[IWAR] MALAYSIA stops attacks on markets

From: Michael Wilson (MWILSON/0005514706at_private)
Date: Sun Dec 07 1997 - 10:03:41 PST

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              Malaysia declares cease-fire, for now, in war against markets
          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
       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
       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
       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
       "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
       By PETER STARR, Agence France-Presse

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