Subject: Capital controls: have they failed?
Date: Sat, 06 Feb 1999 03:19:29 GMT
From: Grasshopper <firstname.lastname@example.org>
Organization: Deja News - The Leader in Internet Discussion
Capital controls: have they failed?
The imposition of capital controls by the PM on 1 September 1998 can be likened to
painting oneself into a corner of a room There is no way out which will not spoil the new
coat of varnish on the floor. It is now obvious that as an economic measure to stabilise
the economy, it was unnecessary.
Regional currencies like the bhat and the rupiah (prior to the recent round of
violence) were stable and governments there had the blessing of the IMF to increase
spending to stimulate their economies. My guess is that without the ringgit being pegged,
it may be worth RM3.30-RM3.50 to the USD now, the same value the Chinese Chamber of
Commerce wants the government to change the peg to.
Similarly, regional stock markets have not experienced the acute volatility of 1997.
Rather, they have improved in capitalisation and drawn the interest of foreign inventors.
But our authorities choose to tell us through the government-controlled media of the need
to take unorthodox measures in these difficult times. Effectively, we had to create a safe
harbour for ourselves in the choppy seas of the world economy. Well, it is now clear that
it may be well and good to be in a safe harbour, but a ship in a harbour goes nowhere! And
that is what the introduction of an exit tax is a tacit admission of.
The NEAC admits it needs some RM62 billion in funds to carry out its bold sweeping plan of
reviving the economy. Tun Daim admits that they have raised only about half of what they
need. Whatever capital freed by the reduction in SRR has been taken up to recapitalise the
banks. No real money is flowing into the real economy. The government was hoping that
consumption could be increased by stimulating lending again. CEOs of banks were told
either to achieve 8% growth in lending or loose their jobs. It was a ridiculous threat.
Not only were banks reluctant to lend, why should borrowers want to borrower in uncertain
times? Further, some banks were in no position to prudently lend
any more money.
Take another example; not long after the dismissal of the previous DPM, Bank Negara told
the banking community to release some RM5 billion in loans for infrastructure and property
projects which had been frozen under the lending limits set be the previous governor, Tan
Sri Ahmad Don. The justification was this would help stimulate and pump prime the economy.
With a multiplier factor of 11x, this seemed to be an easy solution. But the change in
policy last month of banning loans for property projects worth RM2500,000.00 or more shows
that the idea of pump priming the economy on our own steam just could not be done. We do
not have the enough capital to do so.
So, this leaves us with one of two options: either print money to finance the recovery
program or to seek foreign investment again. I am glad to find that the government favours
the latter option. If we ever print money, the consequences would be disastrous. One need
only look at what happened to Russia in this regard. The imposition of an exit tax system
is a halfway measure towards dropping capital controls. Lets hope the authorities
continue down this path and do away with it all together. After all, we built
the economy of the last 10 years on foreign capital, and we still need them now. So, bunk
goes all the theories of evil Jewish conspiracies and greedy hedge funds set to destroy
our economy because they are jealous of our success.
By the way, isnt Solomon Smith Barney a Jewish American investment bank?
Now that we are coming to the year of the rabbit, I look back on the events
from 1 September last year and cannot help but conclude:
1. The powers that are must have known that the controls could fail if they did not have
enough in the kitty. I have a strong suspicion that they know the game is up.
2. It was imposed to prevent capital flight that would certainly have happened after the
former DPM was sacked.
Since the media credits the authorities with a great deal of wisdom in their management of
the country, they surely must have known of true economic situation before they imposed
capital controls. It was a gamble at best. But did political considerations weigh more
than economic ones. I wonder
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