[asia-apec 616] Interview with Mahathir about recent currency policy (part 1 of 3)

[PAN Asia Pacific]

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.