Malaysian forex controls 'help neighbors'

Malaysian forex controls 'help neighbors'

KUALA LUMPUR (Reuters): Malaysia has long said currency controls saved its economy from disaster.

Now a senior central bank official says the controversial measures rescued neighboring Asian economies as well.

Bank Negara special adviser Nor Mohamed Yakcop said Malaysia's neighbors owe their economic recovery to Kuala Lumpur's decision in September to impose controls on foreign exchange flows.

"I may not be venturing too far if I were to say that the move taken by Malaysia to control foreign exchange had not only rescued Malaysia but also other countries in the region," the Bernama news agency on Sunday quoted Nor Yakcop as saying.

In a related development, Standard & Poor's said on Monday it imposed a triple-'B'-minus senior unsecured rating to Malaysia's $1 billion global bond launched last week.

The successful issue, oversubscribed three times, was promoted by Malaysia as a signal to the international financial community that the country's economic restructuring program was working.

But S&P reiterated an earlier statement saying the country remained over-leveraged and was lacking in its commitment to move toward a more transparent corporate system.

Nor Yakcop joined Malaysia's central bank in September, days after the government imposed the currency controls and pegged the ringgit currency at 3.80 units per U.S. dollar.

He had quit Bank Negara in 1994 after it declared a loss of more than 5.7 billion ringgit ($1.5 billion) due to errors in foreign exchange transactions.

Nor Yakcop said in a newspaper article, excerpts of which were published by Bernama, that several months before the exchange controls were imposed, hedge funds managers and currency speculators were planning to sell off the currencies of Thailand, Indonesia, South Korea and Malaysia.

"They gradually put their plan in action. When Malaysia suddenly imposed exchange control measures on Sept. 1, 1998, they panicked and started buying back not only the ringgit but other currencies in the region too," he said.

"The important thing was that they were forced to abort their plan and to this day, they dare not make such a raid again," he said.

Nor Yakcop said the International Monetary Fund and Western nations did not want Malaysia's currency controls to succeed.

"For reasons we all know, the IMF and the West did not want Malaysia's exchange control measures to succeed because that would be undermining the credibility of the globalization policy and free market which they championed," he said.

Last year Malaysia decided not to turn to the IMF for assistance, saying the Fund's prescription would set back its recovery hopes. Thailand, Indonesia and South Korea all adopted IMF programs in exchange for emergency aid.