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AWSJ: Fixed Currency Hurt Competition - AMCAM
By Tara Patel

12/4/2001 2:27 am Thu

[American Malaysian Chamber of Commerce (AMCAM) turut melahirkan kebimbangan Malaysia akan terjejas teruk jika tidak bersedia melakukan sesuatu kepada nilai ringgit. Walaupun begitu AMCAM tidak menyarankan Malaysia tergesa menilainya - sebaliknya hendaklah mula memikirkannya dengan serius agar ekspot dan pelaburan luar tidak tergugat. AMCAM merangkumi 500 syarikat Amerika di negara ini.

Sudah ramai pelabur angkat kaki dan mula risau. Rezab asing merosot agak tinggi baru-baru ini telah menyebabkan ramai musykil ringgit mungkin dinilai kembali. Jika tidak, ringgit akan terus tertekan dan sesiapa pun tidak mahu menukar wang. Bank Negara cuba memberi penjelasan tetapi rasa bimbang itu masih belum hilang. Mampukah ringgit bertahan dengan memesatkan perlancungan? Jawapan yang terpapar di litar Sepang dan kelengangan KLIA sudahpun memberi jawapan. -Editor]

The Asian Wall Street Journal
11th April 2001

American Malaysian Group Says
Fixed Currency Hurts Competition


Dow Jones Newswires

KUALA LUMPUR, Malaysia -- The country should move toward floating the ringgit to make the country more competitive, the head of the American Malaysian Chamber of Commerce said Tuesday.

"A fixed peg creates dislocations in the long run. It's hard to maintain due to changes in fundamentals and changes in the currencies of neighboring countries," Nicholas Zefferys, president of the industry organization, told Dow Jones Newswires in a telephone interview.

While he said there is no urgency for Malaysia to alter its currency regime, the authorities need to begin preparing the private sector for eventual changes.

"Our companies are by and large okay with the peg now, but we have been telling various ministerial dialogues that there needs to be discussions on what should follow the peg. Eventually there will be changes and the question is what will it change to," he said.

Malaysia pegged the ringgit at 3.80 to the dollar in September 1998 when Malaysia imposed capital controls to plug capital flight in the wake of the Asian financial crisis.

Until earlier this year, manufacturers, who were hit hard by the steep devaluations in Asian currencies during the crisis, generally backed Malaysia's fixed exchange rate because it made earnings more predictable. Local business leaders have said they don't want the peg to change.

But now Amcham, which represents about 500 U.S. companies operating in Malaysia, joins a growing chorus of industry organizations calling for a change in Malaysia's ringgit policy. Last week, the Penang branch of the Federation of Malaysian Manufacturers called for a flexible exchange rate, albeit one that is fixed by the central bank each month and then allowed to move within a tight band.

No Urgency to Float Ringgit

This echoed a similar call earlier in the week by the Associated Chinese Chambers of Commerce and Industry of Malaysia for a ringgit floated within a fixed band to replace the fixed exchange system -- which it called "untenable" in the long term.

"Malaysia has strong fundamentals vis a vis its neighbors and floating the currency wouldn't be a move towards greater volatility," Mr. Zefferys said. "It would give (Malaysia) other policy options that they don't have right now."

Malaysian authorities have gone to great lengths in recent days to dispel market speculation that the country will have to devalue the ringgit in response to regional currency weakness.

The Kuala Lumpur Stock Exchange's key Composite Index shed 11.6% last week mostly on selling by foreign investors eager to get out of the market before the peg is changed.

Late Monday, Bank Negara Malaysia issued an unusual statement to explain a drop in reserves and defend the fixed currency policy. Economists say erosion of the country's reserves is a threat to the sustainability of the peg. The central bank lashed out at competitive devaluations and said the ringgit is close to fair value.

Malaysia's central bank said Monday that foreign reserves dropped to $27.2 billion at the end of March, down from $28.7 billion mid-March. The reserves have fallen steadily after peaking at $34.5 billion last June.

Prime Minister Mahathir Mohamad and Finance Minister Daim Zainuddin last week also said the peg won't be changed.

"It's not urgent to change the peg," Mr. Zefferys said. "Malaysia shouldn't respond at any given moment to short-term considerations. The government is right to say it won't react to the moment."

But he noted that the U.S. slowdown has created uncertainty about the dollar, to which the ringgit is pegged, and this could affect Malaysia's exports to Japan and Europe.

"Malaysia would be more competitive with a floating currency where the equilibrium between the inflow and the outflow of money reflects the fundamentals of the economy," he said.

Write to Tara Patel at