Malaysian controls worry SE Asian markets
Malaysian controls worry SE Asian markets
SINGAPORE (Dow Jones): Malaysian foreign exchange controls
announced Tuesday and political uncertainty after the sacking
Wednesday of its deputy prime-minister continue to stall trading
in some key southeast Asian commodity markets.
Anwar Ibrahim's sacking by Prime Minister Mahathir Mohamad on
charges of alleged official, financial and sexual impropriety
fueled fears among commodities traders of an end to free market
reforms in Malaysia, while they also braced for a possible
slowing in Malaysian trade flows and a build up of red tape.
Malaysia's imposition of currency controls also sparked fears
that similar action could be taken by Indonesia, arguably the
worst-hit economy amid the ongoing crisis in the region.
Developments in Malaysia, however, overshadowed Indonesia's
lifting of import restrictions, tariffs and preferential exchange
rate subsidies on staple food items.
The impact on Malaysian palm oil, rubber, cocoa and tin
markets was immediate, and Thai rice exporters quickly set out to
renegotiate contracts with Malaysian buyers which were settled
prior to Tuesday's controls and Bank Negara's announcement
Wednesday that the currency would be fixed at an exchange rate of
3.80 ringgit to the U.S. dollar.
Palm oil futures prices at the Kuala Lumpur Commodities
Exchange plunged Tuesday and Wednesday before recovering on a
technical rebound Thursday and Friday. In Europe, the uncertainty
surrounding the ringgit and tight palm oil stocks in Malaysia
caused vegetable oil traders to adopt a wait-and-watch approach.
On Tuesday, Bank Negara, Malaysia's central bank, outlined
capital controls that effectively make Malaysia the only place
where ringgit can be traded. The controls limited the transfer of
ringgit to overseas accounts with immediate effect. Foreign banks
are barred from getting ringgit loans within the country to
finance speculative positions.
The currency controls left traders and dealers of Malaysian
natural rubber utterly confused and have effectively suspended
trade in the commodity since Wednesday. Malaysian physical cocoa
prices, which were earlier denominated in ringgit per ton, have
been unquoted since Wednesday.
Trading at the Kuala Lumpur Tin Market was also suspended
Wednesday in the wake of the imposition of currency control
measures. Though trading resumed Thursday, tin prices on the KLTM
plunged 9 percent, or 2.00 ringgit a kilogram, to settle at 20.20
ringgit.
Malaysia is the world's biggest producer and exporter of palm
oil and is slated to produce 8.7 million tons of crude palm oil
and export 7.5 million tons in 1998. It is the world's third
largest natural rubber producer, after Thailand and Indonesia,
with an output of 971,100 metric tons in 1997.
It produces around 16,000 tons of tin annually and is the
second biggest Asian cocoa producer after Indonesia.
Commodity analysts and traders said they believe that
Malaysia's currency controls will cause trade to slow. They said
that although the country may gain from currency controls in the
near term, it would likely need to relax or even scrap them in
the longer term.
The Malaysian controls "will definitely affect the flow of
trade in Malaysia and create a lot of uncertainty in the
(commodities) markets not only (in Malaysia) but in Indonesia
too," said Poh Fiew Whye, Banque Paribas' Singapore-based Vice-
President for commodities and trade finance in southeast Asia.
"We can expect to see a scramble among Indonesian traders out
of fear that Indonesia too may follow suite," he said in a
telephone interview.
A Singapore-based trader with a European trade house noted
that Malaysia's economy is export driven and a third of its gross
domestic product comes from trade.
"The new measures mean that all exports and import will have
to be done in hard currency, which means the central bank will
face the daunting task of keeping track of every single
transaction. They could do it in the short term but not for
long...its an act of desperation," he said.