Malaysia appoints acting central bank governor

Malaysia appoints acting central bank governor

KUALA LUMPUR (AFP): Malaysia's finance ministry announced
yesterday that associate central bank governor Zeti Akhtar Aziz
would become acting governor next Tuesday after the bank's top
two officials resigned.

In a brief statement, the ministry said that Bank Negara
Malaysia governor Ahmad Mohamad Don and deputy governor Fong Weng
Phak had both resigned but failed to explain why.

Sources said the resignations appeared to be linked to a rift
with Prime Minister Mahathir Mohamad over monetary policy amid
reported plans to introduce capital controls.

Zeti, who joined the central bank in 1985, is one of four
associate governors at the Malaysian central bank.

At a news conference Thursday, she said the economy was
expected to improve in the second half of this year after falling
into recession in the first.

Zeti, who was speaking after the bank announced a 6.8 percent
contraction in gross domestic product (GDP) in the three months
to June, also said Malaysia could not rely on an export-led
recovery.

As assistant central bank governor since 1995, Zeti has been
covering the areas of economics and banking operations.

News of the resignations came a day after the bank further
relaxed monetary policy as it announced a sharper-than-expected
plunge in economic activity in the June quarter and even slower
monetary growth in July.

Finance Minister Anwar Ibrahim has also been sidelined in
recent months following the June appointment of former finance
minister Daim Zainuddin as "special functions" minister with
responsibility for economic development.

Daim, a close ally of Mahathir, has since successfully pushed
for successive easings of monetary policy, putting him at odds
with the central bank and Anwar, who is also deputy prime
minister.

"Bank Negara has always been at loggerheads with the prime
minister and Daim over policy matters. The governor must have
felt the pressure," a former central bank official told AFP.

"Rumors of Ahmad's resignation have been rife in the stock
market in the last few months," the official added.

A financial analyst at a foreign-based research house said the
resignations would exacerbate political concerns.

"The immediate reaction is bafflement. Why resign now? Some
people are going to cry 'political motivation'.

"Either the resignation is a reflection of no-confidence in
the governor, or he has decided to step down on principle. It has
been said that he has been more for orthodox views on interest
rates -- favoring high rates to keep the ringgit from slipping.

"It is all very disconcerting because, although such rumors
have been around for months now, the proximity of the
resignations to the release of second quarter GDP figures seems
to indicate that the governor has been let go because of it," the
analyst said.

MMS International's emerging market analyst Sani Hamid said
news of the resignations raised fresh concerns among investors
amid rumors that the government may introduce capital controls
next month.

But "it could also be protest resignations against the
government's policies, which have yet to be introduced," he
added.

"There are rumors of capital controls being put in place. Bank
Negara may have disagreed on these and the resignations could be
a sign of protest," Sani said, noting that the moves were seen as
a "further dismantling of Anwar's political machinery."

A local political analyst said the resignations were likely to
be linked to the alleged rift between Mahathir and Anwar along
with economic policies earlier proposed by the International
Monetary Fund (IMF), such as last year's tightening of monetary
policy to curb the rapid expansion of credit.

"Ahmad Don is clearly more aligned to Anwar," he said.

Mahathir -- Page 5