Op-ed is all about writing topical pieces. Why write an article about my pre-smartphone Malaysian days? This July I went to Malaysia with my college age daughter, so it’s normal to reminisce about my life 25 years ago. I also spent most of May-September in Dhaka, and enjoyed all aspects of being with family and friends, and absorbing what’s going on. I bit into the delicious almond croissant at Oro Bakery, I casually said to my friend: “Dhaka now reminds me of Kuala Lumpur, or probably Jakarta these days,”
“Why?” he asked.
In 1997, I landed in Kuala Lumpur to begin my life as management consultant for Coopers and Lybrand ASEAN practice. The region had been identified as the fastest growing for Coopers and Lybrand worldwide, and as a young Harvard MBA ready to explore, learn, and contribute to developing economies, I raised my hand for the Kuala Lumpur office. I had no family or friends there and, as a single female, didn’t have any problem in finding and renting an apartment or buying my very first car, or making friends with a group of Indian and Chinese Malaysian co-workers who invited me along for dinner and weekend activities.
For my first project, the “Malaysian Telecom Masterplan,” I met with the regulators, the government-owned monopoly landline operator, the private mobile operators, and the internet providers. I also worked on projects for toll roads, Cyberjaya city, segments of the new airport, and a finance project for an Indonesian television company. My coworkers were working on projects in electronics, semiconductors, and fast-moving consumer goods. Our financial services practice was advising foreign banks who were expanding their presence in the ASEAN region. Coopers and Lybrand’s historical markets had been Hong Kong and Singapore, however, the ones that consumed most resources were turning out to be Indonesia and Malaysia. Incidentally, my roommate from Harvard was living and working in Manila, her hometown. So when I visited Manila for work, I spent evenings and weekends with her.
Kuala Lumpur and Jakarta had really nice upscale hotels where service was better than what I’d seen in New York or London. The restaurants were stylish, and each city had certain areas with coffee shops, dessert places, dance clubs where young professionals would spend time after long days in the office. The malls had brand name stores as well as pretty items from local designers. Of course, the back streets were lined with shops with every type of price point of products. When folks asked me if I missed being in Chicago or London for work, I said: “Not at all. I am so glad to be doing cutting edge work in a Muslim Asian country.”
This was the first time I saw Muslim girls drive mopeds even though they were wearing hijab under their helmet. And it wasn’t just one or two who did it occasionally as a weekend hobby under the watchful eye of a guardian or as a radical woman. The female moped drivers were part of the morning traffic headed towards Petronas Tower along with the men on moped, my Proton car merged in with Mercedes and BMWs and trucks. Helmets were mandatory for all moped drivers so our Malay secretaries who got dropped off by their husbands all walked in with her helmets.
Advertisements for credit cards, car loans, new phone plans, condos, children’s ballet classes, vacation to Maldives, education plans for Australia, weekend getaway to idyllic islands, and ticket sale for FIFA World Youth games were all signs these countries were on course to join developed nations. Indonesia had a larger population so while similar social-economic activities were happening there, it was going to take longer for the larger ripple effect. And it didn’t have a leader like Mahatir. Spring 1997, Mahatir was at the zenith: widely admired for his visionary thinking and leadership style by many global leaders and reputable organizations. We had already read a case study on Mahatir and Malaysia in my HBS classroom. And since I was then living and working in Malaysia, I too was impressed.
“Suharto’s youngest son is one of the investors, so we shouldn’t have problems with regulators or getting the bankers,” the CFO of the television company stated as I looked at the 5-10 year cash flow projections.
“The old man will stay in power, that’s how things are done here,” said the Western female senior executive of an advertisement agency based in Jakarta. She and I had spent the first ten minutes connecting on being single women with Western degrees working in ASEAN. She had been in Jakarta for four years and told me exactly which shops to get cute beach wear on my way to the airport. Yes there was cronyism and corruption but not in a way that will hamper business growth and foreign investor returns. Her take on matters wasn’t that different from what investment bankers at Goldman and HSBC had said to me though in less direct language. It was 1997 and the results of the formal election in March 1998 was a forgone conclusion.
Kuala Lumpur was just right for me, I concluded. Not as corrupt as Indonesia and also more livable for my lifestyle. While I did my weekend grocery at Bangsar, the yellow crane’s would keep maneuvering -- they worked in three shifts of 24 hours. All good signs of rising boats in the river of capitalism.
I met men (but rarely any women) who worked in the investment banks and brokerage houses. Back in my Wall Street analyst years in Credit Suisse First Boston, I had done both corporate bonds and corporate equity offerings.
“I liked doing equity transactions over bonds,” I said to the latest New Zealander I had met at a gathering of the British business group.
“Then you should come back to investment banking. Here it is all about equity,” he said.
I looked at the balance sheet of the Malaysian mobile operator and read the footnotes on the short- and long-term liabilities: It was all bank loans. Oh! That’s how they do it here. The loans were in US Dollars. The country’s exports were earning Dollars and the Ringgit had been floating stable at 2.5 to the Dollar.
Midweek mid-May the Thai Baht became a target of currency speculators, and the Thai central bank supported the baht’s peg to the Dollar. Asian Wall Street Journal articles stated how and why this would or may not work.
“Better get your Bangkok trip expense account in,” one of my coworkers reminded me.
On July 2, the Thai central bank abandoned the peg. The Ringgit and Rupiah were both now being chased by the currency speculators. By late October, market forces led the Baht to depreciate by 60% against the Dollar. The Indonesian Rupiah, Malaysian Ringgit, and Philippine Peso depreciated by 47%, 35%, and 34% respectively.
Mahatir blamed global financier George Soros for the currency crisis and called him “a moron.”
Currency traders alone couldn’t have caused a crisis in market-oriented countries stringing from Malaysia, Indonesia, Thailand, South Korea, and Philippines -- even Hong Kong to an extent.
For ASEAN countries that pegged or managed their currency against the Dollar, the higher Dollar caused their own exports to become more expensive and less competitive in the global markets. At the same time, ASEAN's export growth slowed dramatically in the spring of 1996, deteriorating their current account position.
By 1997, most of the ASEAN countries had been practicing policies that distorted incentives within the lender-borrower relationship. Large quantities of credit (in local and foreign currency) had resulted in a highly leveraged economic climate. Long-term investment projects were being financed by short-term capital (local and foreign currency).
Nepotism and kick-backs were essential along with the paperwork for commercial loans, and non-performing loans on the bank’s books didn’t get much scrutiny by the regulators. So asset prices got pushed up to an unsustainable level, particularly real-estate. All those cranes and the brochures for properties that I saw daily were signals of a real estate bubble.
When asset prices began to collapse, individuals and companies defaulted on their debt obligations. Financial intermediaries were protected by implicit or explicit government guarantees against losses, because governments could not bear the costs of large shocks to the payments system (McKinnon and Pill 1997) or because the intermediaries were owned by “ministers’ nephews” (Krugman 1998). Krugman points out that such guarantees can trigger asset price inflation, reduce economic welfare, and ultimately make the financial system vulnerable to collapse.
In 1998, the output of Malaysia’s real economy declined, plunging the country into its first recession in Mahatir’s era. The construction sector contracted 23.5%, manufacturing shrunk 9% and the agriculture sector 5.9%. Overall, the GDP plunged 6.2% in 1998. The ringgit plunged from the 1997 rate of 2.5 to below 4.7.
Numbers are boring to most folks -- a lot more real-life plunges happened in 1998.
Lubna Kabir has over 25 years of experience leading US and international projects in first line of defense risk management, integrated internal audit, strategy, and financial analysis.
