WASHINGTON (AFP) - The IMF said yesterday the ringgit could come under pressure if instability spreads through emerging markets, although it sees no immediate problem with the country maintaining its currency peg.

In the case of instability in emerging markets, "the pressure on the ringgit and official reserves could be renewed," IMF executive directors said in a statement on the IMF's annual review of Malaysia's economy.

Pressure on the ringgit could also result if East Asian regional currencies weaken.

Emerging market spreads rose after Sept 11 as investors sought safety in the developed world's capital markets. Problems in Argentina and Turkey, meanwhile, have raised the possibility of a credit shock, analysts have noted.

Ringgit not 'misaligned'

The IMF directors concluded, however, that "they generally saw no immediate problem in maintaining the pegged exchange rate system."

The ringgit is not misaligned from its long-term equilibrium at this point, the IMF said.

The directors also cited the recent increase in Malaysia's official reserves, which are "adequate" to cover the country's modest short-term debt, and noted that speculation against the currency has abated since May.

Some directors proposed that Malaysia study introducing greater flexibility in managing the exchange rate regime.

However, they considered that timing of such a move is important, and noted that "any shift in the exchange rate regime at the prevailing highly uncertain global economic outlook and unsettled international financial markets could be destabilizing."

The IMF separately recommended that Malaysia diversify its exports, which are currently concentrated in the high-technology sector, in order to make the economy more resilient to external shocks.