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.