In Kangar, Tuesday, Dr Mahathir alleged that voting the Barisan Alternatif means surrendering the country to foreigners. His reason for the allegation: the opposition front had agreed to do away with capital controls if they were elected to power. "This means that they are willing to hand over the country to the IMF (International Monetary Fund)," he said at a news conference at the end of his visit to Perlis.

First, two cheers are in order:

1.      Cheers are in order as even Dr Mahathir now recognises that there is indeed another barisan, the Barisan Alternatif and even addresses it by its name!

2.      The fact that Dr Mahathir has to tell lies about the Barisan Alternatif is a clear sign that it is indeed making an impact and he's having to cover his own hasty retreat.

For even as Dr Mahathir lied about the Barisan Alternatif in Kangar, his government was busy capitulating further to the fund managers, and in a disorderly fashion. In Kuala Lumpur, Bank Negara announced yet another revision to the capital controls to please the fund managers whom Dr Mahathir has so loudly condemned previously.

Just three weeks ago, on September 1, Dr Mahathir had said, "What do we get? (In the past), they (investors) bring money, buy shares, then make profits. When the shares appreciate, they dump the shares and take capital gains and we did not gain a single sen."

He re-affirmed that the tax -- of 30 per cent on profits repatriated under one year, and 10 per cent on profits repatriated after that -- would remain.

Swallowing those brave words, Bank Negara Tuesday announced that effective immediately there would only be a flat tax of 10 per cent on repatriated profits, thus ending the two-tier system.

In its statement, Bank Negara said, "The government has now addressed all the administrative issues raised by the foreign fund managers with respect to the levy system," a somewhat ill-humoured way of saying, 'what more do you want'?

By this act, as well as relaxations on ringgit swaps to facilitate foreign funds to purchase shares, the BN government has tacitly admitted that their controls have been ill-thought through and are ineffective, if not downright harmful in the longer term. So ineffective that they have removed the only instrument they had to regulate the flow of short-term funds -- the 30 per cent levy.

This was noted by some analysts.

AFP quoted a senior analyst with a local brokerage as saying, "We can always say that Malaysia is pragmatic and listens to what investors say but at the end of the day, it is clear that the authorities had slapped on the profit tax levy without thinking out the consequences. It was a rush job and nothing else. It gives rise to questions as to whether they thought about the long term risk of capital controls."

Bhanu Baweja, regional economist with Singapore-based financial consultancy IDEA, commenting to AFP said, "The crux of the matter is that the profit levy still penalises long-term investors."

So, now, short-term investors get away with it, while long-term investors and re-investors are penalised!

What the Barisan Alternatif advocates

Recognising the dangers of short-term capital flows to the stability of emerging economies, the Barisan Alternatif had recommended a phased and orderly termination to the capital controls, while instituting in their place a regulatory regime that would manage short-term flows, specifically inflows; whereas the BN policy was to manage outflows while trying to attract inflows. In the BA's view, such a policy of trying to manage outflows would be susceptible to a financial panic when investors would cut losses and run -- unless a total ban, with resulting ill-will and mistrust, were re-imposed.

The Barisan Alternatif also recommended a managed float on our currency, rather than a peg to the US dollar which effectively surrenders determination of the value of our currency to the US Federal Reserve Board and the central banks of Japan and Europe. The Barisan Alternatif has also noted how the unofficial peg to the US dollar pre-crisis was one of the contributory factors to the crisis.

How would these two planks of the Barisan Alternatif's policy be a sell-out to foreigners or to the IMF? Dr Mahathir has never offered any detailed criticisms -- to which the Barisan Alternatif is open, on the principle that more open discussion leads to better policy. All he has done is repeat, again and again, that the BA will sell the country out to foreigners -- a typical Mahathir tactic: repeat a lie often enough and some people will believe it, especially since they have no access to other sources of information than the tightly controlled media owned by the BN and its cronies.

Barisan Alternatif economists have been in the forefront of criticism of some IMF policies for developing countries long before the Barisan Nasional government. But unlike the BN, the Barisan Alternatif is not in the business of looking for scapegoats. The Barisan Alternatif recognises the weaknesses in the Malaysian economic structure and regulatory infrastructure and looks to address them.

Previously, when short-term flows were pumping up the stock market to unsustainable values, economists now with the Barisan Alternatif had already noted the unhealthy nature of such flows. At that time, it was the BN leaders who were busy boasting about how the size of business on the KL Stock Exchange exceeded even that of Wall Street.

That is the nature of the BN -- claim credit for performances which they really are not responsible for, and place blame on others for failures which they have to take responsibility for. It is also a measure of their priorities -- the stock exchange.

That is no way to manage a dynamic, fast-growing and fast-changing economy in a globalised economic order.

Watch out for the ringgit peg

Now the only thing that's really left of the capital controls is the ringgit peg of RM3.80 to the US dollar.

Such a peg effectively surrenders the determination of our exchange rate against other currencies to the US Federal Reserve Board, as well as to the central banks of Japan and Europe. So, who's in the hands of the foreigners?

This has been driven home most dramatically in recent weeks as the Japanese yen has risen steadily and sharply against the US dollar, hence against the Malaysian ringgit.

Malaysia runs a trade deficit with Japan. Over 20 per cent of our imports are from Japan, while only 10 per cent of our exports go to Japan. Thus, a de facto devaluation of our currency against the yen means that Japanese imports are now going to be more expensive.

On the other hand, it is possible that a cheaper currency, relative to the yen, might encourage more Japanese investments in the country, although in recent weeks, the Thai baht has fallen precisely because of the rise in the yen, so that it makes it cheaper for a Japanese firm to invest in Thailand as compared to Malaysia.

While it is difficult at this juncture to assess the consequences of the yen rise, it is probable that if this is sustained for another three to six months, the BN government will have to re-look at its peg.

Yen rise hits Tenaga Nasional

Poor Tenaga Nasional, out of the dollar frying pan, into the yen fire!

Last year, following the capital controls, Tenaga Nasional decided to swap its dollar-denominated loans for yen-denominated ones, when the yen was at a low.

Unfortunately for them, they may have shot themselves in the foot, if the yen rise is sustained. Reportedly, they hedge themselves for the yen between something like 115 to 130 to the US dollar, but assumed all risks themselves for the yen below 115 to the US dollar. The yen is now around 105 to the US dollar.

As a result, Tenaga Nasional's foreign debt burden has now rocketed up. The only consolation -- they don't have to pay yet.

Did the BN press the panic button?

Finally, why the sudden change in policy on the exit tax?

We can speculate, but one likely reason is the performance of the KL Stock Exchange in the weeks since September 1 and even preceding that. Another is the continued lack of market favour as indicated by the relatively poor terms of the recent Petronas bonds.

Given the priority the BN government gives to the stock exchange -- because it affects their cronies greatly -- the steady slide in the market, to a level under 700 on Monday before institutional buying pushed it back up, must have been of great concern. There seemed no end in the slide despite the MSCI announcement of likely re-listing in February 2000, despite the small outflow of funds post September 1, despite the economic recovery. Moreover, as of mid-September, the net inflow of funds from February 15 this year had diminished to RM1.62 billion, down from RM2.77 billion on September 1, and down from a high of RM4.70 billion on July 16. Correspondingly, the country's foreign reserves had eased from US$32.3 billion on August 30 to US$31.6 on September 15.

Clearly, it's an attempt to draw in foreign funds, in an effort to push up the stock market in the run-up to elections -- part of the creation of a so-called "feel good" atmosphere.

Unfortunately for the BN, the majority of Malaysians are not stock market players. Instead, many are starting to wonder why they have to pay for the 'big boys' through a low interest rate on deposits, which is even hitting the incomes of some NGO's such as the St Nicholas Home for the Blind.

Even more unfortunately for the BN, the surprise change in policy was only good for the day as punters pushed the KL Stock Exchange composite index up by almost 30 points. At mid-afternoon today, it had shed one-half of yesterday's gains.

More lies: Anwar not poisoned

The standard position of the Barisan Alternatif is that there should be an independent commission of inquiry to investigate the allegations of Anwar's arsenic poisoning.

This is a simple, straightforward position, given that even the BN leaders, so quick to blame it on Anwar himself -- in a repeat of the "eye bashed fist" scenario of last September, do not dispute the test results issued by Gribbles Pathology. The point remains: those results were from urine obtained from a person who has been in police custody and in jail for almost a year. That needs explanation.

Instead, this morning, we were faced with evidence of a conspiracy on the part of the Malay language press to suggest that there was no poisonng.

The Berita Harian and the Utusan Malaysia both carried front page stories with banner headlines in almost identical words: Anwar tidak keracunan in the case of the Berita Harian, and Anwar tidak keracunan arsenik in the case of the Utusan Malaysia.

Berita Harian even billed it as an 'exclusive' -- although how one can have an exclusive that is also reported in another paper is a bit of a mystery.

None of the English language papers carried the story -- clear evidence of a play to the Malay-reading public.

The story? Without naming any sources, Berita Harian alleged that early tests on several hair and nail samples from Anwar Ibrahim showed that he did not suffer from arsenic poisoning as alleged. Utusan Malaysia claimed that early investigations by HUKM did not find any clear signs (tanda-tanda jelas) showing that Anwar Ibrahim was suffering from arsenic poisoning.

That's it -- no further evidence is adduced.

It is possible that this is indeed the case -- for which Dr Wan Azizah and her family will be extremely relieved and grateful. It would be the news they want to receive even if the BN leadership, who have been callous, would want to capitalise on it politically.

However, it is clear that when the two papers actually quote a source, namely Profesor Dr Khalid Kadir, director of HUKM, they do not have a leg to stand on -- just a conspiracy to confuse and mislead the Malay-reading public.

Professor Khalid is quoted by Utusan Malaysia as saying that Anwar is still undergoing tests regarding his health problems which may or may not have to do with arsenic poisoning. While he is also quoted as stating that there are no signs as of the present that Anwar is critically ill (sakit tenat) and in need of intensive care, he also noted that the absence of clear and definite signs of arsenic poisoning at this early stage of investigation did not mean that Anwar was not suffering from it.

Berita Harian quoted Professor Khalid as saying that although they had some early results, they could not make any conclusions at this juncture and had to wait for test results from labs in Australia and England as well as the Chemistry Department and the Malaysian Institute of Nuclear Technology.

Responsible journalism, anyone? Blame it on negative western influence and sensationalism!

At least they appear done with the seafood story -- one fishy version out of the way.