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Malaysia declares cease-fire, for now, in war against markets
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Copyright ) 1997 Nando.net
Copyright ) 1997 Agence France-Presse
KUALA LUMPUR (December 7, 1997 02:11 a.m. EST http://www.nando.net) -
Declaring at least a temporary ceasefire in its bitter war of words with
financial markets, Malaysia seems to be finally getting down to the more
serious business of tackling its economic problems.
Following last week's announcement of a series of "painful" measures to
stabilise the economy and restore confidence, Finance Minister Anwar
Ibrahim is expected to announce further details in an address to
parliament on Monday.
The steps announced Friday include several public-sector measures to
curb Malaysia's current account deficit to 3.0 percent of gross domestic
product (GDP) next year including an 18 percent cut in government
spending.
Other measures announced for the banking and corporate sectors range
from a halt to new lending in the speculative property sector and a
freeze on new stockmarket listings and rights issues by companies.
Anwar said steps had to be taken now as Malaysia faced "systemic"
problems after several years of dizzying growth rates of more than 8.0
percent. Noting that the last economic downturn in the mid-1980s was
"not so serious," Anwar said GDP growth could fall to as low as 4.0
percent next year.
To press home the message, he appeared at Friday's news conference with
the finance ministry's top bureaucrat, Clifford Herbert, along with
central bank governor Ahmad Mohamad Don and Securities Commission
chairman Munir Majid.
Financial markets welcomed the announcement, with share prices surging
almost six percent and the ringgit rebounding sharply from all-time
lows.
Some analysts said the measures resembled what the International
Monetary Fund (IMF) might have demanded if Malaysia had sought external
assistance -- as Thailand, Indonesia and South Korea have already done.
During a visit to Malaysia last month, IMF managing director Michel
Camdessus said the country's current account deficit was "on the high
side" while credit expansion was "still rapid" in Malaysia.
Analysts said Friday's news nevertheless showed Malaysia was finally
admitting its problems after months of denying anything was wrong,
illustrated by Prime Minister Mahathir Mohamad's increasingly strident
attacks blaming currency traders and foreign media for the financial
turmoil across Asia.
In a speech in Kuala Lumpur last week, Camdessus said the "denial
syndrome" contributed to Thailand's crisis by delaying corrective policy
measures.
Similarly, the conviction that "it couldn't happen to us" was partly
responsible for the subsequent spread of financial turmoil to some other
countries, Camdessus said, apparently referring to Malaysia where share
prices have plunged 60 percent and the local currency by 40 percent.
But he reserved his harshest criticism for attempts to fight the
markets.
"Controls on market activity -- and the threat of future controls -- not
only made investments riskier but tended to reinforce the view that
governments were addressing the symptoms rather than the cause of their
problems. This sent investors fleeing to safer havens and set back other
efforts to restore confidence," the IMF chief said.
Few were left guessing to which country he was referring. In recent
months, Malaysia has resorted to such steps as banning short selling of
shares, with Mahathir himself waging a campaign for rules on currency
trading, repeatedly blaming American financier George Soros for Asia's
financial crisis.
But Camdessus, speaking on the sidelines of a meeting of Asia-Pacific
finance ministers, said: "It would be a mistake to blame hedge funds or
other market participants for the turmoil in Asia. Turbulence in the
market is only a symptom of more serious underlying problems."
At the same time, he conceded that disorderly trading might be avoided
by strengthening large trader reporting requirements and limiting
leverage by hedge funds, currently the subject of an IMF study.
But Camdessus also noted that "discouraging herd behaviour and avoiding
one-way bets" could be achieved if governments gave "better information"
on their policies and the state of their domestic financial
institutions.
By PETER STARR, Agence France-Presse
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