Malaysian economy to shrink by 6%: PM

Malaysian economy to shrink by 6%: PM

HANOI (AFP): Malaysia's economy will shrink at least six percent this year and capital controls will stay until a new international financial regime is put in place to deter "predatory speculators," Prime Minister Mahathir Mohamad said Tuesday.

Mahathir said at the opening of a two-day Association of Southeast Asian Nations (ASEAN) summit here that the past year had been the "most difficult and challenging period" for the region.

"In Malaysia, we expect our gross domestic product (GDP) to decline by six percent or more this year," said the 73-year-old premier, who has blamed international speculators for Asia's financial woes.

"At the worst point of the crisis, the Malaysian ringgit was devalued by currency traders by some 60 percent against the US dollar while our stock market lost two-thirds of its capitalization -- more than US$200 billion.

"As a nation and a people, we have become impoverished. Our banks and corporations have collapsed," he told colleagues from Brunei, Indonesia, Laos, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Malaysia is mired in its first recession in 13 years, with GDP falling 8.6 percent from a year earlier in the September quarter -- its sharpest contraction on record and the steepest fall among Asian economies except Indonesia in the same period.

Mahathir's latest forecast marked a downgrade of the central bank's prediction of 4.8-percent economic contraction in 1998.

While maintaining its full-year forecast, the central bank said last month the economy was bottoming out and would grow 1.0 percent next year.

Mahathir kept up his attack on foreign currency speculators, saying the "existing international financial system is not equipped to deal with massive capital flight" under the current prolonged crisis.

But the Malaysian leader, a harsh critic of Western countries and multilateral lenders, said "powers that be preferred instead to blame the governments of the affected countries for all kinds of misdemeanors."

"Instead of reining in the currency manipulators, they allowed them to destroy the economic tigers in order to force them to seek help and accept IMF prescribed reforms," he said.

Mahathir defended the imposition of currency controls in September as vital to "insulate ourselves from the predatory speculators."