August 28, 1999 
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| August 28, 1999 | atimes.com | |
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| Southeast Asia Funds outflow not a problem KUALA LUMPUR - Malaysia is highly confident that any outflow that occurs once the ban on the repatriation of portfolio funds ends on September 1 will not be destabilizing. In giving the assurance just five days before the deadline, Bank Negara Deputy Governor, Dr Zeti Akhtar Aziz attributed Malaysia's optimism to its stronger reserves position, greater incentives for funds to flow in and the improving economic outlook. Since the controls were imposed in September last year, she said that Malaysia has been able to build up its reserves position from $20.2 biillion on September 1, 1998 to $31.9 billion in mid-August of this year. The country has also been able to finance seven months of retained imports. "Malaysia therefore has the cushion to withstand any potential outflows, should they occur," she said. Dr Zeti also said that any short-term outflows would, in fact, be offset by the continued inflows from the strong performance of the current accounts and inflows from long-term capital accounts. During an upturn and in an environment of an increasingly improving economic outlook, however, the implications of greater prospects for increased returns will be the main incentive for funds to remain and for new inflows, she said. Dr Zeti tried to ease fears concerning the exchange rate. She indicated the key to sustainability of any exchange rate regime is that it needs to be consistent with the underlying fundamentals. A pegged exchange rate regime is viable so long as it is consistent with the underlying fundamentals and its policies are not inconsistent with the exchange rate. Given Malaysia's underlying fundamentals and given that the recovery is not expected to cause inflationary pressures, it is unlikely to threaten the sustainability of the ringgit's peg. "Exchange rate stability is fundamental to an open economy such as Malaysia and in the absence of any pressures in the economy, the current exchange rate can be maintained." As for selective capital controls, she said that the government will continue to monitor their impact. In making any decision, however, the government would consider the domestic economic situation as well as development efforts taken by the international community to improve the global finanacial environment, she said. "We need to be assured of an efficient functioning of the global financial market that is not vulnerable to frequent destabilizing influences. Until then, the controls will remain," Dr Zeti said. The economy is clearly on the path to recovery as well. She said the absence of inflationary pressures allowed further easing of monetary policy without creating new pressures on the exchange rate. Since February this year, the economy has turned around while inflation continues to moderate. "There has been no evidence of any major exodus of foreign funds from the Kuala Lumpur Stock Exchange following the introduction of the levy system," she said. "Indeed, there has been indications of increased foreign participation in the KLSE in recent months," she said. For instance, between February 15 and August 19 of this year, there was a net inflow of new portfolio funds of RM3.6 billion into the country. There has been a continued net inflow of new funds during the period, in which the repatriation of levy for funds brought into Malaysia before September 1, 1998 was reduced to 10 percent. (Bernama/Asia Pulse) | |||||||||
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