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.