Malaysia will not return its currency to a floating exchange rate unless other Asian currencies were devalued by at least 20 per cent and stayed there, says Prime Minister Mahathir Mohamad.
In an interview with The Age and other Western media in his office at the satellite city of Putrajaya, Dr Mahathir said Malaysia's controversial decision in 1998 to impose temporary capital controls and peg the ringgit to the United States dollar had been vindicated by Malaysia's rapid recovery since.
"People who used to condemn us now admit that we were right in introducing capital controls and pegging the exchange rate," he said. "Even the International Monetary Fund has admitted that."
He said the decision to impose a fixed exchange rate of 3.80 ringgit to the US dollar had worked, giving business certainty, and relieving it of the cost of hedging against currency shifts.
Critics have pointed out that the peg means Malaysia has followed the US dollar up, appreciating 12 per cent against a basket of all other currencies by the end of last year.
"If we find that our rate of exchange is making us no longer competitive, if our neighbours have devalued by at least 20 per cent and that becomes permanent, then at that time we will consider whether we need to change the exchange rate," Dr Mahathir said.
Dr Mahathir and his government were savagely criticised in the West after reimposing capital and currency controls on September 2, 1998, the same day Dr Mahathir sacked then deputy prime minister and finance minister Anwar Ibrahim, who opposed the move.
Despite prophecies of gloom, Malaysia's economy grew by 6.1 per cent in 1999, and 8.3 per cent in 2000.
The capital controls have now been lifted but Malaysia, along with China and Hong Kong, remains one of the few significant economies with a fixed exchange rate.
The economy grew by just 0.4 per cent last year after being hit by the dot-com bust, but recovered sharply in the second half.