Mahathir says ringgit peg hinges on yen\/yuan<\/p>\n
Simon Cameron-Moore, Reuters, Kuala Lumpur<\/p>\n
Malaysia will review its ringgit peg if further weakening of the
\nJapanese yen forces China to devalue, Prime Minister Mahathir
\nMohamed said on Friday in remarks that sent shudders into the
\nlocal stock market.<\/p>\n
\"If it goes down, I'm worried because it may cause China to
\ndevalue, and if China devalues then of course it will force us to
\nrethink about our ringgit peg,\" he told reporters.<\/p>\n
Analysts said Mahathir, who had expressed his concern to
\nvisiting Japanese Prime Minister Junichiro Koizumi on Thursday,
\ncould probably rest easy.<\/p>\n
They doubted whether China was anywhere near devaluing.<\/p>\n
\"That's a very big if in the first place,\" said James Malcolm,
\nregional currency strategist at JP Morgan Chase in Singapore.<\/p>\n
But Mahathir's comment unnerved Kuala Lumpur's stock market,
\nwhich in the absence of a free currency market sometimes acts as
\na barometer of sentiment toward the ringgit.<\/p>\n
Early gains on Friday were wiped and the top-100 share index
\nwas down 0.5 percent at 701.50 points by 2.45 p.m., after earlier
\ntouching a high of 710.29.<\/p>\n
Malcolm said none of Asia's fixed currencies, either China's,
\nHong Kong's or Malaysia's were overvalued on a historical basis
\nover the post-Asian crisis period.<\/p>\n
\"I don't think there is a chance of any of the pegs going this
\nyear,\" he said.<\/p>\n
Mahathir told Koizumi he was watching with interest whether
\nthe sharp fall in the yen, which has lost 10 percent in two
\nmonths, would impact China's yuan and currencies of export-
\noriented Southeast Asia.<\/p>\n
Mahathir said Koizumi indicated Japan would try to stop the
\nyen's fall but made no promises.<\/p>\n
\"He did not really give an assurance but he indicated, of
\ncourse, that they will try to ensure that the yen doesn't
\ndepreciate any more,\" Mahathir said.<\/p>\n
The U.S. dollar was around 132.22\/23 yen in late trading in
\nTokyo, easing off late New York levels of 132.55.<\/p>\n
Comments by Japanese officials, suggesting Tokyo is unhappy
\nwith the pace of the yen's fall, planted second thoughts among
\nthose aggressively selling the currency.<\/p>\n
Asked at what level the dollar-yen rate could pose problems,
\nMahathir said: \"They say 140, but I don't know. We'll study when
\nit comes to 140.\"<\/p>\n
In the past, Mahathir has said it would require a sustained 20
\npercent movement in the ringgit's value against the currencies of
\ntrading rivals to warrant a re-pegging of the ringgit.<\/p>\n
The ringgit was fixed at 3.8 per dollar in late 1998,
\ndeliberately undervalued at the time to help stem capital
\noutflows and economic recovery from the Asian crisis.<\/p>\n
David Simmonds, currency strategist at Citibank in Singapore,
\nsaid the dollar's move above 140 yen would raise competitive
\nissues for Malaysia, but the decisive factor for the peg would be
\nwhether the dollar also strengthened against the Euro and
\nSingapore's currency.<\/p>\n
Simmonds said the risk to the ringgit peg at present was low,
\nand he also doubted whether China would succumb to a devaluation.<\/p>\n
\"I don't think the Chinese authorities are going to change
\ntheir currency (value) in any case,\" he said.<\/p>\n
The danger for economies and currencies like Malaysia's would
\nbe if the U.S. recovery disappointed and the global economy
\nfailed to pick up, Malcolm said.<\/p>\n
The United States is Malaysia's biggest market. The bulk of
\nits exports are in the electrical and electronics goods category,
\nhit hard hit by the slump in the global technology sector.<\/p>\n
But Malaysia's economic growth is expected to recover after
\nlast year's abrupt slowdown to around 0.5-1.0 percent.<\/p>\n
The central bank noted steady foreign direct investment
\ninflows helped rebuild international reserves to nearly US$31
\nbillion after dipping below $26 billion in mid-2001.<\/p>",
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