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Malaysia says it is unlikely to act on IMF report |
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August 12, 2000
KUALA LUMPUR (AP) - Malaysia will not respond to International Monetary Fund calls to alter its fixed exchange rate and to lift the ceiling on interest rates, a finance ministry official said Friday. The IMF's prompting to use an economic upswing to pad the effects of removing the currency's peg to the dollar will go unheeded, at least for now, said the official, speaking on condition of anonymity. The IMF was entitled to its views and Malaysia's government would take note of these, but none of them would be deliberated in public, he said. In its annual review of the Malaysian economy, released in Washington D.C. Thursday, the IMF commended authorities for guiding the Southeast Asian country out of the Asian financial crisis into a period of renewed growth. But it urged Malaysia to continue to phase out capital controls, and look into the possibility of moving away from an exchange rate system that pegs the ringgit to the U.S. dollar. However, there was no consensus among IMF directors on whether such a step should be taken now, with some among the 24-member IMF board advising against a "premature move toward exchange rate flexibility," the report said. As the Asian financial crisis unfolded in 1997 and 1998, Malaysia's Prime Minister Mahathir Mohamad spurned IMF advice that he should float the ringgit and accept IMF funds to help combat currency weakness. Instead, he implemented a series of capital controls - which have since mostly been rolled back - to halt capital flight and protect the ringgit, which was pegged at 3.8 to one U.S. dollar. "On the exchange rate, directors consider that Malaysia's strong external position provides the authorities with the opportunity to consider greater flexibility in the management of the exchange rate regime," the IMF report said. "The ringgit appears to be somewhat undervalued relative to economic fundamentals. If the undervaluation were to persist over an extended period, it could be incompatible with maintaining low inflation, lead to inefficient resource allocation and attract speculative capital inflows," the Fund added. Mahathir and his finance minister, Daim Zainuddin, have said repeatedly there was no compelling cause for Malaysia to alter or remove the peg, which has fueled the country's export growth. Malaysia's real gross domestic product, led by exports, recorded a 5.5 percent growth in 1999 and has maintained its momentum so far this year. The manufacturing sector expanded by over 13 percent in 1999 led by buoyant exports in the electronics sector. Analysts expect the economy to grow by more than 7 percent this year, before slowing down a bit in 2001. |