By Nhlanhla Nyathi
ECONOMIC commentators, financial analysts, and political scientists have described Zimbabwe in its past 10 years of recession as an economy on the ver
ge of collapse.
Published articles in the local and international media continue to paint a gloomy picture with virtually no anticipated economic recovery in our generation.
To show the gravity of the crisis, over the years, in response to the various economic challenges, the country has come up with more than five economic blue prints that have however failed to revive the economy. The ordinary person on the street is still suffering and indications are that the situation could get worse before it gets better.
Popular revolutionary themes have even been used by President Robert Mugabe to describe the various cabinets to inspire the desired action to no avail. The development cabinet failed to win the battled against the economic recession. The development cabinet also failed to revive the economy.
Despite all these efforts, especially considering the obstacles the country is up against it seems the battle is being lost. The biblical David and Goliath story might just be a fairy tale for us. Zimbabweans normally revered for their tenacity and strong-will appear to be finally faltering and reaching the breaking point.
A solution needs to be found soon before things go bad irreversibly. There ought to be a national consensus that Zimbabwe cannot continue like this and should come first above all considerations.
It is without argument that the trial and error approach of trying to solve Zimbabwe’s problems so far is not yielding the results that we want.
A new course of radical thinking needs to be charted to find lasting solutions. A good starting point could be an in-depth study of other economies that have gone through more or less similar problems.
This concept described as empirical evidence in various disciplines of academia finds justifiable credence even in law through legal precedents. One such good point of reference is Malaysia during the Asian financial crisis of 1997.
Before focusing on the nature of the financial crisis and the various measures employed to solve the crisis, readers need to be equipped with some background information on Malaysia for comparability purposes with the Zimbabwean economy.
Malaysia’s geographical location is strategically positioned between the great civilisations. To the west are Hindu India, the Islamic Middle East and Christian Europe. To the north-east are China and Japan. The shipping routes from China to the west pass through the region. This has made Malaysia a natural meeting place of trade routes and cultures, something which has brought the area great wealth, foreign influence and domination. Since 1970, the United Malays National Organisation has ruled Malaysia almost as a one-party state, co-opting the Chinese and Indian leaderships through the device of the “National Front Coalition”.
The orientation of the Malaysian economy since independence in 1957 has largely been in the direction of a market-based economy, whereby the private sector is allowed to operate freely, while the government provides the broad thrusts, directions and strategies. This mixed economic system and market-oriented reforms have produced significant results and tangible benefits for the Malaysian people. The private sector has been at the forefront of economic development with the manufacturing and services sectors contributing significantly in terms of export earnings and employment opportunities.
The transition from a predominately agriculture and mining-based economy in the 60s, 70s and mid-80s to an outward-looking one with export of manufactured goods rising to nearly 100% of GDP and the expansion of the services sectors in the late 80s and 90s was achieved with relative ease. Prices were not controlled, interest rates market-determined and there was a general liberalisation of economic activities.
The transition to a productivity-driven economy as initially envisaged in the Seventh Malaysian Plan was partly curtailed by the Asian crisis in mid-1997. The economy contracted by 7,4% in 1998 after growing on average by 8% per annum from 1991-1997.
Large scale infrastructure projects totalling 60 billion Malaysian ringgits were deferred under government austerity measures, which also saw ministers and top civil servants taking pay cuts. Towards the end of 1997, the ringgit registered an all-time low against the US dollar. The Prime Minister of Malaysia blamed international financier George Soros as the man who caused the ringgit to decline, along with unbridled currency trading, which he claimed robbed poor nations of their wealth.
The crisis led to sharp declines in the currencies, stock markets, and other asset prices of a number of Asian countries. It threatened financial systems, and disrupted the real economies of the Asian Tigers, with large contractions in activity that created a human crisis alongside the financial one.
In addition to its severe effects in Asia, the crisis put pressure on emerging markets outside the region: contributed to virulent contagion and volatility in international financial markets. As the crisis unfolded, the IMF blamed weaknesses in financial systems and subsequently projected that because of its effects, world growth initially projected at 4% would decline to 2%. During the early part of the currency crisis, Malaysia voluntarily adopted IMF type policies. But this did not work, as the high interest rates added to the corporate and banking crisis; the flexible exchange rate policy enabled the ringgit to depreciate to an all time low against the US dollar; freedom in capital mobility allowed funds to flow out; and the cutbacks in government expenditure added to recessionary pressures.
But in January 1998, Malaysia began to seek its own winning formula to keep its appointment with being a fully developed nation by 2020. It created the National Economic Action Council (NEAC) to formulate and implement short and medium-term policies to revive the economy, restore confidence and strengthen Malaysia’s economic base. In mid-1998, NEAC launched its major initiative, the National Economic Recovery Plan.
What makes the Malaysia solution of the financial crisis of particular interest to Zimbabwe is that it oversaw its recovery not with IMF-administered austerity measures but with its own policies that included a highly controversial experiment with capital controls. That move made Malaysia, and especially its firebrand Prime Minister Mohamed Mahathir, an object of derision in orthodox financial circles but a champion for others seeking an alternative to financial-market-dictated economic development.
Next week we look into greater detail at the measures taken by the Malaysian government to solve the financial crisis.
* Nhlanhla Nyathi is an independent financial analyst. He can be contacted on 0912 250 092.