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No ringgit exchange rate peg – Malaysia minister


September 23, 2008

No ringgit exchange rate peg – Malaysia minister
Malaysia's new finance minister and the central bank on Monday ruled out pegging the ringgit to the dollar again, dismissing a call from former leader Mahathir Mohamad that was seen as a bid to put pressure on his successor, reported Reuters.

Mahathir made the call at the weekend almost 10 years to the day after he fixed the ringgit exchange rate at 3.80 to the dollar to shield the economy from the Asian financial crisis, contrary to advice from the International Monetary Fund.

The former premier's comment also came at a time of heightened political uncertainty in this Asian country of 27 million people as the opposition mounts a challenge to the coalition that has ruled for over 50 years.

"I wish to categorically state we have no intention to repeg the ringgit now or in the future," Finance Minister Najib Razak told a news conference after a briefing from the finance ministry and central bank on his first day in office.

Central bank governor Zeti Akhtar Aziz said fixing the ringgit exchange rate had "never been a consideration."

"To do so (peg the currency) would be very harmful to the Malaysian economy. The ringgit will continue to operate in a managed float regime with its value being determined by the market," she said in a statement.

Speculation about a return of a currency regime that was in place until 2005 pushed the ringgit to a two-week high of 3.4020 per dollar, up 1.7 percent from Friday. But the currency fell back to 3.42 per dollar after the Najib's comments.

Mahathir has been a constant critic of Prime Minister Abdullah Ahmad Badawi and his call on the currency was seen as a move to add pressure on him to quit.

Najib has been named as successor to Abdullah and is set to become prime minister in 2010, although there have been frequent calls from some members of the United Malays National Organisation (UMNO), the main party in the ruling Barisan Nasional coalition, for the PM to step aside now.

Abdullah must declare by October 9 whether he will stand in UMNO elections in December to decide who is party leader. The leader of UMNO automatically becomes prime minister.

He has come under pressure since Barisan Nasional recorded its worst election since Malaysia's independence and lost its two-thirds parliamentary majority to a resurgent opposition that is now led by Anwar Ibrahim, Mahathir's former deputy.

Anwar had called for parliament to be convened for a confidence vote by Tuesday in the hope of ousting Abdullah. The premier had rejected the call and Anwar said he might turn to the king.

Anwar is due in court on Wednesday on a charge that he sodomised a male aide. He denies the charge.

International Trade and Industry Minister Muhyiddin Yassin, who called for the currency peg to be discussed by Najib, sought to back off the comments, saying it was outside his authority.

However, he renewed his attack on Abdullah. "If nothing happens, I am not sure if the lifespan of UMNO and the Barisan Nasional will last beyond 2013 (elections)," he said on Monday.

Continued political uncertainty has hit Malaysian markets hard and the ringgit has fallen 3.5 percent against the dollar this year.

Economic growth is slowing alongside global growth, inflation hit a near-27 year high of 8.5 percent and Anwar, sacked a decade ago as finance minister and then imprisoned, has said he can win power with the aid of defecting MPs from the ruling coalition.

Mahathir's ringgit peg regime was ended three years ago under Abdullah's tenure. Mahathir said at the weekend that a revaluation of 10 percent would help quell inflation.

Mahathir fears that Abdullah has squandered his political legacy and UMNO as a whole has been shaken by Anwar's comeback.

"I would suspect it is partly political, (as is) anything Mahathir does," said David Cohen of Action Economics in Singapore.

Najib, who has a degree in economics, but no high-level experience in the finance ministry, is due to meet U.S. fund managers in New York later this week.

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