2 Top Officials Resign in Dispute Over Proposed Currency Controls : Malaysian Bank Governor Quits  
International Herald Tribune
August 29, 1998
Thomas Fuller

Malaysia's central bank governor and his deputy abruptly resigned Friday over what a close aide called "major policy differences" with the government, including a disagreement over the possible implementation of currency controls.

The move leaves Prime Minister Mahathir bin Mohamad, who has openly expressed his disapproval of central bank decisions in recent months, with almost total control over economic policy.

Some bankers and market players have speculated in recent days that the government was considering imposing controls on the flow of ringgit out of the country, a plan that would seem to fit with Mr. Mahathir's repeated calls for controls in the foreign exchange market.

The ringgit has lost more than 40 percent of its value since Asia plunged into economic trouble over a year ago. The national economy contracted by nearly 7 percent in the second quarter of this year, forcing the government to announce officially Thursday that the country was in a recession.

Malaysia's plan for combating the economic trouble calls for increased government spending and lower interest rates. Both measures are designed to help cash-strapped companies. A consequence of the lower rates, however, is a weaker ringgit, as money flows out of Malaysia into other markets, including neighboring Singapore, where interest rates on ringgit accounts are significantly higher than in Malaysia.

For months, Malaysia has sent confusing signals over the direction of its economic policy. Finance Minister Anwar Ibrahim, at odds with the prime minister, has called for austerity measures and high interest rates of the sort usually recommended by the International Monetary Fund. He has maintained since the trouble began that Malaysia would not impose any controls on its currency.

But on Friday, he said that the government was considering such policies and that it might announce details soon.

The central bank governor, Ahmad Mohamed Don, and his deputy, Fong Weng Phak, are known as supporters of the finance minister.

"The governor is a man of principle," said the governor's aide. "If there are any capital controls coming, I don't think he was going to sign it. The best thing for him was to go before that."

Mr. Mahathir, who has been in power for 16 years, has slowly consolidated his position within the ruling party as well as over economic policy. In June, he appointed a close friend and former finance minister, Daim Zainuddin, to be economic czar.

Together, Mr. Mahathir and Mr. Daim have overshadowed the influence of Mr. Anwar, who is deputy prime minister as well as finance minister.

"Bank Negara was the last bastion of Anwar's support," said the head of a think tank here who wished to remain anonymous. He was referring to the central bank.

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