KUALA LUMPUR (Reuters) - Malaysia has no urgent need to allow the ringgit to be traded offshore, the architect of the country’s capital controls said on Monday, dampening talk that this last restriction would soon be lifted.
“Personally, I don’t think that there’s a need to internationalize the ringgit because it is not related to facilitating trade and investment flows,” Second Finance Minister Nor Mohamed Yakcop told Reuters in an interview.
“I do not see an urgent need to do it now. We haven’t thought of an internationalized currency as a major issue. If it comes one day, we will do it when we are ready.”
Nor Mohamed was, as an adviser to the prime minister at the time, the architect of capital controls imposed in 1998 to shelter the Malaysian economy from the Asian financial crisis.
The government has removed the controls, finally scrapping the ringgit’s peg to the dollar in 2005, but offshore trade in the currency is still not permitted.
Some economists say the ban on offshore trade deters foreigners from investing in Malaysia and feeds the perception that the Southeast Asian economy still has capital controls.
“We don’t have foreign exchange controls and people still think that we have,” said the 59-year old former central banker. “People don’t realize how free we are.”
Central bank chief Zeti Akhtar Aziz told Reuters last month that Malaysia might eventually allow the ringgit MYR= to be traded internationally again, though the small, open economy would have to move cautiously.
But Nor Mohamed said the government was more focused on driving private-sector investment. “Our focus is elsewhere,” he said.
He also said the ringgit was “behaving well”.
The ringgit has risen 0.7 percent so far this year and has climbed 8.6 percent since its peg to the dollar was ended in July 2005.
Some analysts have said the ringgit’s gains could hit Malaysian exports and dampen the economy, which relies heavily on selling electronics, such as semiconductor devices and hard disk drives.
Nor Mohamed had little time for this view. “The ringgit has strengthened from 3.8 to 3.5, it hasn’t hurt exporters.”
Malaysia’s economy was likely to achieve the official growth target of 6 percent this year despite a softer global outlook, as a $54 billion, five-year state development plan got into full swing, Nor Mohamed said.
The plan, unveiled a year ago, focuses on infrastructure spending and on developing a knowledge-based economy.
Economists expect Malaysia’s growth to slow to 5.5 percent this year from 5.9 percent in 2006 as U.S. demand weakens.
Average inflation was seen at no more than 2.5 percent in 2007, Nor Mohamed added. Inflation averaged 3.6 percent in 2006.
The government could consider selling Islamic global bonds if there was a new structure that might help develop the industry, he said.
Islamic bonds do not pay interest, which is banned as usury under Islamic or sharia law. They are structured as profit-sharing or rental agreements with physical assets underpinning them.
Nor Mohamed said Malaysia’s sale of $600 million of five-year global U.S. dollar Islamic bonds in 2002 was intended to be “a trend-setter”.
Malaysia has the world’s largest Islamic bond market and is competing with financial centers such as Singapore and Dubai to become a global center for Islamic finance.
There were no plans for Malaysia to establish a second national oil corporation apart from Petronas PETR.UL, Nor Mohamed said.
Then prime minister Mahathir Mohamad had said in 2003 that the government might allow a consortium other than state-run Petronas PETR.UL to undertake exploration, production and refining activities.