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Wednesday, September 2, 1998 Published at 18:47 GMT 19:47 UK

World: Asia-Pacific

Malaysia facing uncertain future

New exchange controls are predicted to bring new problems

Economics correspondent James Morgan reports

The imposition of exchange controls and the sacking of the finance minister, Anwar Ibrahim, by the Prime Minister, Dr Mahathir Mohamed, has set Malaysia on an entirely new course.

As Deputy Prime Minister, Mr Anwar, knew that the hostility of his boss, Dr Mahathir, stood between him and eventual accession to the top job.

On Tuesday, the prime minister destroyed the entire system built up by Mr Anwar during the years of liberal economics and then got rid of him on Wednesday.

It was probably impossible to do it the other way round because the financial consequences of the sacking would have been damaging.

Now the national currency, the ringgit, is inconvertible and the stock market insulated from outside influences, Dr Mahathir has been able to act.

[ image: Anwar Ibrahim: Reformer]
Anwar Ibrahim: Reformer
But in spite of the apparent decisiveness, Malaysia's future is uncertain.

The exchange controls bring their own problems: There will have to a be a cumbersome bureaucracy to approve payments for imports in a country where foreign trade is of central importance.

Rich Malaysians will try to evade the controls, there will presumably be a black market in the ringgit and relations with Singapore will become even more strained than usual.

Dr Mahathir seems to believe that the new course is all that is needed to enable him to revive the economy - by cutting interest rates and expanding the supply of credit.

But in fact the problems of a weak banking sector and over-indebted industry remain.

Neighbouring countries will take some convincing that Malaysia's gesture, which marks the first complete break with current economic orthodoxy in East Asia, is worth following.

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