Financial problems in Malaysia can affect companies doing business in Penang, Malaysia. There isn't an international high tech company that doesn't somehow do business directly or indirectly with facilities in Penang. It is that central and woven into the international high tech fabric. Early Wednesday morning the government of Malaysia announced restrictions on the handling of cash and financial dealings within the country. Details follow:
Mahathir plays a high-risk lone hand
By Greg Earl, Jakarta
Malaysia tried to isolate itself from the global financial
crisis yesterday with wide-ranging controls on capital
movements designed to take its economy back to the era
of more rigid exchange rates.
The new measures, intended to end all offshore trading in
the ringgit, follow similar actions on Monday night to stop
offshore trading in Malaysian stocks, especially in
Singapore.
In a defiant national television appearance yesterday
afternoon the Prime Minister, Dr Mahathir Mohamad,
bluntly told Malaysians that if they did not repatriate
ringgit held abroad within one month "that money is just
wastepaper".
He said: "The only way we can manage the economy is
to insulate us from the speculators and share traders. The
greatest economic growth was achieved during the time
when there was currency control.
"There are a lot of things we can now do because we
don't have to face their [speculators'] actions to stop us.
The free market has failed and failed disastrously because
of abuses, not because the system is bad."
The controls were announced by the central bank, Bank
Negara, yesterday as a temporary measure to "regain
monetary independence and insulate the Malaysian
economy from the prospects of further deterioration in
the world economic and financial environment".
But there was confusion over how the new system would
work, with Bank Negara maintaining that the currency
would still trade freely within Malaysia but Dr Mahathir
outlining a fixed-rate system.
Under the key measures, all offshore ringgit must be
repatriated in the next month or be approved. All foreign
trade will be conducted in foreign currency. Ringgit
financial instruments must be deposited with the
appropriate depository. Offshore payments above
10,000 ringgit require approval.
The bank said this should not affect business operations
of traders and investors and specified that foreign
investors could still repatriate interest, profits and
dividends.
But foreign investors in Malaysian shares won't be able to
repatriate money for a year, a decision which helped
send the Kuala Lumpur Stock Exchange down 13 per
cent.
Travellers can only carry $M1,000 in or out of the
country, but foreigners can carry any amount of foreign
currency in and an equivalent amount of foreign currency
out.
The ringgit has lost about 40 per cent in value since the
Asian crisis began but jumped yesterday to about 3.95 to
the $US, compared with 4.2 on Monday, although the
market virtually stopped.
Malaysia conceded last week that its economy is in
recession after 13 years of strong growth, but it is in a
stronger position to cut itself off from the global economy
than some other Asian countries because it has relatively
less foreign debt.
Bank Negara said its actions should be compared with
the short administrative action it took in 1994 to limit
excessive capital inflow and did not represent a rejection
of financial liberalisation.
It said: "Once there is a discernible normalisation of the
currency and financial markets, Malaysia will return to the
previous arrangements of free capital flows."
But Dr Mahathir outlined a more permanent arrangement
on television, saying that companies would find the new
system less expensive than before because they would no
longer need to hedge against currency movements.
He said that behind its closed capital borders Malaysia
could embark on more substantial moves to revive its
economy, suggesting that it loosen the definition of
non-performing loans in the banking system, revalue
companies, subsidise certain imports and lower interest
rates.
Extending his threat to Malaysians to bring back money
from abroad or risk not being allowed to repatriate it, he
said he planned to demonetarise the two largest bank
notes to limit currency smuggling.
The new measures follow bitter disagreement over how
to deal with the economic downturn which culminated in
the resignation of Bank Negara's two top officials last
week over the planned imposition of the capital controls.
With the more conventional policies backed by deputy
Prime Minister and Finance Minister Datuk Anwar
Ibrahim pushed aside, Dr Mahathir has embarked on a
high-risk strategy presenting himself as the country's
saviour from international speculators.
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