Capital controls work as 'shield' for KL<\/p>\n
LONDON (Reuters): Capital controls imposed at the height of
\nlast year's emerging markets crisis will help shield Malaysia
\nfrom the current Brazil-inspired turmoil, a Malaysian minister
\nsaid on Wednesday.<\/p>\n
Second Finance Minister Mustapha Mohamed, in London on his way
\nto a meeting of Asian and European Union finance ministers in
\nFrankfurt, said Malaysia's basic policy on controls would remain
\nin place, but the country would continue to consider ways of
\neasing them slightly to encourage more foreign investment.<\/p>\n
"What's happening in Brazil is a good lesson. We've got to
\nmanage our economy and make sure we insulate ourselves,
\nespecially for small economies like Malaysia," Mustapha told
\nreporters.<\/p>\n
"If we had not had these capital controls, the situation would
\nbe relatively bad for us. With controls in place we are
\ninsulated."<\/p>\n
Brazil was forced effectively to devalue its currency on
\nWednesday as millions of dollars flooded out of its foreign
\nexchange markets, reflecting fears that a political row could
\nscupper a crucial austerity program and a $41.5 billion
\ninternational support package.<\/p>\n
Malaysia clamped capital controls on its markets at the
\nbeginning of September 1998, to shield its battered ringgit
\ncurrency and economy from a similar exodus of "hot" money from
\nemerging economies after Russia devalued.<\/p>\n
These included pegging the ringgit at a fixed 3.80 to the
\ndollar and slapping a ban on foreigners withdrawing the principal
\nof their portfolio assets from Malaysia within 12 months of
\ninvestment.<\/p>\n
Malaysia has recently shown signs of preparing to relax at
\nleast some of the restrictions. The central bank tinkered last
\nweek with stock market controls, and an official said the
\ngovernment was considering replacing the 12-month holding period
\non investments with an "exit tax".<\/p>\n
Mustapha, said the government was studying various
\nalternatives for easing the controls, such as an exit tax or
\npreferential treatment for certain long-term investors.<\/p>\n
"We still worry there might be another speculative run on the
\ncurrency," he said. "What we are doing is fine-tuning the
\nimplementation of these controls...These are adjustments. The
\nbasic policy remains."<\/p>\n
Mustapha said Malaysia was unlikely to suffer damaging capital
\noutflows in September, the earliest that investments frozen under
\nthe 12-month holding period can be withdrawn.<\/p>\n
He said only about 21-22 percent of Malaysia's stock market
\ncapitalization was held by foreign investors, many of whom were
\nin Malaysia long term and had little reason to pull out.<\/p>\n
The government was studying the amount of capital that might
\nflow out of the country as shorter term portfolio investors
\nwithdrew their capital, he added.<\/p>\n
Deputy central bank governor Zeti Akhtar Aziz said Malaysia's
\nforeign exchange reserves had grown by some $6 billion since the
\ncontrols were imposed.<\/p>\n
"We expect reserves to continue to increase because of our
\nmassive current account surplus," she said. "Even if there was an
\noutflow of funds we feel we could withstand that outflow."<\/p>",
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"sponsor": "Okusi Associates",
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