KL rules out ringgit devaluation

KL rules out ringgit devaluation

KUALA LUMPUR (AFP): Prime Minister Mahathir Mohamad on Monday ruled out lowering interest rates or devaluing the Malaysian ringgit to boost exports, saying it could lead to "economic collapse."

Mahathir said the level of the ringgit, which has been pegged at 3.80 to the dollar since September 1998, remained sustainable and was consistent with Malaysia's economic fundamentals.

He said a country's competitiveness could not be rated merely on the currency's value. Factors such as productivity of labor, political and social stability and infrastructure efficiency were equally important.

"When all the other factors which contribute to productivity are taken into consideration, the claim that Malaysia's competitiveness is fast eroding does not really hold water," he said.

The premier, opening a two-day capital market conference, said the idea that devaluing the ringgit would make Malaysia's products more competitive reflected "rather casual and shallow thinking."

"In the management of a country's economy, there is no one single factor which can be manipulated in order to effect a positive turnaround.

"On the other hand, the mishandling of a major economic factor can bring about a real disaster. Thus the devaluing of the currency can cause economic collapse," he said.

"Malaysia does not depend on fiddling with the interest rates or exchange rates or pump priming on their own in order to grow the economy. We study and correct every segment of the economy in order to keep it on the right track."

The ringgit peg was imposed as part of capital controls to counter a recession in 1998. All other curbs have been lifted since the economy rebounded, but the export-driven country faces a fresh slowdown amid the U.S. downturn.

Mahathir said there was "enough resilience" in the economy to cope with the downturn and that Malaysia's monetary stance would continue to "remain accommodative" to support growth.

"Malaysia's fundamentals remain strong and full recovery in the face of adversities is much more likely."

He said the local stock market was now at "relatively more accurate and sustainable levels" after sharp falls in 1998 but told investors not to treat the bourse as a "playground for quick bucks" nor as a barometer for political and economic rumors.

The premier reiterated Malaysia's commitment to enhance transparency and corporate governance.

Mahathir told reporters later that the government would not reduce interest rates, saying rates were "low enough."

"I will not fiddle and use interest rates as a means of solving economic problems. In Malaysia we look at every aspect of the economy and we take corrective action," he added.