Ringgit Peg to Stay

Malaysian PM says peg to stay after Anwar warns of economic "disaster"

KUALA LUMPUR (AFP) Monday, 30 May 2005 - Malaysian Prime Minister Abdullah Ahmad Badawi has insisted the ringgit currency's peg to the US dollar would stay, after former deputy premier Anwar Ibrahim warned of "disastrous consequences" if it was not revalued.

"So many people have been asking for it. The peg stays on," Abdullah told reporters, adding that contrary to reports, Malaysia would not necessarily wait for a revaluation of the Chinese yuan before moving to adjust the ringgit.

"I never said we will wait for China," he said.

Anwar, who was a highly acclaimed finance minister from 1991 before being sacked by then Prime Minister Mahathir Mohamad in 1998, commented on the fixed exchange rate as part of a scathing attack on the government's economic management and its record on fighting corruption.

"The Malaysian economy is not sustainable in the long-term. And partly it is because of our failure to take the necessary measures to de-peg or un-peg (the ringgit) earlier," he told a public forum on Southeast Asian political reform Sunday.

"It has to be done now, otherwise we will be rendered not only not competitive, but we will have disastrous consequences to the economy," he said.

Malaysia's bourse has been falling for three consecutive weeks, a decline analysts say is partly due to receding optimism that the government will re-peg the ringgit this year.

Hopes that an anticipated revaluation of the yuan would put pressure on the ringgit to be re-pegged faded last week after Credit Suisse First Boston said that based on meetings with senior Malaysian government officials and bankers, it believed a change was unlikely this year.

In his most hard-hitting speech against the government since his release from prison in September last year, after being convicted of corruption and sodomy, Anwar accused Malaysia's leadership of being in a "state of denial" about the health of the economy.

He said Malaysia's competitiveness was declining, along with its ability to attract foreign direct investment. Anwar also accused the government of condoning corruption, which would have run-on effects to the economy.

"There is a culture of corruption because of the failure of the leadership to deal with it," he said.

Mahathir controversially pegged the ringgit to the dollar and imposed capital controls in 1998 to insulate the country from the fallout of the financial crisis which was sweeping across Asia.

However, sharp declines in the value of the dollar have meant Malaysia's imports are now costlier, leading to calls for the ringgit to be revalued.

Abdullah said earlier this month that Malaysia would not adjust its currency peg of 3.80 ringgit to the dollar for the time being but was closely watching developments in the capital market.