Identifier
Created
Classification
Origin
06KUALALUMPUR2330
2006-12-21 08:28:00
UNCLASSIFIED
Embassy Kuala Lumpur
Cable title:  

No Capital Controls Here,

Tags:  ECON EFIN EINV EPET MY 
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VZCZCXRO0881
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHKL #2330 3550828
ZNR UUUUU ZZH
R 210828Z DEC 06
FM AMEMBASSY KUALA LUMPUR
TO RUEHC/SECSTATE WASHDC 8183
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEHGV/USMISSION GENEVA 1453
RUCNASE/ASEAN MEMBER COLLECTIVE
UNCLAS KUALA LUMPUR 002330 

SIPDIS

STATE PASS USTR - WEISEL AND JENSEN
STATE PASS FEDERAL RESERVE AND EXIMBANK
STATE PASS FEDERAL RESERVE SAN
FRANCISCO TCURRAN
USDOC FOR 4430/MAC/EAP/J.BAKER
TREASURY FOR OASIA AND IRS
GENEVA FOR USTR

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EINV EPET MY
SUBJECT: No Capital Controls Here,
Officials Rush to Announce

UNCLAS KUALA LUMPUR 002330

SIPDIS

STATE PASS USTR - WEISEL AND JENSEN
STATE PASS FEDERAL RESERVE AND EXIMBANK
STATE PASS FEDERAL RESERVE SAN
FRANCISCO TCURRAN
USDOC FOR 4430/MAC/EAP/J.BAKER
TREASURY FOR OASIA AND IRS
GENEVA FOR USTR

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EINV EPET MY
SUBJECT: No Capital Controls Here,
Officials Rush to Announce


1. Malaysia's ringgit weakened to a
two-week low against the dollar on
December 18, following news of
Thailand's imposition of capital
controls that would have locked up 30%
of new inflows of foreign funds for a
year in an effort to curb the
appreciating baht. The Bursa Malaysia
composite index declined 1.96% to
1060.36 points on the same day. Both
the ringgit and the stock market
bounced back after the Thai government
reversed its decision.


2. A half dozen senior government
officials rushed to announce that
Malaysia would not follow Thailand's
example. According to press reports,
Second Finance Minister Nor Mohamed
Yakcop announced Malaysia would not
impose capital controls; rather, it
would continue on its current path of
"progressive liberalization." The
central bank posted a brief statement
on its website reiterating its
commitment to continue the "series of
gradual and sequenced liberalization of
our financial markets and of the
capital account" undertaken over the
past three years. Prime Minister
Abdullah Badawi, on a three-day visit
to Venezuela, announced from Caracas
that Malaysia does not plan to adopt a
similar stance as Thailand, adding that
Malaysia's financial system remained
strong. Both Deputy Prime Minister
Najib Razak and International Trade
Minister Rafidah Aziz issued similar
announcements.


3. Analysts agree that there are no
reasons for Malaysia to follow in
Thailand's footsteps. CIMB Head of
Strategy Research Terence Wong told
Econ Specialist that Malaysia was
likely to be the last country to impose
such controls, having only lifted the
last of its 1998 capital controls --
the currency peg -- in July 2006. He
blamed those earlier capital controls
for the Malaysia's lagging stock market
and FDI compared to other countries in
the region.

4. COMMENT: Malaysia experienced only
minor ripples from Thailand's economic
belly flop, but it was encouraging that
GOM officials were so eager to assure
investors that Malaysia would not
implement controls. Malaysia is
scheduled in 2007 to undertake
significant liberalizations in its
financial sector. While there is much
resistance from those benefiting from
the status quo, following through on
those plans is essential for the
success of the U.S.-Malaysia Free Trade
Agreement negotiations. U.S.
negotiators may want to inquire about
the substance behind these high level
assurances of continued liberalization
at FTA Round 4 in January.

LAFLEUR