Lee Sr on Anwar saga and Indonesian crisis

Listen to the 26-minute interview

Q: I'd like to begin by asking you for your reaction to the trial and the imprisonment of Anwar Ibrahim.

A: It's been a sad saga for over six months. It's done some damage to the people of Malaysia, who have seen their political landscape somewhat battered as a result of these happenings, and very saddening for Malaysia's neighbours.

Malaysia was a successful political system that had passed power from one Prime Minister to another four times and Dr Mahathir has spent 16 years grooming Anwar Ibrahim and to have this happen was quite a shock.

Q: What message do you think this sends to the world now about what type of government is in Malaysia at the present time?

A: I don't subscribe to the view that it's all black and white. I don't think it's that simple. Perhaps in my next book, I'll be able to write, in retrospect, more freely about it.

But at the moment, it's a very difficult period and I wish the country well, because we are their neighbours and we want to see them prosper ... I hope this saga would come to an end in such a way that Malaysia will get back on track. The economy is not doing badly, but it's the political mood that's not quite right.

Q: Do you think your old sparring partner, Dr Mahathir, has gone too far this time?

A: I wouldn't call him my "old sparring partner". We were adversaries when I was in Malaysia as an MP from 1963 to 1965. Then, long before he became Prime Minister, while he was still an ordinary minister, we came to an understanding that whatever our differences were on basic political issues as to how Singapore should be run or how Malaysia should be run that we would get a working relationship going and for the nine years that I was Prime Minister when he was Prime Minister, from 1981 to 1990, we had a good working relationship.

But I wouldn't like to call him my "sparring partner". You don't spar with Dr Mahathir. He's a very serious-minded man who takes a very dim view of people who take liberties with him. So, I do not take liberties with him. When I make a move, it's a very considered one and put in the best possible light so as not to be offensive. And that goes for my answers to you.

Q: Were you surprised by the intensity of the reaction to your memoirs in Malaysia?

A: Not really, I knew that they would go into war dances. You must remember that I've been through all this many, many times over the years. So, I know the rituals and they had to go through this war dance because the facts must offend those who would rather not have the facts out. But everything that I put into that book, I examined and re-examined several times and had it looked at by several of my colleagues and then by independent observers, historians, people who have done history, and checked the records, both in London, in Canberra, in Wellington and in Washington to make quite sure that what I've said accords with what other people at the same time observed.

Q: Among those facts, you blamed Malaysian politicians for inciting race riots in Singapore in 1964?

A: I'm not blaming them. I'm just saying that that was what happened and that's corroborated by what diplomats and service chiefs, British service chiefs, reported to their bosses in London.

Now, they were at that time facing confrontation from Indonesia and they were having problems within Malaysia. And that was also what Australian diplomats in Kuala Lumpur and Singapore reported to Canberra. So, it wasn't a wild statement by me. It was a fact.

Q: The Chinese have all too often been made scapegoats in Southeast Asia... it must have been especially frustrating for you to watch the resurgence of violent anti-Chinese riots in Indonesia quite recently?

A: There again, I am conscribed by the necessities of international relations from speaking my mind. I'm not a commentator. I am part of the government of Singapore. I may no longer be the Prime Minister, but my words cannot be dissociated from that of the government and, therefore, I have to mind my Ps and my Qs. I have to do that. It's necessary.

Q: The fear is that this violence could at some point get even worse and at the moment, we have the example of Kosovo to remind us just how destabilising ethnic hatred can be?

A: It's gone beyond just the Chinese ethnic minority in Indonesia... Something much more fundamental may be happening. You have Christians versus Muslims, which is a very dangerous turn of events. Then you have Malays and Dayaks against Madurese and in East Timor, the beginnings of a real big problem, because you have irregulars being armed ... and it can only lead to more bloodshed, disorder and eventually, chaos.

So, the worries have gone beyond the worries of last year.

Indonesia needs a strong, stable government that has the support of the people and only such a government will be able to tell its armed forces what is necessary to be done to maintain law and order. That's something which we must all hope for.

Q: What should the Indonesian government be doing now?

A: I have many thoughts. None of them can be put into words, not on this programme.

Q: To go back to the economic crisis that began all of this, you've said that the International Monetary Fund made serious mistakes in Indonesia and that if they had done more to back President Suharto, then he'd have seen it through, that he was good at crisis management?

A: I didn't put it so simply. That's too simplistic an exposition. I did not think that and I did not say that. I thought the IMF did the best they could with the knowledge they had. That knowledge turned out to be incomplete and some of the measures they recommended were subsequently faulted by other economists, including those in the World Bank.

But where I believe the IMF brought things to a head with Suharto was trying to reform him at the same time as putting the economy right. Here was a 75, 76-year-old man who's been in office for 32 years and they wanted to change his form of government, his style of government, which included favours to his friends and members of his family, and that brought a head-on collision with the then-President, who wasnot going to stand for it, and that really brought about Indonesia's collapse.

Had they just concentrated on getting the economy right without changing his style of government, he would have gone along with it and the economy would not have been so badly damaged.

The rupiah would never have gone down to 17,000, 18,000 to one dollar. From 2500 to 17,500 within a period of less than eight months. It's just impossible and the economy had to collapse once you rubbished a currency so thoroughly.

Q: There is a view, though, that much of the reason for the Asian collapse goes back to precisely what you were talking about, corruption and nepotism, and I know that in the past, you have talked about this being a debasement of Confucian values?

A: There's no doubt that the problems were aggravated by corruption, collusion, nepotism, unwise borrowings and more unwise investments in superfluous real estate and industrial plants. But the basic problem why it happened -- it's not just my belief, it's one which World Bank Chief Economist Joseph Stiglitz also believes in -- was the opening up of the capital markets.

Once you allowed free capital flows, and they were encouraged to open up their markets by the US Treasury, by the IMF, by the European finance ministers who wanted their banks to do business in this booming East Asia and they were told that if they open up, have free capital movements in and out, they'll get capital, they'll boom. They listened, they lifted their foreign exchange controls.

In Thailand, in as late as 1992, they had foreign exchange controls. Indonesia did not completely open up until the 1990s. The banks came in, lent freely. Who wouldn't take money that was on offer at such low rates?

Unwisely, we lent to their private sector and, more unwisely, invested in resort hotels, in office blocks, in superfluous excess-capacity plants. And when the slightest hint of trouble was smelt, everybody rushed for the door and brought the house down.

Q: So, do you take a similar view to Dr Mahathir that the economic crisis, in a way, was manufactured by out-of-control currency speculators in giant hedge funds?

A: No, no, no, that's a subsequent incident following the opening up of the currency markets, of the capital markets. Had they never opened up their capital markets, these huge borrowings wouldn't have taken place, they would have continued to make growth until they hit a wall.

Because of their own shortcomings, the walls would have been lack of qualified manpower, engineers, accountants to man their factories. But they could have made for another 10, 15 years, 6, 7, 8, 9 per cent growth on their own without foreign borrowings.

But the foreign borrowings destroyed them. Because once they were in debt...and when the lenders pulled out, the private sector rushed into the market to buy dollars before it got more dear to pay.

That collapsed the economy. That's really what happened.

Q: Can I ask you what you think is the outlook for the region this coming year? Can you see an end to this crisis?

A: Prices have hit rock bottom, the stock markets recovered, currency values have stabilised, interest rates have gone down. I notice Stanley Fischer, Number Two in the IMF, sounded upbeat in yesterday's market report. He thought that short of a downturn in the international situation, these countries were out of their gravest difficulties.

He's not saying they're out of the woods yet because there's a lot of restructuring of banks, of companies to be done and getting their financial systems right and that's going to take several years. But I think the worst is over.