Tun Dr Mahathir Sees No End to Financial Crisis, Impact on Asian Trade

Oct. 23 (Bloomberg) -- Mahathir Mohamad, the leader who steered Malaysia through the 1997-98 Asian financial crisis, said the current global turmoil is far from ending and will soon spread to the region's export-dependent economies.
``The worst is not over yet. We do not even understand what is happening,'' Mahathir, who stepped down as prime minister in 2003, said in a Bloomberg Television interview yesterday in Putrajaya, outside Kuala Lumpur. ``Asian countries are going to feel the pinch of a world where the market has collapsed.''
Global leaders are starting to acknowledge the worst still lies ahead for their economies as stocks and commodities plunge, forcing a growing number of countries to shore up their battered banking systems. Mahathir bailed out Malaysian banks in 1998 and pegged the ringgit, ignoring advice from the International Monetary Fund, which later endorsed his capital controls.
Mahathir, 82, reiterated his belief that governments worldwide should consider a new international monetary system that doesn't depend on any single currency. ``You may have to use a number of currencies for trading purposes, or you may have to use a special trading currency, probably based on gold,'' Mahathir said. ``Gold has intrinsic value. Money has no value, just pieces of paper and government assurances.''
The IMF this month forecast global growth would drop to 3 percent next year, the dividing line between recession and expansion. World leaders plan a financial summit in Washington next month to discuss efforts to fix the crisis.
``A lot of people say rescue plans will work,'' Mahathir said. ``It's a question of confidence. You don't have confidence in money that is suddenly made to appear by magic.''
Asian Crisis
Mahathir in 1998 defied the IMF's call to raise interest rates to stem a currency slide and instead provoked worldwide condemnation by pegging the nation's currency to the dollar and imposing controls on foreign money flowing out of Malaysia, insulating it from the external fallout.
The capital controls gave Mahathir room to cut interest rates, overhaul banks and boost spending to help pull the country out of its recession. To free up banks to lend, he set up a state-run agency to buy bad loans and infused them with fresh capital. The U.S. and several European countries this month announced plans to buy stakes in banks.
``I can't help feeling I'm vindicated,'' said Mahathir, who ruled Malaysia for 22 years.