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"These controls will be withdrawn once conditions in the international markets are normalized and the international community co-operates to undertake measures to review the structure of the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