Sun, 22/Feb/2004

Not time yet to review peg

Malaysia has no “ideological attachment” to having a currency peg in perpetuity and would do away with it if it serves the national interest. However, at this point in time the government sees no need to review the peg, Second Finance Minister Tan Sri Nor Mohamed Yakcop told a group of international fund managers yesterday.
He said the peg, introduced as part of a package of capital controls in 1998, had resolved the currency crisis that Malaysia had faced six years ago.
But given the recent weakness of the US dollar, to which the ringgit is pegged, it is a relevant issue to be looked at with regards to whether the fixed rate regime should continue and, if so, if RM3.80 to one US dollar was the right exchange rate. He said the government was keeping an open mind and gave the strongest indication yet at what point it would make changes.
Nor Mohamed said if the US dollar weakens to US$1.40 to one euro and to less than 100 yen to one US dollar, the government would have to seriously consider a review. “If the two currencies strengthen to beyond those levels (against the dollar) we do not want the ringgit to be out of whack,” he said.
The US dollar was at US$1.27 to one euro yesterday while 106 yen pays for one US dollar. The US currency has weakened a lot in the last six months as investors sold the greenback because of concerns about the ballooning government budget deficit and the belief that President George Bush wants a cheap dollar to boost US exports.
Because the ringgit is pegged to the dollar, it has also depreciated. But Nor Mohamed said that while the ringgit has weakened considerably against the euro and the yen, it has not depreciated by a lot against regional currencies.
“So is it true that the time is now (to review the peg)? Our view is not because regional currencies have not appreciated much against the ringgit,” he explained.
The Second Finance Minister was asked about the peg by the fund managers given speculation and views from many quarters that the ringgit was undervalued and ought to be repegged at a stronger level, with some even suggesting that the peg be removed and the ringgit be a free float currency like before 1998.
The closed-door meeting, organized by Datuk Azman Yahya of Symphony House and ECM Libra Investments, was attended by 21 fund managers. They include names like ValuePartners, DBS Asset Management; AIG Investment Corp, Arisag Partners, BNP Paribas, Asia Techventures, Deutsche Asset Management, JP Morgan, GK Goh, Pheim Asset Managemnt and Prudential. They collectively manage US$100 billion in investment money.
At the meeting, Nor Mohamed also explained to the fund managers that the government was taking measures to improve the performance of government-linked companies listed on the stock exchange by attracting the “best brains” to work there.
He said the financial restructuring of many companies hit by the 1998 crisis has been completed and the attention now was operational restructuring to raise profitability. To achieve this, good people need to be found. “We are willing to pay market rates to get them and their rewards going forward will be linked to the performance of the companies they lead,” he said.

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