Goh seeks 'new rules' against destabilizing capital flows

Goh seeks 'new rules' against destabilizing capital flows

SINGAPORE (AFP): Singapore Prime Minister Goh Chok Tong has called for "new rules" to be established in international currency trading to prevent destabilizing capital flows, but said the market cannot be fully regulated.

In an apparent easing of Singapore's previous hands-off policy toward foreign-exchange trading -- a pillar of the rich island's financial sector -- Goh said the International Monetary Fund (IMF) should address the problem.

Goh told a press delegation from Mexico that "in an age of information technology, funds can be transferred between countries just through pressing a button and we're not talking of millions of dollars, we are talking sometimes of billions which can be transferred very quickly."

"This destabilizing effect of quick fund transfers based on analysts' reports, and sometimes on rumors, is a new phenomenon which the IMF has got to tackle," he said.

"Which means in future, IMF may have to look at new ways of doing things, new rules to prevent these currency transfers from destabilizing the whole system," added Goh, 56, an economist by training.

A transcript of the Feb 27 interview was made available to foreign news agencies over the weekend after fresh volatility hit Southeast Asian currencies, including the Singapore dollar, following weeks of relative calm.

"The problem is easier to identify, the solution is much more difficult because it's now one global international financial system, and it is very difficult to come up with a meaningful solution," he said.

"But the IMF has got to address this and I believe finance ministers of the G-7 countries are now focusing their minds on this, how can we moderate the operations of the currency traders, not to regulate it, not to stifle the trading, which you can't, which is not good for capital flows, but to find ways to prevent these aggravating fluctuations which can destabilize countries."

The Group of Seven (G-7) industrial countries includes the United States, Japan, Germany, Britain, France, Canada and Italy.

Neighboring Malaysia's Prime Minister Mahathir Mohamad months ago issued a call for rules on currency trading, which got a lukewarm response in the region and added to instability in currency markets at the time.

Singapore is regarded as the world's fourth largest foreign exchange trading center after London, New York and Tokyo.

In 1996, the average daily turnover of the foreign exchange market in Singapore amounted to US$130 billion, with an increasing portion of the trade devoted to Asian currencies.

Goh reiterated Singapore's support for the IMF's efforts to prod troubled Asian economies to carry out reforms. Since currency turmoil broke out in Asia last July, Thailand, Indonesia and South Korea have had to seek IMF rescue packages totaling nearly $120 billion.

"Countries which have got into problems have to swallow bitter medicine," said Goh, whose government has contributed $5 billion to the Indonesian package and one billion to Thailand's.

"They do not like the IMF conditionality, but you need the IMF to ensure that countries can operate (in) the international system in the proper manner, and that the system does not break down because of certain countries spending or mismanaging their own financial affairs," he said.