Anwar the 'voice of reason' in Malaysia

Anwar the 'voice of reason' in Malaysia

By Reme Ahmad

KUALA LUMPUR (Reuter): When Malaysian Prime Minister Mahathir
Mohamad talks about the financial markets these days, investors
look to his deputy, Anwar Ibrahim, for guidance.

With Mahathir blaming foreigners for wrecking his country's
economy and talking about banning currency trading, Deputy Prime
Minister and Finance Minister Anwar Ibrahim has been seen as the
voice of reason.

"Anwar is in a tough position. On the one hand, the Finance
Ministry is his baby. But if the PM says anything, he's got to
run and cover and clarify," said a research manager at a
Malaysian stock brokerage, who asked not to be identified.

Anwar has taken the lead in damage control as Malaysia's
financial markets reel from the contagion effects of the Thai
financial crisis compounded by worries over Kuala Lumpur's
economic direction.

Malaysian shares have plunged by 40 percent this year and the
ringgit has fallen more than 20 percent against the dollar.

Analysts said some of Mahathir's comments about the markets
have made the situation worse.

Over the weekend, Mahathir renewed his attack on currency
traders. "Society must be protected from unscrupulous
profiteers," he said in a speech in Hong Kong on the fringes of
the World bank/IMF meetings.

"Currency trading is unnecessary, unproductive and immoral. It
should be stopped. It should be made illegal."

George Soros, who Mahathir has singled out as leading the
attack on Southeast Asian currencies, said in a speech on Sunday
that Mahathir's call to ban foreign exchange trading did not
deserve serious consideration.

"He's playing to a domestic audience and he couldn't get away
with it if he and his ideas were subject to the discipline of
independent media inside Malaysia," Soros said.

In an interview with Hong Kong's Sunday Morning Post Mahathir
appeared to go a step further by implying that Malaysia might ban
non-trade related currency trading.

The ringgit plummeted to record lows against the dollar on
Monday after Mahathir's remarks were published, pulling down
other regional currencies as well.

Anwar, in his firefighter role, clarified that Malaysia has no
intention of changing foreign currency trading rules.

"There is absolutely no change in the practice of currency
trading at present," he told reporters in Hong Kong. He said
Mahathir was talking in the context only of negotiations for
rules on financial services under the World Trade Organization.

Analysts and dealers said the different spins coming from the
two top leaders has confused the financial community.

"It shows that there may be an apparent conflict between
himself (Mahathir) and the deputy PM who immediately tried to
ameliorate the impact of the statement," said Simon Flint, senior
emerging markets analyst at research house I.D.E.A.

"The political risk premium (on Malaysia) goes up. Until the
right hand and left hand start agreeing with each other, no one
believes it," said the research head at a foreign brokerage in
Kuala Lumpur.

But not everyone think trouble is brewing between the two
leaders. Only early this month, Mahathir told leaders of his
United Malays National Organization political party that Anwar
will succeed him, one political analyst said.

Said Kenneth Courtis, chief economist and strategist at
Deutsche Bank Group Asia Pacific: "I think the markets are over-
reacting today and I think there isn't the division people are
talking about between the top (leaders) in Malaysia.

"I think when the market steps back from the froth they will
probably see things are being overdone at the moment," he told
Reuters Financial TV.

Divergent views between the feisty Mahathir and his bookish
deputy have surfaced from time to time, though both say they work
well together.

In July, Mahathir said there was no contractual dispute in the
controversial Bakun hydroelectric project after Anwar said there
were major disagreements.

The joint contractors of the Bakun contract have since been
dropped as the disputes could not be solved.

Trying to calm the markets last month, Anwar said he may defer
less important infrastructure projects. But Mahathir said days
later that economic growth would be speeded up.

Mahathir and Anwar have since announced that Malaysia will cut
imports and delay several infrastructure projects.