KL in a tight spot over currency revamp<\/p>\n
Associated Press, Kuala Lumpur<\/p>\n
Speculators betting on a revaluation of the Malaysian ringgit peg
\nto the dollar may be in for a long wait amid mixed signals in
\nrecent weeks over the seven-year-old fixed exchange rate policy.<\/p>\n
Most analysts agree that the ringgit, fixed at 3.80 to the
\ndollar since 1998 after the Asian financial crisis, is
\nundervalued by around 10 percent and should be allowed to
\nstrengthen.<\/p>\n
But the question is whether Prime Minister Abdullah Ahmad
\nBadawi will risk upsetting the currency regime in what could
\nprove an unpopular move.<\/p>\n
"The general sense we get is that Malaysia is seriously
\nconsidering doing away with the peg regime but is holding back
\ndue to political inertia," said Ramya Ramachandran, economist
\nwith Singapore-based IDEAglobal.<\/p>\n
"We still assign a 60 percent chance of a de-peg this year."<\/p>\n
A strengthened ringgit would make exports -- the mainstay of
\nthe country's economy -- more expensive and expose businesses for
\nat least the short term to volatile currency, something that the
\ngovernment is reluctant to allow, especially in an uncertain
\neconomic climate.<\/p>\n
Gross domestic product growth this year is expected to ease to
\n5-6 percent, down sharply from 7.1 percent in 2004. Also, the
\ngovernment is tightening its belt on public spending to cut its
\nbudget deficit.<\/p>\n
Economists say speculation since late last year about currency
\nreform has led to an influx of foreign investment in ringgit-
\ndenominated assets as investors flock to the market hoping for a
\nquick profit.<\/p>\n
Credit Suisse First Boston's senior regional economist Sailesh
\nJha said portfolio flows as a percentage of GDP have surged to 8
\npercent last year from 2.8 percent in 2003.<\/p>\n
But inflationary pressures were still benign and the central
\nbank has adequate reserves to cope with any capital flight in
\ncase of a ringgit re-peg.<\/p>\n
Some economists believed Malaysia's decision on the ringgit is
\ntied to China's foreign exchange policy. If the yuan is loosened,
\nMalaysia is expected to follow suit to ensure it remains
\ncompetitive in the export markets for electrical and electronic
\nproducts.<\/p>",
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