The currency and financial crises in Southeast Asia suggest that the region's economic miracle has been built on shaky and unsustainable foundation, according to economist Prof Jomo K Sundram of Universiti Malaya.

"Almost in tandem with financial liberalisation, International Monetary Fund intervention is generally recognised to undermine and limit national economic sovereignty," said Jomo, adding that despite that, invoking "national economic sovereignty" may become dubious when it is hijacked by special interests.

He was emphasising the need to be wary of financial liberalisation as the Malaysian economic scene is different from that of its neighbours, Thailand and Indonesia.

He also stated that Malaysia should learn from the lessons provided by Mexico, South Korea and Indonesia.

"If at all financial liberalisation is adopted, it should be able to create adequate alternatives in place of previously existing governance institutions and mechanisms," Jomo said in a paper he presented at a current conference on Globalisation , WTO and the New Trade Agenda in Kuala Lumpur.

He added that the strategy can only be adopted fully if it does not undermine the previously existing governance institutions and mechanisms.

Official responses compromised

One also should look at domestic governance arrangements that have been shaped and abused by those with influence for their own advantage before considering financial liberalisation, Jomo said.

"In some instances, especially in Thailand, Malaysia and Indonesia, in the absence of adequate crisis response arrangements, official responses have been duly influenced and compromised by vested interests as well as other considerations.

"Recent growth in both Malaysia and Thailand has been increasingly heavily reliant on foreign resources, both capital and labour.

"Limited investments and inappropriate biases in human resource development have held back the development of greater industrial and technological capabilities throughout the region," said Jomo.

He also stressed that Southeast Asia's resource wealth and relatively cheap labour sustained production enclaves for export of agricultural, forest, mineral and more recently, manufactured products.

"However, much of the retained wealth generated was captured by business cronies of those in power, who contributed to growth by also re-investing captured resource and other rents in the 'protected' domestic economy in import substituting industries, commerce, services and privatised utilities and infrastructure," said Jomo.

IMF abuse

He also talked of the clear abuse of imposed IMF conditions in the Korean aid package to resolve outstanding bilateral issues in favour of the US and Japanese interests, and how Indonesia was humiliated when it wanted to discuss again the conditions imposed.

"As economic and business historians remind us, there have been important precursors to the recent crises in East Asia, even within the region. Unfortunately, the market - which is increasingly being left to its own devices - has neither a memory nor a capacity to develop natural immunity," said Jomo.

The four-day conference is jointly organised by the Management Centre of the International Islamic University Malaysia, World Bank Institute, Pacific Mutual Fund and Malaysian Economic Association.