[asia-apec 656] Malaysian retreat may signal start of global currency control

[ALARM (APEC Labour Rights Monitor)]

Malaysian retreat may signal start of global currency control
China Daily, 14 September 1998

Hong Kong (Agencies via Xinhua) - Malaysia's retreat from free markets
could signal the start of a global backlash against the brand of tough
medicine to cure economic ills offered by the International Monetary Fund
(IMF), analysts say.

The likelihood of an immediate rush to emulate Malaysia's controls on
foreign exchange  seemed remote given the IMF's heavy involvement in the
region.

But analysts said the depth and breadth of the emerging markets crisis
could portend a shift in attitudes on the merits of capital controls in
emerging market economies.

Malaysia took a giant step back from the free market when it recently
introduced a range of foreign exchange controls to shield its battered
currency, the ringgit, and its economy from speculators and global
financial instability.

"As we progress through the next few years, investors will see the rest of
the world increasingly blending government, societal and market forces
together in driving assets prices," one major European brokerage said
recently.

"The complete domination of market forces in this process is at its
zenith."

The brokerage went on to argue that the type of government interference now
evident in Hong Kong - the government brought shares aggressively last
month to foil "market manipulators" - would soon no longer be criticised
but seen as standard operating procedure.

Global capital will realign itself accordingly, it said.

Asian analysts said that while Malaysia represented the first example of an
expected free market backlash, it should not be viewed as a model for Asian
nations disaffected by more than a year of apparently ineffective IMF
policy.

Some argue the IMF's insistence upon high real interest rates and full debt
repayment to foreign creditor banks is condemning Asia to a lengthy
depression similar to the Latin American debt crisis of the 1980s known as
the "Lost Decade".

Others argue that high rates are an appropirate reflection of the
political, social and economic risk now attached to shattered Asia.

The IMF's only mistake, said Schroders Asia chief strategist Andrew
Ballingal, was to fail to insist that deficit financing be used to
reconstruct banks.

And Malaysia's mistake, he argued, was to give up before making any serious
attept at IMF-style reform.

Malaysia has firmly resisted turning to the IMF for financial assistance.

Chris Tinker, head of regional economics at ING Barings, said that while
exchange controls would allow Malaysia to reflate, what it needed to do was
reflate and restructure. ***