Malaysia to keep the ringgit pegged at 3.8 to U.S. dollar

Malaysia to keep the ringgit pegged at 3.8 to U.S. dollar

KUALA LUMPUR (Reuters): Malaysian Prime Minister Mahathir
Mohamad on Saturday laid to rest all speculation that the ringgit
currency's peg might be revised, saying it will remain at 3.8 to
the dollar for a "long, long time".

Mahathir emphatically reiterated that the ringgit, pegged
against the U.S. dollar when Malaysia introduced capital controls
in September, will stay at the current level to enable businesses
to operate in a stable environment.

"If anybody tells you that the government is going to change
the value of the ringgit, ask them to jump in the sea. It will
stay at 3.8 per (U.S. dollar) for a very long, long time," he
said at the launch of a campaign to promote home sales.

Many analysts had said that recent gains among the region's
currencies, particularly the Indonesian rupiah, the Korean won
and Thai baht, might prompt Malaysia to revise the peg to 3.5 to
the U.S. dollar.

Adding to the confusion, other analysts suggested a possible
devaluation of the ringgit to 4.2 per dollar because of weak
domestic economic conditions.

There was also speculation Malaysia might unpeg the ringgit
and impose a managed float, allowing it to fluctuate by a limited
amount.

Mahathir also said the introduction of capital controls and
other expansionary fiscal measures had begun showing results.

He said the domestic stock market's capitalization had
improved by 180 billion ringgit ($47.37 billion) since September,
during which time the Kuala Lumpur Stock Exchange's blue-chip
Composite Index had risen by more than 50 percent.

The KLSE Composite Index ended at 533.88 on Friday. It hit a
low of 261.33 on September 1, when the capital controls were
introduced.

"We had lost 700 billion ringgit in market capitalization,"
Mahathir said, noting market capitalization was more than 900
billion ringgit when the Composite Index was at the 1,200 level
before the regional financial crisis struck last year.

On Friday, Mahathir told a group of foreign fund managers that
capital controls would remain in place for now, but he was
willing to consider revising a ruling that prevents portfolio
investors in shares from repatriating their money for one year.

The prime minister stopped short of making any promises to the
fund managers, but economists said Malaysia has set a course for
return to the international financial system.

The economists said despite the government's denial, currency
controls -- which have been criticized by foreign investors who
have stayed away from Malaysia -- were expected to head for a
phased exit in the not so distant future.

Since the capital controls were introduced, Malaysia has been
downgraded to junk bond status by all international credit rating
firms and dropped from the Morgan Stanley Capital International
(MSCI) index, an important benchmark for foreign investors.

Foreign investors have said that to return to the MSCI,
Malaysia will have to lift all restrictions on the flow of money
in and out of the stock market.