Malaysia's Currency Controls Will Be Eased, Mahathir Promises
International Herald Tribune
January 30, 1999
Alan Friedman and Jonathan Gage  

Prime Minister Mahathir bin Mohamad of Malaysia, saying he wanted to woo back "serious long-term investors," announced Friday that his government would soon introduce a new measure to ease rules on taking capital out of the country.

In an interview during the meeting of the World Economic Forum, Mr. Mahathir insisted that the controversial exchange controls introduced last September had helped stabilize Malaysia's recession-bound economy. The controls, which curtail trading in the Malaysian ringgit, have effectively frozen its value.

But he conceded that it would be necessary to ease the rule, which prevents foreign investors from repatriating their funds for a full year. The solution, Mr. Mahathir said, would be to introduce an exit tax that allows investors to leave before the full year is up.

"We will have to move very quickly," he said, adding that the introduction of the exit tax was "weeks away."

Looking relaxed, and saying that he had come to the Davos meetings after a hiatus of 10 years "in order to explain that our controls are selective and have worked very well," Mr. Mahathir also said that the controls would not be permanent but would remain in place "until the international community devises a new financial regime that curbs currency traders."

Currency traders and hedge funds, he said, "are really not interested in good governance. They are only interested in seeing whether they can trigger a devaluation and make money that way."

Asked for his own suggestions as to how to limit the damage of speculative short-term capital flows, Mr. Mahathir said that since the collapse of the hedge fund Long-Term Capital Management in New York, banks had cut their lending to such investment vehicles, making them less active.

"One regulation should be to place limits on the amount of leveraging available to hedge funds, perhaps one or two times their capital instead of 20 times," Mr. Mahathir said. "If they are 20 times leveraged and have $100 billion there is no way that small countries can fight them."

He also called for greater openness about hedge fund activities. "Let them come into each country and register themselves," he said.

Mr. Mahathir said that the Malaysian economy, after contracting 6 percent in 1998, would grow about 1 percent this year.

"We will probably have touched bottom by the second quarter of this year," he said. "The stock market has improved, companies are borrowing again, and sales of houses and vehicles have been going up."

He added that, because of cutbacks on imports, Malaysia's foreign exchange reserves had increased by 35 percent, to $27 billion, in the last four months

Asked what future role he could foresee in Malaysia for Anwar Ibrahim, the former deputy prime minister now on trial on corruption charges, if Mr. Anwar were acquitted, Mr. Mahathir responded: "None in my party."

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