Can Malaysia’s Look East Policy Back Pakistan and Turkey?
As this is written, two of the most important Muslim countries in the world are facing some form of financial crisis: Pakistan and Turkey.
While Pakistan’s foreign reserves can only last two months at USD 10 billion, Prime Minister Imran Khan has initiatied the steps to enlist the help of the International Monetary Fund (IMF).
US Secretary of State Mike Pompeo has warned that any IMF credit “extended to Pakistan cannot be used to bail out its debts to China.”
Nikkei Asian Review, in a story carried on August 10 2018, further reported that Pakistan is caught in a serious fix.
If Pakistan were to seek the IMF solution, there is every likelihood that Islamabad would be asked to “open all its accounts book” including prior contracts with China.
In turn, if Pakistan turns down the IMF offer of some USD 18 billion, it can ask for the help Beijing.
Invariably, President Xi Ji Ping is not likely to reject the request of Prime Minister Imran Khan too.
But then again Imran Khan has been urging China to come clean on all its financing and project prior to his electoral victory in Pakistan a week ago. Beijing may want Pakistan to keep a lid on such rhetoric.
Thus, it goes without saying that China would expect Prime Minister Imran Khan to tone down its view against Belt and Road Iniative, the Marquee project of President Xi.
Meanwhile, as things unfold, Turkey’s Lira is under attack too. The Turkish Lira is now at 6 Lira to USD 1 as of August 10. Just two days ago, it has sank by 16 per cent, crossing the psychological threshold of 5 Lira.
Today, the Lira went south by another 16 percent to breach the ceiling of 6 Lira to the dollar.
Such financial crisis, in more ways than one, resembled what Malaysia had first gone through in 1998.
At the height of the Asian financial crisis in October 1998, Tun Dr Mahathir Mohammad resorted to imposing capital controls to prevent the flight of Malaysian ringgit (RM) abroad.
It was also pegged to the value of RM 4 to one US dollar. Various multinationals and local companies then were also barred from repatrating their profits for a year, or, sending them abroad, not unless they have the permission of Bank Negara.
Come what may, the Malaysian ringgit then did not fall beyond RM 5.5. By the token of that action, the Malaysian economy was saved.
Since then, the Malaysian national reserves is capable of sustaining a confortable import of 7.7 months withour any serious ramifications. As of May 2018, no sovereign risk downgrades has happened too
Pakistan can of course consider working with Tun Dr Mahathir Mohammad to explore the possibility of imposing capital control. Bank Negara has had such experience before.
Turkey, too, can look into exercising this option, if it does not want to return to the IMF. Why is this the case ?
Going back to IMF would naturally have the repercussion of undermining the image of President Recep Tayyip Erdogan as a strong leader. Prior coming to power in 2002, he has railed against IMF.
Indeed, he has just started his presidency after it was systematically reformed on June 24 2018 to grant him more powers. Going back to IMF would lead to the reduction of his real or perceived powers.
Alternatively, Pakistan and Turkey can seek the help of Islamic Development Bank (IDB) based in Riyadh. But Saudi Arabia is not in good financial shape too, and it is not in a position to extend large tranche of money.
Thus Pakistan and Turkey may want to work deeply with Malaysia to explore the possibility of Looking East, which means securing the help of China, Japan, South Korea and collectively other banks in Asean to give these two countries the necessary financial lifeline as soon as possible.
To deliver the required effects, Pakistan and Turkey may need to ask Asean, which is a member of the G20, to look into ways of helping the two countries without which their financial crisia just might continue to worsen due to their geopolitically sensitive positions.