[asia-apec 617] Interview with Mahathir about recent currency policy (2 of 3)

[PAN Asia Pacific]

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.