KL under pressure on peg policy<\/p>\n
M. Jegathesan, Agence France-Presse\/Kuala Lumpur<\/p>\n
Malaysia's seven-year peg of its currency, the ringgit, to the
\nU.S. dollar is coming under increasing pressure for a review amid
\nfears of rising inflation and speculation that the yuan will be
\nrevalued, economists said.<\/p>\n
Even the architect of the policy, former premier Mahathir
\nMohamad, is calling for a change to ensure Malaysia's economy
\nremains competitive.<\/p>\n
Economists expect a review of the peg of 3.80 ringgit to the
\ndollar, fixed since September 1998, to be made in the second half
\nof the year and that Malaysia should benchmark its ringgit to a
\nbasket of currencies.<\/p>\n
\"There is pressure on the government to review the ringgit peg
\ndue to fears of an imported inflation,\" Suhaimi Saidi, an
\neconomist with the local research house AmSecurities, told AFP.<\/p>\n
Speculation that China may adjust its own currency peg to the
\ndollar and allow the yuan to rise has also lent strength to the
\nbelief that Malaysia might follow suit, economists said.<\/p>\n
Mahathir, who imposed the peg as part of capital controls to
\nshield the economy from the 1997-98 Asian financial crisis, has
\nrecently joined others in calling for a review of the system as a
\nsharp decline in the dollar's value has made Malaysian imports
\ncostlier.<\/p>\n
But Mahathir said the value of the ringgit should be decided
\nby the government and not by external parties.<\/p>\n
\"We have to determine it ourselves and not leave it to market
\nforces as it will be exposed to manipulation,\" he said on
\nTuesday.<\/p>\n
Suhaimi said the ringgit was estimated to be undervalued by
\nabout five to 10 percent, judging from the weakening of the
\ngreenback.<\/p>\n
\"It could be revalued between 3.42 to 3.60 per U.S. dollar,\"
\nhe said.<\/p>\n
Standard Chartered bank economist Joseph Tan, who is based in
\nneighboring Singapore, said the time was ripe for Malaysia to
\nreview the ringgit peg, given its position of strength.<\/p>\n
\"The fundamentals of Malaysia's economy are strong enough to
\nwithstand such a shift,\" he was quoted as saying by the Business
\nTimes newspaper over the weekend.<\/p>\n
Tan said Malaysia should shift to a managed float of the
\nringgit against a basket of currencies from its top trading
\npartners.<\/p>\n
But it was necessary for Kuala Lumpur to impose a temporary
\nexit tax to safeguard the financial system from the sudden drain
\nof liquidity, he said.<\/p>\n
Tan said the ringgit was about 15 percent undervalued versus
\nthe regional currencies, adding that the ringgit could be
\nrevalued between 3.30 and 3.50 per U.S. dollar.<\/p>\n
Prime Minister Abdullah Ahmad Badawi, however, has said that
\nMalaysia would keep its controversial ringgit currency peg of
\n3.80 to the U.S. dollar as the arrangement still benefits the
\ncountry.<\/p>\n
\"The government's current position is that the peg will
\nremain,\" he said.<\/p>\n
But the government has said it would review the peg if there
\nwere to be a swing of 20 percent either way in regional
\ncurrencies.<\/p>",
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