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Executive Summary #1235es on Asia

November 16, 1998

BG1235es: Standing Up For Democracy and Economic Reform in Malaysia

By

To counteract the effects of the Asian economic crisis that continue to afflict Malaysia, Prime Minister Mahathir Mohamed instituted anti-free market currency controls and jailed U.S. friend and pro-market reformer Anwar Ibrahim, his former deputy prime minister and minister of finance. To protest these actions, President Bill Clinton should have sought a change in venue for the upcoming Asia-Pacific Economic Cooperation (APEC) forum Leaders' Meeting to be held in Kuala Lumpur, Malaysia's capital. The next-best option would have been to boycott the meeting. But now that President Clinton is planning to attend the APEC meeting on November 17 and 18, he should be prepared to speak out strongly against Mahathir's actions, enunciate a set of economic reform principles based on democratic and free-market values, and present a coherent policy approach to guide the U.S. relationship with Malaysia in the future.

Malaysia, which had opposed the creation of APEC and sought to form another trade bloc that excludes the United States, is an unlikely host for the APEC meeting. APEC was created to promote the expansion of free trade and the creation of a free-trade area in the region by the year 2020. But the currency controls Mahathir introduced in September are a setback to APEC's goal of economic liberalization. In addition, Mahathir will use the APEC meeting to denounce Western values and undermine the leadership role of the United States. The onus of leadership on President Clinton will be to stress that, although the United States values cooperation with Malaysia, it will continue to press for sound economic policies that promote free trade and open markets. He must speak out forcefully against Mahathir's actions and call on him to forge a path toward greater economic and political freedoms in Malaysia.

Areas of Cooperation
Although frictions in the U.S.-Malaysia relationship always have existed, particularly on trade and cultural issues, notable areas of cooperation have been present as well. Malaysia has been a quiet but growing partner of the United States in the preservation of peace and stability in Southeast Asia. And cooperation continues--despite the current chill in relations--on such matters as fighting terrorism and narcotics trafficking. In addition, economically, Malaysia was the 11th largest trading partner of the United States in 1997, with almost $28 billion in two-way trade. Malaysian imports of U.S. goods provided jobs for over 150,000 Americans in that year alone.

President Clinton can strengthen this valuable relationship by emphasizing that Malaysia must undergo fundamental economic reform to clean up its wobbly banking sector and consolidate and restructure its debt-ridden conglomerates, which prospered over the years from Malaysia's climate of cronyism and corruption. Other reforms, such as creation of an independent judiciary and the implementation of a genuine rule of law, also must occur for the restructuring to be successful.

But the path will not be easy. The Clinton Administration, which failed to issue a prompt and forceful response to Anwar's politically motivated arrest and trial and to Mahathir's anti-market initiatives, has failed to generate a cohesive U.S.-Malaysia policy and has placed the leadership role of the United States in APEC at risk. Mahathir's policies and Anwar's jailing inspired a mass movement of Malaysians who seek increased social and political freedoms. Demonstrations reportedly are taking place throughout that country, leading to the arrest of hundreds. Clearly, the pressures on Mahathir to reform are growing. To regain a position of leadership for the United States at the APEC forum, President Clinton must take a stronger, more public position than he has in the past, one that advances U.S. interests and helps Malaysia to institute democratic and free-market reforms. Specifically, at the APEC forum, President Clinton should:

  • Criticize Malaysia's adoption of counter-productive economic policies. He should stress that Mahathir's anti-market policies are more likely to deepen Malaysia's economic problems than to solve them. He should point out that there is no substitute for difficult reforms that would prevent Malaysia from being out-competed in the future by its reformed neighbors, such as stricter regulation, greater transparency and consolidation, and the creation of an independent judiciary.

  • Express concern about the treatment of U.S. friend Anwar. President Clinton should
    protest Anwar's brutal treatment while in custody and insist that his trial be fair. To symbolize the depth of U.S. concern, Clinton or Secretary of State Madeleine Albright should seek to meet with Anwar and his wife.

  • Link U.S. interests with the goals of Malaysia's emerging democratic forces. The President should call for greater democratic reform in Malaysia and identify the United States with those who seek political liberalization. As he did in China in June 1998, President Clinton should speak out in support of tolerance and individual liberties.

  • Seek continued strategic cooperation with a Malaysia that is strengthened by economic and political reforms. The maintenance of deterrence and the preservation of peace and stability in Southeast Asia are common goals of the United States and Malaysia. Thus, the United States welcomes the continuation of military cooperation with Malaysia and believes that a Malaysia strengthened by economic and political reforms would be a worthy partner of the United States in the region.

Because Malaysia is one of Americ's largest trading partners, President Clinton should encourage Mahathir to implement reforms that will strengthen the long-term health of Malaysia's economy and create the basis for a freer society. He should stress that the United States values the quiet improvement of strategic relations with Malaysia that occurred over the last decade, but that Mahathir's actions place that relationship at risk. By reform, President Clinton can promote the economic and political reforms that will help Malaysia emerge from the economic crisis stronger and more competitive.

John T. Dori is a Research Associate in The Asian Studies Center of The Heritage Foundation.

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