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