[asia-apec 606] Interview with Mahathir about recent currency policy (part 1 of 3)

PAN Asia Pacific panap at panap.po.my
Thu Sep 3 12:21:45 JST 1998


The Star
September 2, 1998

Transcript of special interview with Dr M 

                    Following is the transcript of the special
                    interview with Prime 
                    Minister Datuk Seri Dr Mahathir Mohamad on the Malaysian
                    economy carried "live" by RTM. 

                    The Prime Minister was interviewed by New Straits Times Press
                    Group Editor-in-Chief Datuk A. Kadir Jasin, Bernama Economic
                    Service acting Executive Editor Yong Soo Heong and Public Bank
                    Berhad's Director of Economics Division Nasaruddin Arshad. 

                    Kadir: Bank Negara announced at noon today a series of measures to
                    insulate and protect the economy to minimise the impact of the global
                    financial turmoil on our country. These include the establishment of a
                    fixed exchange rate for the Malaysian Ringgit and making the ringgit
                    tradeable only in the country. The Bank Negara Governor will soon be
                    fixing the value of the ringgit. 

                    Why are the measures being taken now and what are the benefits to our
                    country? 

                    Dr Mahathir: This measure became necessary because when the
                    ringgit's value is in an unstable situation business could not be continued in
                    a way that would be profitable. 

                    Another point is when the ringgit's value is brought down, our income will
                    be reduced particularly when we want to buy goods from overseas. In a
                    situation like this we will become poor, the country will become poor, the
                    government will be poor and the public at large will also become poor. 

                    They will need more ringgit to go overseas or to buy imported goods. As
                    their income has not increased they will directly become poor. 

                    We have to fix the value of the ringgit permanently so that traders and
                    individuals will be aware of their financial position and with that the
                    economy will operate well. 

                    Q: In other words, does it mean that the ringgit no longer has a value
                    outside the country? 

                    Dr M: Yes, we have decided that there will be no value attached to the
                    ringgit outside Malaysia and as such any ringgit held outside Malaysia will
                    not be legal tender. 

                    However as we know there is money outside Malaysia, we will allow
                    such ringgit to be repatriated to Malaysia within a period of one month
                    from today. If not repatriated by then we will regard such ringgit as
                    invalid and we will not allow for the ringgit to be returned to Malaysia in
                    any form whatsoever. 

                    Q: Don't you think that Malaysia's move would be considered a
                    regressive step? 

                    Dr M: No, it is not regressive. I would consider the present situation as
                    regressive. 

                    When people moved away from the Bretton Woods regime, they thought
                    that the free market influence on exchange rate would be a better means
                    of evaluating the relative values of currencies. But such a market has now
                    become abused by the currency traders who do not care for the
                    exchange rate in order to do trade and business but instead regard
                    currencies as commodities which they trade in, when currencies in fact
                    have got no intrinsic value of their own. But the currency traders wish to
                    use it as a commodity and to buy and sell it according to their own
                    system which enables them to make huge profits from the same trading
                    while at the same time impoverishing a whole country, regions and
                    peoples. The damage caused by them is something that has not been
                    anticipated. And it is in fact very regressive. The world is not moving
                    ahead, it is moving backwards. 

                    Q: Is this a last resort and will the measures be permanent? 

                    Dr M: This measure is probably the last resort as we see no other way.
                    We have asked the International Monetary Fund to have some regulation
                    on currency trading but it looks like they are not interested as they do not
                    stand to lose in any way. We are the ones who stand to lose. 

                    Hence we have to resort to whatever methods we ourselves can take.
                    And what we can do on our own is to take care of our own currency. 

                    It can be permanent. But on the other hand if the international community
                    agrees that currency trading must be regulated and that the range that
                    currency can fluctuate is limited and we see that this will enable
                    economies to once again grow, then we will return to the free exchange
                    rate system. 

                    But at the moment we can see the damage done in Southeast Asia,
                    Northeast Asia, in Russia, in Latin America and everywhere. All the
                    countries' hard work has been destroyed in order to benefit a limited
                    number of speculators as if the interest of the speculators is so important
                    that people, millions of people, must have their income taken away from
                    them and impoverished. We think that is rather retrogressive. 

                    Q: How do we see our move today in relation to what has happened in
                    Hong Kong and Taiwan taking serious measures to stop speculation of
                    their currencies. 

                    Dr M: What is obvious is that people can no longer stay with the
                    so-called free market system. 

                    They need to take some action which is contrary to the philosophy of the
                    principles of the free market. However, they have not gone far enough. 

                    We feel that we should really control foreign exchange to the point where
                    it cannot be traded at all. 

                    The ringgit cannot be traded at all so that we regain control over the
                    exchange rate involving our ringgit. 

                    Q: How does this new measure reduce speculation? 

                    Dr M: Normally the ringgit is used for speculation offshore, ringgit
                    belonging to foreigners, particularly ringgit belonging to currency traders. 

                    They hold the ringgit in foreign banks but since the ringgit is totally
                    valueless outside of Malaysia, they trade and sell the ringgit and in any
                    case there is a corresponding account in a Malaysian bank and whenever
                    they trade and sell the ringgit it is not only reflected in the foreign banks
                    but also in banks in Malaysia. 

                    What we have done of course is to freeze completely the accounts that
                    are in the Malaysian banks. Even if they sell ringgit outside of Malaysia,
                    that will not have any effect in moving the ringgit from one account to
                    another. In other words the actual ringgit, the ringgit in this country will
                    not be sold at all because the account does not move. The trading
                    outside Malaysia is totally meaningless because they are trading in
                    something that has not affected the real ringgit in the country. 

                    They can buy and sell the ringgit but it will be useless ringgit because that
                    ringgit even if somebody buys it will not be allowed to come into the
                    country later. We will allow within one month, but not after the one
                    month. Since the ringgit is only legal tender in Malaysia, and it cannot
                    come into Malaysia, then it is useless ringgit. 

                    So anybody owning such ringgit after one month will find they are holding
                    accounts or papers which are of no value whatsoever. 

                    Q: Will this move bring about a bad image to the country? 

                    Dr M: It will not cause bad image for the country, except of course for
                    currency traders and probably certain members of the media who will not
                    be very happy. 

                    But as far as investment is concerned, foreign money can still be brought
                    into the country exchanged into ringgit, used in Malaysia to invest in
                    whatever including the purchase of shares or buying properties or setting
                    up industries. 

                    When they do business and want to take out the money they can apply to
                    the central bank for permission to take out the money and we will still
                    allow the foreign currency to be given to them in exchange for the ringgit
                    that they have and taken out of the country according to the needs. 

                    For example, if they're going to purchase components from some
                    countries in a foreign currency, they can obtain the foreign currency. 

                    So investment is not affected by this except investment in shares because
                    that is considered hot money. If they want to invest in shares they can but
                    such investment must stay in the country for at least one year. They
                    cannot come and invest and then dispose off or push up or down the
                    value of the shares. 

                    So as far as investors are concerned, genuine long-term investors are
                    concerned, this will facilitate their investment because they will know
                    exactly how much money to bring in because the exchange rate will be
                    fixed and if they make any profit here and they want to remit their profit
                    back home then they can change the profits made here from ringgit into
                    whatever currency and that currency can be remitted out of Malaysia. 

                    There will be exchange but there will be no trading in the currency. 

                    Q: Will this remove elements of uncertainty? 

                    Dr M: Yes, certainly. People will know exactly how much ringgit they
                    will get from the foreign currency they bring in and they will know how
                    much they can expect to send out of the country from the profits they
                    made because the exchange rate is fixed and they don't have to do the
                    purging anymore. 

                    We can require them to stay with their investment for at least one year
                    before they can sell off. That is being done in some countries. 

                    That will reduce the kind of speculative activities. What has damaged the
                    stock market is this practice of buying a share repeatedly so as to push
                    up the value of the share to a high level so much so that the price of the
                    share bears no relation with the performance or assets of the companies.
                    It's way beyond... once it reaches a very high level, the investors will
                    dump or sell off completely, take the money and go out of the country
                    leaving the locals with this company which has lost its value and probably
                    it had borrowed money based on its share value. Now, the amount of
                    borrowings is much less then the collateral in terms of share value and the
                    companies are landed with non-performing loans (NPLs) and the
                    companies will not be able to perform. 

                    We do not want them to come in and do that kind of thing. At the
                    moment what they are doing is just the opposite, they're pushing down
                    the value of the shares until it goes well below nett assets value and the
                    cash the company may have goes down very well below. 

                    At that stage if we allow them to buy the shares, they would have got
                    hold of the company at a very low price. Once they got that, they can do
                    two things -- they can control and rebuild the company or they can get
                    rid of the assets, take the money and let the company perish. So that is
                    asset stripping 

                    Q: Are we suggesting that we have enough foreign exchange to meet our
                    commitments? 

                    Dr M: Yes, because we are exporting more today than we are
                    importing. Of course the services account is slightly less in our favour, but
                    it is not very much and the surplus for the trade account would be
                    sufficient even to pay for our service deficit. 

                    At the same time of course we are reducing the service balance for
                    example through using our own ports and using our own insurances and
                    reducing the number of students studying abroad. 

                    These are measures we have taken to reduce our imbalance in the
                    services account. 

                    Q: So it shouldn't be a problem even under abnormal circumstances for
                    us to have the foreign exchange, if there is demand for example higher
                    than normal? 

                    Dr M: This could very well happen if for example the foreign currency
                    holding in the country . . . the foreigners would want to take out their
                    money they would then have to change their ringgit into a foreign
                    currency and take the foreign currency and they have to justify why they
                    are taking it out, otherwise obviously it will harm our economy, and we
                    do not want their activities to harm our economy. 

                    But if they have valid reasons for example if they want to use the money
                    to purchase something then they can convert and purchase whatever it is
                    and bring it back into the country or they may want to use the money to
                    buy palm oil and export the palm oil. 

                    But if they export the palm oil or anything at all, the requirement is that all
                    earnings from export must be brought back into the country and must be
                    deposited with the central bank. 

                    



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