Mahathir says capital controls working

Mahathir says capital controls working

KUALA LUMPUR (Reuters): Prime Minister Mahathir Mohamad said
on Saturday that Malaysia's two-month-old capital controls had
been more successful than expected but the recession-hit economy
had not yet really recovered.

In an interview with Reuters, Mahathir said he expected share
prices on the Kuala Lumpur Stock Exchange to rise steadily now
that the controls were in place but not to reach the heights they
commanded before the downturn struck last year.

The 72-year-old prime minister, who will host the annual Asia
Pacific Economic Cooperation (APEC) summit in mid-November, said
Asia's financial crisis had set back efforts to speed up trade
liberalization.

"Yes, people are now rethinking whether liberalization would
actually bring benefit to them," he said. APEC is expected to
debate proposed trade liberalization plans.

"What they see is an attempt to depress the value of companies
here and then pick them up at very low prices and then control
those companies, maybe revive them or maybe strip the assets.

This is not the kind of thing that we foresaw when we were
thinking about liberalization."

Several dozen police carrying automatic rifles were guarding
the hotel where the interview took place.

The building is located in an area of the capital where
supporters of detained former finance minister Anwar Ibrahim had
vowed to demonstrate on Saturday.

Anwar was sacked on Sept. 2 and arrested 18 days later. He has
pleaded not guilty to 10 counts of sodomy and corruption, and his
trial was due to start on Monday.

A water cannon truck and several riot police trucks were
parked near the hotel, and a helicopter patrolled the sky above
the city. There were no reports of protests.

Mahathir said capital controls were a short-term approach to
combating the economic crisis but that Malaysia would not scrap
them unless currency speculation was checked.

Asked to assess the impact of the controls, Mahathir said: "So
far it has been better than what we expected, especially in terms
of the increase in the (foreign exchange) reserves, although of
course the economy has not really spurted again."

Mahathir said Malaysia wanted leaders attending the APEC
summit to focus on curbing currency speculation as a solution to
the region's economic crisis.

"Having to fix the exchange rate is not a real solution. But
we need to control currency traders so that they can do less
damage to other people," he said.

"We had no capital controls. We were doing very well until the
currency traders come in. Obviously it is the currency traders
which is the problem and we have to resolve that. Then we can go
back to the old system."

Mahathir said he thought people had begun to adjust to the
controls, which have allowed the central bank not only to peg the
ringgit against the dollar but also to push down interest rates.