Singapore cannot risk 'imposing capital controls'

Singapore cannot risk 'imposing capital controls'

SINGAPORE (AFP): Singapore is not in favor of capital
controls, such as those imposed in neighboring Malaysia, and such
controls can only give brief respite from economic turmoil,
Senior Minister Lee Kuan Yew was quoted as saying in news reports
Saturday.

Malaysia may have a "temporary window of opportunity" to boost
its economy through the capital controls it introduced in
September, said Lee, as he warned of their ill-effects.

"They induce a false sense of security and result in loose
macroeconomic policy and weak financial discipline," Lee said in
a speech to the James Baker Institute at Rice University in
Houston.

Excerpts of the speech were carried in an afternoon daily and
by local television.

An open economy like Singapore "cannot afford to consider
capital controls," Lee said.

"Such controls will irrevocably damage our reputation as an
international financial center," he said.

Malaysian Prime Minister Mahathir Mohamad on Friday defended
the government's move to impose controls.

"These controls will be withdrawn once conditions in the
international markets are normalized and the international
community co-operates to undertake measures to review the
structure of the global markets," Mahathir said.

Despite the openness of Singapore's economy to the global
market, the city-state has weathered the crisis well because of
the country's macroeconomic discipline and vigilance over its
banking system, Lee said.

The open market system has been blamed for the rapid contagion
of the currency crisis among Asian economies, which has prompted
countries like Malaysia to bring in capital controls.

Looking back at how the regional financial crisis began in
July 1997, Lee said the liberalization of Asian markets could
have been done more gradually.

"Capital account liberalization should have been more
carefully calibrated according to the level of soundness and
sophistication of each country's financial system," he said.

"Countries that are not ready for the risks should have
installed circuit breakers -- controls to cope with any sudden
inflow or outflow of funds," he added.