CAPITAL CONTROLS ??? THREAT OF A REPEAT OF THE ASIAN FINANCIAL CRISIS IN 1997/98 ???
In June 1997,currency speculators attacked Thai baht causing its currency to dip by more than 35%...during 1997/98 Asian financial crisis.
Malaysia's central bank, BNM (Bank Negara Malaysia) in reaction to the regional currency crisis, imposed a series of capital control in Sept 1998 which shocked the financial/currency markets.
This drastic measure,according to BNM was to ward off currency speculators, after the Malaysian Ringgit (RM) fell (from RM2.50 - prior to the crisis) against the US dollar. BNM on 2.9.98 pegged the local currency at RM3.80 to the US dollar.
However, in June 2005 (after more than 6 years) BNM dismantled almost all of the capital controls, including removing the ringgit 3.80 peg against the US dollar.
Two days ago,Thailand's central bank 'shocked' the Asian financial and currency markets again ! - - by unexpectedly imposed restrictions on capital inflows into that country, to curb speculation on the baht !!!
This anti-speculation (of currency) move not only sent jitters in several Asian currency/money markets, but also weaken Asian bourses.
It triggered Thailand's stock market to plunge 108 points (almost 15%)- biggest one-day fall since 1990 ! - Losses ? - more than US$20 billion (or RM 72 billion)!
The Malaysian stock market fell as much as 35 points - its largest one-day dip in 5 years, before closing 21 points lower.
BNM - Malaysia central bank assured the investors that Malaysia is not going to follow Thailand, to impose capital controls. BNM said that they are in fact,, still on the mode of liberalising Malaysia's financial system progressively, in order to attract more foreign investments into the country.
THE SAID CONTROLS :-
- ALL THAILAND'S FINANCIAL INSTITUTIONS ARE REQUIRED TO WITHHOLD 30% OF FOREIGN CURRENCIES BOUGHT OR EXCHANGED AGAINST THE THAI BAHT
- IMPOSITION OF A 10% PENALTY FOR WITHDRAWAL OF FOREIGN FUNDS THAT HAD BEEN IN THAILAND FOR LESS THAN A YEAR.
EXEMPTIONS :-
- THOSE FOREIGN EXCHANGE TRANSACTIONS RELATED TO COMMERCIAL TRADES IN GOODS AND SERVICES OR REPATRIATION OF INVESTMENTS ABROAD BY RESIDENTS ARE EXEMPTED.
- FOREIGN EXCHANGED TRANSACTIONS WHICH HAVE BEEN TRADED PRIOR TO THE CAPITAL CONTROLS IMPOSED, ARE ALSO EXEMPTED FROM THE 'RESERVE REQUIREMENT ON SHORT-TERM CAPITAL INFLOW'.
LATEST !!!
THAILAND'S FINANCE MINISTER,SUBSEQUENTLY (one day after the control) EASED CURRENCY CONTROLS ON FOREIGN INVESTMENTS INTO THE STOCK MARKET, AFTER 15% SHARE PLUNGE CAUSED BY EARLIER IMPOSITION OF RESTRICTIONS.
COMMENTS :
Given the fact that Malaysia's fundamentals still remained strong and BNM's policy of gradual and sequenced liberalisation of the financial/currency markets, it is unlikely Malaysia will impose another capital controls.
posted by Banking Blogger @ 00:39
3 Comments
3 Comments:
this couldnt have come at a better time as i'm just about to make my entry into the malaysian stock market. the only worrying thing is that if history repeats itself on the charts, chances are that the KL market atleast will be in for a rough ride, and this might just be the trigger.
but i dont htink it'll be another 97..... it wont be pretty, but hopefully it wont be as bad.
fingers crossed of course :P
i just realised that this was a new blog.
heres something i would liek to read about incase youre taking requests :P
how about an insiders view on the islamic banking stuff going on with all the arab funds flowing into malaysia ?
Hi, sorry for the late reply as i was on vacation.
As Malaysia is gradually liberalising her financial markets coupled with strong financial fundamentals n economics data,more foreigns funds, including those from Arab/Middle East countries, are flowing into the country.
Why ? because of the facts that :-
- Malaysia is being used as a financial platform to venture into the region for a slice of Asia's Islamic banking sector, besides other capital markets, with the aim to grow the investors' market share.
- Why Malaysia is being chosen as a key financial hub ? ... because it is centrally located among the East Asia countries that most of the Arab investors are very keen to venture into.
- Malaysia has enormous growth potential for the Islamic banking industry. Currently, it is expanding at a rate of 15-16% p.a.
F.Y.I.- Three foreign Islamic banks had been awarded banking licences to set up their business operations in Malaysia. They are:
- Kuwait Finance House (Malaysia) Bhd. which set-up its office in 2005.
- Saudi Arabia's Al Rajhi Bank which had a soft opening in Oct.2006
- Asian Finance Bank Bhd which will open its shop in Malaysia this month.
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