me once that he will never hire me, or ask me to be his business partner, simply because he values our friendship too much.

I once met a man at a hospital as he was dying. He told me how he had pursued wealth and success at any cost. If a family member or close friend went against him, he would not spare them any mercy.

“But look at me now. I do not have long to live. But if I recover, I will surely be a different person. I will seek the forgiveness of those I have hurt. I will forgive others. I will give back to society. I will try not to be so nasty to people,” he said.

I was there to bring him a message from a former business partner who was somehow not able to bring himself to see him personally. He told me to tell him that he did not hold anything against him and to wish him well.

Tears came to his eyes. “I wish he would come and tell me this personally. I have done so much harm to him and his business. But he still thinks of me and is concerned for me.” I told him, “I hope and pray that you will both meet up and forgive each other.” They never did. He died one week later.

I was thinking about friendship this past week after a friend posted on his Facebook this simple reflection: “It has been said that everlasting friends go long periods of time without speaking and never question the friendship. These friends pick up like they just spoke yesterday, regardless of how long it has been or how far away they live; they don’t hold grudges. They understand that life is busy and know that you will always love them.”

Whether we want to admit it or not, sheer numbers of acquaintances in itself is no reflection of the number of real friends we have. Just ask anyone previously in a high position who has retired and he will tell you about the sense of “abandonment” that one feels sometimes.

Suddenly, no one is free for lunch or for teh tarik, one such person told me recently.

This is not to say that it is not possible to have real friends within working relationships. But it can only come about if we are genuinely concerned about the person, and not just the title he or she holds.

And the test of that friendship will come when you are going through a difficult journey, and he is there for you.
● Deputy executive editor Soo Ewe Jin is thankful for friends, near and far, new and old, who bring that special touch into his life, through good and bad times.

Malaysia still in pursuit of full independence

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Still in pursuit of full independence

Global Trends By MARTIN KHOR

Fifty-four years after Merdeka, Malaysia, like other developing countries, is still fighting for full independence in a globalised world which has grown more complex and crisis-laden.

THE Merdeka season is a good time to ponder over what independence means to Malaysia and the other developing countries that are still battling to overcome the disadvantages that the colonial era brought.
The problems of governance in a developing country, 54 years after independence, are still as complex or even more so when compared with the immediate post-colonial days.

In that first phase of independence, the developing countries were preoccupied with domestic battles – how to install domestic political processes and how to chart new economic strategies to get out of the shadow of colonial influence.

Most countries tried to shake loose from the control of foreign-owned mining and plantation companies, banks and retailers, by boosting their domestic public and private enterprises.

However, they were over-dependent on a few export commodities for a long time.

In the social sphere, there was the monumental battle to provide jobs, build up housing, schools and health systems, besides reducing poverty.

Today, many developing countries like Malaysia have succeeded, to a significant extent, to break the foreign-ownership grip on the economy and to diversify from commodities to resource-based processing, boosting manufacturing and property development.



While some countries remain poor and dependent on foreign aid, other middle-income countries have broken through into the development sphere.

Indeed, countries like Malaysia are now worried about being stuck in the “middle-income trap”.

They are no longer so competitive in the labour-intensive industries like textiles and electronics assembly because lower-wage countries have entered the scene, yet they find it difficult to break through into higher value-added sectors and activities, in order to upgrade their economic status.

While the colonial grip on their economies has loosened, the middle developing countries are now caught in the complex web of global inter-dependence, in which they have become significant players but are still not able to call the shots, nor equitably participate in decision-making.

The dependence of immediate post-colonialism is now replaced with the inter-dependence that comes with globalisation. In good times, the country soars with the world economy.

But in bad times, the domestic economy is at the mercy of rapidly falling exports and foreign-capital outflows, as the 1998-99 Asian crisis and the 2008-09 “global great recession” showed.

With the United States and Europe caught in a deflationary situation, the next few years will be another great challenge.

Will the middle developing countries sink with the major players, or break free to chart their own course?
The answer will probably be in between.

But “decoupling” from the crisis in the rich countries can properly be achieved only if there are vision and action plans, including national economic restructuring and greater regional collaboration.

Intense inter-dependence is also evident in the physical world, where the environment worldwide is collapsing because the pursuit for economic growth did not take into account resource depletion and pollution.

The science of climate change and the recent radiation from damaged nuclear plants both reveal that emissions in one part of the world affect health and life in other parts.

Global solutions are thus necessary, but negotiations to find them are bogged down by basic issues of North-South equity and the need for balance between the imperative for environmental protection and the immediate needs for development.

International negotiations are also stuck in the area of economics.

The World Trade Organisation’s Doha talks have stalled because of the unreasonable demands made by major developed countries on the big developing countries.

Despite the G20 Summits, the world is further away today from global solutions to the financial crisis than in 2008-09 when concerted actions were agreed upon to stimulate a recovery.

It appears that the US, Europe and Japan, all former colonial countries, are now afraid that their mastery over the global economy is being challenged by China, India and some other developing countries – Asean included.

The middle developing countries like Malaysia are no longer one-sidedly dependent on their former colonial masters.

But in the web of an inter-dependent and globalised world, they are still in the mode of responding to initiatives and policies of the major developed countries, or to the unfolding situation.

They do not yet have the power or confidence to initiate and coordinate their policies and take the initiative to put forward solutions to global problems.

But they now have the growing capacity to do

Fifty-four years after Merdeka, the world is still an imbalanced one, and our country is building more stepping stones towards full independence.

It must join other developing countries to get a full voice and a fair share in the benefits of the global economy.

In this complex globalised economy, the developing countries’ battle for independence continues.

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Capital controls: From heresy to orthodoxy

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THINK ASIAN By ANDREW SHENG

 Principles for formulating capital control policies must take local conditions into account.

ON Sept 1, 2011, it would be 13 years to the day when Malaysia first introduced capital controls to stem the effects of the Asian financial crisis on the domestic economy. In 1998, it was heresy to introduce capital controls on capital flows, since it was the International Monetary Fund (IMF) orthodoxy to liberalise the capital account.

From the perspective of history, one tends to forget that in 1945, when the IMF was first established, the consensus opinion among bankers and academics alike was for hot money to be controlled. Indeed, the intellectual father of the IMF, John Maynard Keynes, remarked that “what used to be heresy is now endorsed as orthodoxy.”

In the old days, courtesy to living persons and the statute of limitations would allow history to be written only after 60 years when official archives are opened to the public.

Today, we live in an age of unfettered information, when oral and documented history can be published rapidly, from authorised biographies issued shortly after a leader leaves office to unauthorised leakages from Wikileaks.

The publication of a new book by Datuk Wong Sulong, former group chief editor of The Star, called Notes to the Prime Minister: the Untold Story of How Malaysia Beat the Currency Speculators, only two months after the IMF announced in April 2011 new thinking on capital inflows, is a remarkable achievement.

Sixty-six years after the IMF was formed, capital controls have moved full circle from orthodoxy to heresy and back again to (qualified) orthodoxy.

The book comprises 45 Notes written by Tan Sri Nor Mohamed Yakcop, Minister in the Prime Minister's Department, between Oct 3, 1997 and Aug 21, 1998 to then Prime Minister Tun Dr Mahathir Mohamad.
In short, they were the key briefs that helped Dr Mahathir make up his mind on the key economic policies to help combat the Asian financial crisis.



Book offers deep insights

For both historians and practicing policymakers, this new book offers deep insights into the serendipity and the practice of successful policy decision-making. There is an element of serendipity, because Dr Mahathir recalled that he spotted Nor Mohamed walking down a street in Kuala Lumpur just before he left for Buenos Aires in September 1997 via Hong Kong, where he attended the World Bank Annual Meetings and clashed publicly with George Soros on currency trading.

On Sept 29, 1997, he summoned Nor Mohamed to meet him in Buenos Aires, because he needed someone who understood currency trading. It is a tribute to a politician trained as a doctor that he was willing to spend repeated sessions with an experienced currency trader to understand the intricacies of modern financial markets.

Reading the 45 Notes in historical sequence, one gets a far better appreciation of how the decision to impose capital controls was arrived at. The Notes not only have historical value, but also current-day applicability, as they explain not only offshore currency, the psychology of fear and greed that drive markets, but also market manipulation in thinly traded emerging market currencies.

The major problem of the proponents of the Washington Consensus in 1997 was that most of them were macro-economists who had little understanding or experience of how the markets actually worked. Free markets became a dogma and objective in their own right, rather than the means to an end for better livelihood for all.

The Notes also revealed that in complex decisions under uncertainty, it was vital to understand clearly the key parameters for action. Note 7 clearly pointed out that Malaysia was different from other countries under currency attack because it did not have large short-term external debt. Note 11, dated Oct 21, 1997, spelt out the factors that determined exchange rates, with a particularly illuminating explanation of market manipulation.

Market manipulation was seen as due to concerted effort by hedge funds, using large gearing and available tools and then triggering the element of fear among the long-term investors who have legitimate currency risk.

In other words, if the wolves can trigger the herd to move, then the fundamentals can move. The perception of fear changes the whole game.

Effect of CLOB

Note 39 dated July 9, 1998 is an important study of the effect on Malaysia of the central limit order book (CLOB) for trading of Malaysian shares in Singapore. The Note identified that the CLOB was a convenient way for capital outflows.

Hence, one of the most effective ways for exchange control was to impose the condition that Malaysian shares could only be traded on a Malaysian exchange, which came on Aug 31, 1998, with exchange controls imposed on the following day.

In Dr Mahathir's words, “during the financial crisis, we faced two parallel situations; the ringgit was falling rapidly and Malaysian shares were also falling rapidly. So we had to put an end to both.”
Image via Wikipedi
The IMF has come out with six key principles for formulating capital control policies.

The first is that there is no “one-size-fits-all” policy mix. The second is that capital controls should fit long-term structural reforms. Third, capital controls are only one tool and not a substitute for the right macro policies. Fourth, capital controls can be used on a case-by-case basis, in appropriate circumstances. Fifth, the medicine should treat the ailment, and finally, the policy must consider its effect on other market participants.

It is hard to argue against these common sense “motherhood” principles. The trick in real life policy-making is how to apply them to local conditions.

On of the features of the current Chinese capital controls is that China also has a large amount of Chinese shares listed outside capital controls, such as Chinese shares listed in Hong Kong, Singapore and New York.

This is a book that is a must read for all emerging market policymakers interested in liberalising their capital accounts and for IMF experts to ponder emerging market experience.

I recommend that this new book be translated into Chinese, so that Chinese policymakers interested in internationalising the renminbi can look at the Malaysian experience.

Tan Sri Andrew Sheng is author of the book, From Asian to Global Financial Crisis.

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The untold story of Malaysia foreign exchange controls