TOKYO When the Asian financial crisis gripped the region in 1997, then-Malaysian Prime Minister Mahathir Mohamad blamed "evil" hedge funds that were willing to sacrifice emerging economies in the pursuit of profits.
Two decades on, the elder statesman, still robust at 91, has not lost his distrust of hedge funds or the countries that created them. In a recent interview with the Nikkei Asian Review, Mahathir said currency traders still wield a lot of power and could wreak havoc on weak economies. To avoid repeating the past, he said Asian nations need to have more dialogue with each other -- and leave the U.S. out of it.
It has been 20 years since the Asian financial crisis. Have the region's countries become strong enough to withstand another crisis? I think the currency traders are very powerful. They have access to huge funds. They can identify certain countries which they can attack. So although many Asian countries are now doing quite well, [currency traders] may go for some of the countries which are weaker. This can cause a lot of movements in the currencies, which will affect the economy of the countries as well.
What risks do you see in Asia? Well, risk is still there for badly managed economies, of course. You are open to manipulation by currency traders. So it requires very careful management of the finances, borrowing, etc., in order to avoid being attacked by currency trading.
China is showing signs of an economic bubble. Is that a risk factor for Asia? The Chinese economy is very big, and it has a reputation for fixing the exchange rates. I suppose if there is an attack, the Chinese government will fix the exchange rate. But what is happening currently is that Chinese companies have been borrowing too much money, and this is a drain on the resources of the country, because much money is flowing out of China to repay loans.
Big debt is always a risk. People should borrow within limits. If you borrow too much, all countries will get into trouble, as we saw in Greece, in Italy and in Portugal. If you borrow too much, you will see difficulty in repaying.
U.S. monetary policy is tightening and capital is flowing out of emerging economies. Does this also present a risk for emergingAsia? Yes, but a country's economy does not depend totally on interest rate movements. There are other factors which need to be taken into consideration. Wages in America are very high, so if they were to bring back American industries that are now located in low-cost countries, then the cost of products will be very high. They can't compete in the world market. They may be able to protect their own domestic market, but worldwide they will lose out to many other countries which have lower costs of living and costs of labor.
How can Asia improve its financial stability? I think we must always be very conscious of the possibility of creating bubbles that will burst. Among these is, of course, the value of property. Property markets sometimes drive prices too high. So a lot of companies rush into that area and they overbuild. Then, once they overbuild, they cannot get returns on their investment, and they will get into trouble. So it is good for the government to monitor the movements of money, and the investments and the returns to make sure that there is no overdevelopment.
You have suggested before that Asia should have a common currency for trading. Do you still think so? I think we need a common currency for trading only and not for domestic use. That [trade currency] would replace the American dollar. The dollar itself is not a stable currency, because you see it moving up and down. An East Asian currency based on gold is less likely to fluctuate, so it would be much fairer in terms of trade.
Do you think Asia will eventually be able to end its heavy reliance on the dollar? It can. It is an easy question. Make a decision. Of course, the U.S. will not like it. But if you make a decision not to use the dollar, that can be done.
During the crisis 20 years ago, you said it was caused by hedge funds that pursued profits above all else. Do you still believe that? Yes, there are other ways of making money than trading currencies. A currency is not a commodity. It is not like coffee or sugar which can be consumed. Money cannot be consumed. You can only use it to purchase things. The problem was that, at that time, hedge funds were able to borrow a lot of money -- many times more than the amount actually invested in them.
Could hedge funds trigger another crisis? They could if allowed to. But if they try to attack the dollar, the U.S. will be very firm about stopping them. But if they attack other countries' currencies, the U.S. wouldn't care what happens to these countries.
Would Asia's financial stability improve if the Chinese yuan became an international currency? I think that no single currency should be made an international currency. The best thing is to have a special international currency like the one I suggested for East Asia: an East Asian trading currency. It would be good if such a currency were linked to gold. Movements in the currency's value would not be very big. So if China wants to make the [yuan] an international currency, it should be anchored to the value of gold.
What should Asian countries do to improve financial stability? One thing is to have a common trading currency. And the next is to have more dialogue among Asian nations and, if possible, form a new group of countries. For example, in the past, whenever there has been a grouping of countries, usually there was influence from America. When America comes in, China is normally not included. That is not healthy. But now it is possible for the U.S. not to be included. It is possible to have a totally Asian grouping, and through that solve problems affecting all Asian countries.
Why don't youwant U.S. involvement? Because America does not treat other countries as equals. America demands to have its own way all the time.
Do you think China treats its partner countries equally? No, but I think with a good grouping of countries like Japan, South Korea and India, then China will not be able to dominate the grouping. Of course, China is very big [and] very powerful. But the other countries can stand up to it better than they do to America.
What could a solely Asian group achieve? We have to take into consideration that the stage of development of each country is different. And young, weaker economies need to be protected, whereas strong economies need to spend more on helping the weak rather than taking advantage of the weak.
What do you make of China's Belt and Road Initiative? Will it contribute to Asia's economy? I think the idea is very good. It is the equivalent of the Silk Road, which has already been able to send goods from China to Britain by train. That should be improved by building bigger trains with greater capacity -- just like on the oceans, when demand for oil was very big, bigger and bigger ships were built to carry more.
Another thing is that the Belt and Road [plan] is a good idea if you use the sea passage through the Strait of Malacca and the South China Sea. But it does not need to be protected. We should not have military or naval ships protecting the trade route, because the trade route has always been safe and it will be very easy to secure trade routes for the countries along the seas.
Interviewed by Nikkei staff writer Kentaro Iwamoto