S'pore shaken by Malaysian capital policy

S'pore shaken by Malaysian capital policy

SINGAPORE (AFP): Singapore has been badly shaken by drastic
capital controls imposed in neighboring Malaysia and is anxiously
tracking the political crisis triggered by the sacking of deputy
premier and finance minister Anwar Ibrahim.

From mom-and-pop stock investments to Singapore government
reserves, this city-state is reeling from the impact of foreign-
exchange restrictions imposed by Kuala Lumpur in a bid to seek
refuge from external financial turbulence.

Malaysia announced last week that its currency the ringgit was
being pulled out of international circulation, and set a fixed
exchange rate of 3.8 per U.S. dollar. It also unveiled share
trading rules that immediately undermined the Singapore stock
market.

The sacking of Anwar, seen overseas as the leading moderate
and reformist figure in Prime Minister Mahathir Mohamad's
government, has received massive coverage in the Singapore media.

The Malaysian ruckus comes at an awkward time for Singapore-
Malaysia relations, which recently hit a new low following a
dispute over Malaysian railway operations in Singapore territory
and other long-standing irritants.

While most of the outside world is largely unaffected by
Malaysia's moves, ordinary Singaporeans quickly felt the effects
of capital controls due to the two nations' closely intertwined
financial fortunes and extensive family links.

Much of the estimated 20 billion ringgit (US$5.2 billion)
overseas, which must be repatriated to Malaysia by the end of
September or be deemed worthless, is believed to be held in
Singapore.

Among the major holders of ringgit is the Singapore
government, which keeps part of its reserves in the currency, but
no official figures are available.

Singapore "is currently seeking clarification from Malaysian
authorities on the status of our onshore ringgit deposits,"
Finance Minister Richard Hu told parliament last Friday.

The Government of Singapore Investment Corp (GIC), a state
agency which invests part of the island's reserves, is "also
discussing with local banks on ways in which ringgit deposits can
be repaid to the government."

"Whatever the outcome of these discussions I can assure you
that GIC will not suffer any capital loss on its ringgit
holdings," Hu said.

Singapore loans and investments in Malaysia are estimated at
more than 30 billion Singapore dollars (US$17 billion), according
to the Sunday Times.

Shares of Singapore banks with heavy exposures in Malaysia
were battered last week, and the Stock Exchange of Singapore
(SES) announced it would soon stop over-the-counter trading in
Malaysian shares.

Malaysia has ruled that trading in Malaysian shares must be
done through the Kuala Lumpur Stock Exchange (KLSE) or authorized
markets, which exclude CLOB.

The CLOB (Central Limit Order Book) International is the over-
the-counter market for foreign shares dominated by Malaysian
stocks.

The move was clearly aimed at demolishing the Singapore trade
in Malaysian shares, which Kuala Lumpur has long seen as robbing
KLSE of business.

Malaysia's new economic czar, Daim Zainuddin, reportedly said
that "we gave them ample notice to please close" CLOB, but "they
wouldn't listen to us. "

"They thought we were idiots," he was quoted as saying.

The Business Times cited an estimate that there are as many as
200,000 CLOB accounts in Singapore worth some US$1.14 billion.

The Sunday Times ran guidelines on how Singaporeans can cope
with capital restrictions which affect their property and share
investments, bank deposits and other assets in Malaysia and in
Malaysia's ringgit currency.