DAP MP wants Malaysia to impose capital controls
By Clara Chooi, The Malaysian Insider
KUALA LUMPUR, Nov 23 – A DAP MP wants Putrajaya to impose capital controls like that which former prime minister Tun Dr Mahathir Mohamad enacted in 1997.
Dr Mahathir had he expected that an impending surge of hot money into the local market would put Malaysia into a tailspin similar to the Asian Financial Crisis.
Klang MP Charles Santiago (picture) explained that this time the hot money would come from the US Federal Reserve’s move to spend a whopping US$600 million (RM1.8 trillion) to purchase US Treasuries over the next eight months under its quantitative easing programme.
“You will see a surge in the property, currency and stock markets, including even in food and oil. Therefore, Malaysia has to do something in order to control such movements.
“When the money comes in, it may look all nice but when it leaves, it will leave a whole lot of destruction along the way. Thousands will lose their jobs, our SMEs will shut down,” he warned.
Santiago said it was imperative for the government to impose capital controls immediately instead of waiting for the present economic crisis to end, pointing out that this was already done in Korea, Indonesia, Thailand and even BRIC nations like Brazil and China.
He was referring to Bank Negara Governor Tan Sri Zeti Akhtar Aziz’s statement yesterday that the central bank was not considering implementing capital controls to deal with the inflow of funds, due to massive liquidity in western economies that are seeking higher returns in faster growing emerging markets.
She had also noted that the large and volatile capital inflows into regional economies could pose risks to macroeconomic policies and financial stability, claiming that Malaysia was in the position to intermediate the flows.
The country, she added, had also gained experience from the 1997 Asian Financial Crisis.
Last week, Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah had also, in an interview Bloomberg, made a similar statement, pointing out that on the flip side, the country was benefitting from capital inflows.
He also claimed that the appreciation of the ringgit was not affecting the property market like in other countries.
Charles, however disagreed with the view, warning that the country was heading into yet another tailspin like it did in 1997 if it failed to regulate capital inflow and protect the local economy.
He also echoed Dr Mahathir’s recent cautionary message that the rising Kuala Lumpur Composite Index (KLCI) was no indication of a healthier economy, pointing out that it was an “artificial” feel-good factor due to the influx of hot money or speculative capital in Malaysia.
In his blog post recently, the former premier had also referred to reports on the US government’s move to pump in USD600 billion into theUS economy with part of the money possibly being invested in stock and shares of developing countries, similar to previous episodes of hot money flooding stock markets around the world 12 years ago.
“There is a similar trend that you can find in Indonesia, which you can find in Singapore and Thailand and South Korea, where the hot money is coming in in a very big way into emerging markets and this will push up inflation and asset bubbles, which is the cause of the major crisis in 1997 and, to some extent, the present crisis,” said Santiago, an economist by training.
He acknowledged that Malaysia’s likely concern against adopting capital controls was the fact that it would be likely viewed by foreign investors as an anti-free market policy.
