Malaysia won't peg currency, impose capital control

Prime Minister Najib Razak insisted on Thursday that Malaysia will neither impose capital control on its economy nor peg the ringgit to the U.S. dollar, despite the weakening currency and shrinking foreign reserves. Razak, who previously served as finance minister, stressed that Malaysia would not repeat its actions during the 1998 Asian financial crisis that had drawn criticism from investors and trading partners.

While acknowledging that the ringgit's current levels are not reflective of its fundamentals, Razak told a press conference that the fluctuations are similar to global economies. "I will not say that domestic issues have not entirely affected the ringgit but I would say the main reason is the overwhelming strengthening of the dollar, which has affected all currencies," he said. He added that Malaysia has become more integrated in the global financial market, and that the adjustments facing the global economy and financial markets would have implications on the domestic financial market and exchange rate.

"The flexibility of our exchange rate is thus important to absorb these global adjustments and volatility," he said. "Therefore, the government of Malaysia will not move to a pegged exchange rate regime nor will it impose capital controls."

The ringgit opened at 4.0980 this morning, maintaining its ranking as Asia's worst performer this year with losses exceeding 17 percent against the U.S. dollar. Malaysia's economy has also been suffering from weak global commodity prices and falling domestic consumption, coupled with the political uncertainties surrounding around Razak and his ruling United Malays National Organization.

The finance ministry-owned investment vehicle 1Malaysia Development Bhd, a brainchild of Razak established in 2009, has run up debts of RM42 billion ($10 billion) in just six years of business.

The premier has also been accused of corruption following reports that $700 million in public funds ended up in his personal accounts-to which he has responded by denying having used funds for personal gain, and referring the allegations to his lawyers. Malaysia's international reserves have also been suffering, falling below the $100 billion mark as of July 31.