[asia-apec 607] Interview with Mahathir about recent currency policy (2 of 3)
PAN Asia Pacific
panap at panap.po.my
Thu Sep 3 12:23:45 JST 1998
Interview (cont'd)
Q: What if there are people who do not bring
back the money within the
one-month period? Would we be stepping up the regulations at the entry
points?
Dr M: If they don't bring back their money after one month, that money
cannot be brought back.
Q: What about smuggling, can they smuggle the money, accounts.
Dr M: Accounts, they cannot because our banks would not allow for
any money held outside the country to be transferred to the local bank
accounts but if they want to bring back cash, the capacity to do that is of
course limited.
We are now going to demonetise the 500 and 1,000 ringgit notes so they
cannot bring it back unless they carry in very small denominations which
would be very difficult to carry.
We will check on that but if they don't bring it back within one month,
then that money will be useless. If they are caught bringing in the money
we will have to say that it is not money anymore.
Q: We often hear of offshore ringgit and it is estimated that such offshore
ringgit had reached a value of 100 million.
Dr M: Actually in terms of cash, there is only 100 million outside the
country and that we can repatriate within one month. If they don't of
course the money is just waste paper. It's worth nothing at all. If they try
to bring it in, we will stop them and we will confiscate such money.
Q: How much is the offshore ringgit account?
Dr M: That is much bigger. That is more than 20 billion certainly, maybe
even 25 billion. But that money, of course, is outside of Malaysia even
now has got no value. In order to give it value they must hold a parallel
account in a Malaysian bank.
When they do that we will negate the value of that currency by stopping
any movement of the account in the Malaysian bank. They cannot move
the account, in other words they cannot sell the ringgit, because if they
sell the ringgit, the ringgit in Malaysia will not move.
So effectively the person who has sold is still the owner. And whoever
buys it buys nothing so it is not worthwhile for them to purchase the
ringgit anymore outside the country.
The only thing for them is to transfer the ringgit completely to Malaysia
and they have one month to do that, which means that the ringgit in
Malaysia will now be put back into circulation. It can be used to
purchase goods, houses or whatever. Profit from palm oil export for
instance must be brought back otherwise they will be in breach of the
regulations and action will be taken against them and the bank involved.
Q: How about Malaysians working in Singapore and have money in
Singapore or those who trade at the Malaysia-Thailand border. Will they
be given some kind of exemption?
Dr M: They can bring back their money within the one month given.
After that... usually people working outside of the country, go in the
morning and return in the evening and may have a few ringgit in their
pockets and can bring them provided the amount is not big. There is no
problem here. The same applies with foreign currency. If the amount is
small they can bring in and take it out ... we will not disturb them.
However they will have to declare the ringgit, United States dollars or
Singapore dollars they are carrying out or bringing in. Even now we have
given the Customs the forms for people to fill as to the amount of money
they are carrying. This is not something new.
Many countries, including Australia, as we know have forms for people
to fill as to the amount of money they are carrying with them. If not they
are said to be breaching the laws. Such laws are in Malaysia but we have
not enforced them for some time.
Q: How about financing education overseas or for tourism?
Dr M: Students studying overseas may for instance need pound sterling
for which they would have to apply to Bank Negara and would have to
provide adequate documents to support their application and Bank
Negara would supply them the money that was only necessary for the
purpose.
Our people going as tourists will be allowed RM10,000 in foreign
exchange and this we feel is sufficient for tourism but if they have other
needs we can consider.
Q: Does RM10,000 include spending through Credit Card?
Dr M: The RM10,000 is inclusive of credit card spending. All included.
If he has five credit cards each with RM10,000 that will be RM50,000.
We know there are people with 10 credit cards each with credit limit of
RM10,000 and for 10 cards it will add up to RM100,000. We cannot
allow so much money to be spent outside the country.
Q: On financing education, probably parents may ask if sending money
to them will be affected. Datuk Seri said just now if they have the proof
such as the fee slip from the children's university, Bank Negara can
change the ringgit for whatever type of currency required by them.
Usually they send the money via telegram, or ordinary bank transfer.
Dr M: Ordinary bank transactions will continue to operate. It will be
normal. There is no problem here as for all these we will have records.
Q: On manufacturers, don't you think that these new measures will add
some transaction cost to them?
Dr M: Probably it will add some transaction costs to them but it will be
much less then the hedging that they have to do when the value of the
ringgit fluctuates. As you know sometimes people require as much as 15
per cent commission in order to take care of possible fluctuation. But
when the rate is fixed you don't have to bother to hedge so that reduces
your cost of doing business and also of course, payments and all that
when they are made much later it will not be subjected to devaluation or
revaluation for that matter. So business would be much more easy to
conduct.
Q: How long have you been looking at this matter, but yet we have gone
ahead with measures that did not work...how long have you been looking
at this option because this is seen as rather radical?
Dr M: We have looked at other ways of trying to stabilise the exchange
rates as well as the share prices.. as you know initially we have stopped
the movements of cash across the border but that was of course
ineffective because they can go....move all kinds of documents and
papers and cheques and all that so that was totally useless.
We also tried to force people buying shares to bring the scrip but
because some shares are traded within nominee companies.. actually
there is no changing of ownership because it is still with that nominee
companies so the trade can go on within the nominee companies ... so all
thess things we have examined and then finally we decided that the only
way we can manage the economy is to insulate us from the activities of
the currency traders and the share market speculators.
To do this we have to take the exchange away from them...at the
moment they are holding the exchange and the problem with other action
is that every time we try to help our economy they tried to block it.. for
example if we try to reduce the interest rates they will push down the
value of the shares, they will push down the value of the currency so that
creates a lot of damage to us. Each time we try to do anything they will
fiddle around with the currency and the share market. When we tried to
create Dana Harta and Dana Modal... they knew that in order to operate
these institutions we will need more money (borrow).
The moment we announced that, the rating agencies came in and
downgraded us. Our credit rating was pushed down until it is almost at
junk level and therefore the cost of funds becomes higher and the ability
to implement this is restricted and so you can see that as long as they can
fiddle around with this thing we cannot do very much to rehabilitate our
economy.
So the most important thing is how do we erect a barrier between them
and us and what we have done actually is to negate their ability to
interfere in the value of our currency, in the stock market etc. So once
we are relieved of that we can now look into the internal economy. We
can now actually reduce the interest rates to a level that will help to revive
the businesses in the country... for example the NPLs will no longer be
NPLs if the interest rate is reduced.. at the same time we were forced to
reduce the time to declare a loan as non-performing from 6 months to 3
months and doing that of course increases the number of NPLs..so now
we are less bothered about what they want to do to us.
In many countries there is no time limit for NPLs ... it is 9 months or 6
months.. so we can now think about doing that. There are quite a lot of
things we can do. For example we can revalue our companies according
to their nett assets value because now the share prices are ridiculous. It is
below the asset value of the companies or sometimes the companies may
have a huge amount of cash and yet the share prices have gone very far
below...so then we can now revalue our companies and once we revalue
our companies then the NPLs will not be as bad because the collaterals
using the value of the companies would now appreciate again and will go
perhaps above the value of the collateral before. So there are a lot of
things we can now do because we do not have to fear their actions to
stop us by devaluing our currency or by pushing down our share market.
Once we regain control of our exchange rate then we can actually reduce
the interest rates and not have somebody devalue our currency because
we are in control.. then our companies would be able to revive... they
can now borrow more money.. and if in addition to that of course our
ringgit is revalued upwards. Then if companies have to borrow to
purchase something from outside they would not need so much money as
they do now because where before they were borrowing RM 2.50 to
buy one dollar worth of imports now they have to borrow 4.20 and when
they borrow 4.20 then of course the cost goes up for them and they
become no longer viable..but if we revalue the currency then they will not
have to borrow so much and at the same time the companies' value will
appreciate.
Q: Do you see this move as protecting the country from the turbulence in
other markets that we have seen falling, with this move how do you see
the Malaysian market?
Dr M: We will not be affected so much by what happens to other
markets, otherwise you know they have this so-called contagion effect,
anything happens in Russia will affect our share market and our currency.
There is no connection between us and Russia but it is going to affect
presently but with this we can determine whether we want to respond or
not.It is important also for us to know the exchange rates of other
countries because we are competing with them.Supposing our competitor
currencies get devalued and we remain too strong then we cannot
compete with them so it is important for us to watch what is happening in
the world. If they devalue we can devalue our ringgit to a certain extent
without affecting too much of our economic performance because
eventhough we devalue ringgit.. that ringgit is actually stronger than a lot
of other foreign currencies..
Malaysia is a trading nation... now.. it is important for us to be able to
compete.. if we strengthen the ringgit too much, then we will not be able
to compete with our neighbour, our competitor.... on the other hand if we
strengthen our ringgit we would be able to buy our imports at a lower
price and therefore we can also sell in our country at a lower price. But
on the other hand, our earnings in terms of ringgit would be less for
example. Our palm oil which we export is earning us much more money
almost US$1,200 dollars more money than before.. if we strengthen our
currency, than our earnings would be less.
We can for example subsidise our imports through taxing our exports.
Supposing our imports earn much more not through their efforts but
because of our exchange rates, they earn like palm oil. We may have to
have windfall profit tax and that money should be used to subsidise
imports such as sugar which will go up in price and we will control the
price of sugar by subsidising the price imports.
Q: How will our relations with the International Monetary Fund (IMF),
the World Bank, the World Trade Organisation (WTO) and the rest of
the multilateral organisation be conducted. Will it in any way affect our
relations?.
Dr M: Well, it might affect. It all depends on whether they are interested
in our economic recovery or they want to do something for other people.
From what we see their actions have benefited the currency traders, have
benefited foreign companies which can buy local companies cheaply. All
these are not to our interest. If they really profess to have concern for
developing countries, then they should accept what we have done as a
good thing. As you know for what the IMF has done it has come in for
very strong criticism. Because initially they thought only the countries in
Southeast are going to suffer. But today you can see the whole world is
suffering and Dow Jones has gone down by another 500 points and of
course their reaction to it is strangely quite different. Whereas, when we
were in trouble we were told to increase our interest rates but when they
get into that kind of situation they have decided to lower the interest
rates. So it seems that the prescription for poor countries is to make them
poorer and for rich countries is to make them richer.
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