KUALA LUMPUR: Malaysia's economy is set to crash if no regulation is imposed on the inflows of hot money, DAP economist Charles Santiago said.
A rallying market and appreciation of the ringgit have forced the government to think twice before imposing capital control.
Second Finance Minister Ahmad Husni Hanadzlah has said in an interview with Bloomberg recently that “we are benefiting from the capital inflows and the appreciation of the ringgit. It’s not affecting our property market like many other countries.”
The World Bank has warned that Asian economies may need to impose capital controls as “quantitative easing by the US threatens to spur asset bubbles in the region”.
Santiago referred to the just-concluded G-20 meeting in Seoul, South Korea, where it was held that emerging markets need to adopt capital controls to stem a recurrence of the financial crisis experienced by this region in 1997.
"Hot money has the tendency to create asset bubbles in the currency, stock and property markets," the Klang MP told a press conference at Parliament lobby today.
US-waged currency war
In 2009 about US$9 billion worth of hot money flowed between developed and emerging economies and this has increased to some US$46 billion (RM143 billion) since January-September this year.
The US Federal Reserve has recently announced that it will fork out US$600 billion (one per cent of global GDP) to buy up US Treasury bonds.
The US move has triggered fear that developing countries like Malaysia will see an influx of hot money that can lead to greater appreciation of the ringgit and hurt exports badly.
The ringgit appreciated by 9.5% against the greenback in the last five months.
Bank Negara Malaysia said it was aware of the vast cash inflows and was monitoring the capital movement, but Santiago said surveillance alone was not enough.
"As in 1997, the damage was done when we finally imposed regulation when capital inflows went out of control."
No control signals snap polls
Santiago, who is also Klang MP, argued that the government's refusal to regulate capital movement signalled its preparation for an early general election.
In theory, the illusion of a strong market and ringgit creates a "feel-good factor". The aim is to build voter confidence in the government.
Talks of possible snap polls as early as March next year are rife, as Prime Minister Najib Tun Razak is said to be in need of a fresh mandate to implement unpopular reform policies which include, among others, opening up the market.
Regulating capital movement can be seen as anti-free market and may repel investors, which explains the government's refusal to block hot money inflows, claimed Santiago.
"But the government should be encouraged to view capital controls as a protective policy to insulate the local economy from destabilisation," he added.
Emerging markets like Brazil, China, Indonesia and Thailand have all adopted protective measures against hot money, he said.
Source: http://www.freemalaysiatoday.com
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