Wednesday Apr 14 2004

Doubts arise over Malaysia currency peg

By John Burton

Singapore's decision to strengthen its currency has renewed market speculation about the future of neighbouring Malaysia's fixed exchange rate.
The currency peg, imposed in 1998, has so far been seen as successful, boosting exports for the trade-dependent economy and creating stability in the wake of the 1997-98 Asian financial crisis.
Although officials say the government's determination to maintain the currency at M$3.8 to the US dollar is not due to change, some are raising questions about the long-term impact of the peg.
Rafidah Aziz, international trade and industry minister, suggested this week that exporters were relying too much on the peg instead of restructuring themselves to maintain competitiveness.
"Manufacturers and producers need to be more competitive rather than depending on the currency [peg]," she said. Nor Mohamad Yakcop, second finance minister and the peg's architect, has said Malaysia is unlikely to review the peg until the US dollar falls to $1.40 against the euro or below 100 yen.
But some Malaysian companies, which rely on component imports from the European Union and Japan, said the peg should be reviewed sooner as it raised business costs. Japan accounts for 16 per cent of Malaysia's imports and the EU 13 per cent.
The Associated Chinese Chambers of Commerce, which represents more than 20,000 companies owned by ethnic Chinese, said support for the peg had dropped among its members.
The peg has placed the heaviest cost burden on local carmakers because they depend on imports of car parts to assemble vehicles.
But many analysts believe Malaysia will not consider a change until China, a trade rival, adopts a more flexible exchange rate.

Parent site: "Focus on Malaysia"