Are Mahathir’s currency controls cast in stone and will last as long as he remains Prime Minister as there appears to be no way that the IMF can ban currency trading

Media Statement (4)
by Lim Kit Siang 

(Petaling Jaya,  Tuesday): The Prime Minister, Datuk Seri Dr. Mahathir Mohamad said in Chicago yesterday that the  ban on trading of the ringgit will only be lifted if the International Monetary  Fund (IMF) stops the people from trading currency.

He said that a fixed exchange rate does not harm anybody unlike currency  trading when "they devalue your currency you will become poor."

The Prime  Minister said that Malaysia had informed the World Bank and IMF that the  international financial architecture needed to be amended so that currency  trading could be stopped.

He said:

The Prime Minister’s uncompromising position on currency control have surprised the country and probably even his Cabinet colleagues, and they are entitled to ask whether Mahathir’s currency controls are cast in stone and will last as long as he remains Prime Minister as there appears to be no way that the IMF can ban currency trading.

Mahathir’s statement in Chicago raises two fundamental questions:

  1. can the IMF or any other international agency ban currency trade? If not, it would mean Malaysia  would never lift capital  controls, at least so long as Mahathir remains as Prime Minister.
  2. the implications, if capital controls as they are today remain permanent.
It is noteworthy that yesterday,  an average forecast of 10 fund managers polled by Bloomberg News said  that the Kuala Lumpur Composite Index, the region’s second-worst performer in the past three months, could rally 21 per cent by the end of the year and  climb to 929 from last Friday's eight-month low of 767  if the government lowers or removes the 10% exit levy.

The analysts polled are of the view that the market is drifting purely because of capital controls and that a lot of investors are just waiting to come in.

Mahathir’s uncompromising statement in Chicago has come as a surprise as Zainal Aznam Yusof of  the National Economic Action Council had hinted that a revision to the 10 per cent tax on repatriated stock market profits was under consideration.

Zainal said the government "might look at it again, because the feedback is still that 10 per cent is a big hindrance in moving capital in and out''.  Last week, he was again quoted as saying that the exit tax may be halved to 5 per cent as early as next month, when the government announces its annual Budget.

The question Malaysians want to ask is whether Mahathir is  prepared to preserve the present capital controls intact so long as IMF does not or cannot ban currency trading - regardless of the economic cost to Malaysia.
 

(5/9/2000)

*Lim Kit Siang - DAP National Chairman