The government's decision to remove the Malaysian ringgit peg of RM3.80 to the US dollar may result in some adverse repercussions due to its delay, former deputy prime minister and finance minister Anwar Ibrahim said today.

He told malaysiakini in a telephone interview that these adverse effects were unavoidable due to the government's hesitancy in removing the seven-year peg much earlier.

"Certainly it is a correct decision (by Prime Minister Abdullah Ahmad Badawi). We had called the unpegging to be done much earlier.

"Naturally the delay to unpeg may have some repercussions on the economy," said Anwar who was named the Best Finance Minister in 1996 by Asia Money magazine.

"Notwithstanding that, the decision by the government is timely and necessary for the economy."

Anwar who is currently a visiting fellow at John Hopkins University's Advanced International Studies in the US had warned earlier that the country was courting economic disaster if the ringgit peg was not removed.

The former minister had said that the pegging of the ringgit to the US dollar was not tenable in the present economic conditions and that it was only good as a temporary measure.

'Downward pressure' fear

The ringgit has been pegged to the dollar since September 1998 when former premier Dr Mahathir Mohamad imposed capital controls to halt a steep slide in the currency's value during the Asian financial crisis.

Yesterday, Bank Negara announced that the peg had been removed with immediate effect and that '... the exchange rate will be allowed to operate in a managed float, with its value being determined by economic fundamentals'.

PAS economic bureau chairperson Dr Rosli Yaakob, when contacted, shared Anwar's sentiments saying that the peg removal should have been done much earlier when the US dollar was weak.

"The timing is all wrong. Why did we have to wait so long? Why now when the US dollar is strengthening? I believe that the decision was a reaction to China's decision to drop the yuan's peg to the US dollar ," he said.

"We now have to brace for repercussions especially when our economy is not doing so well. The Malaysian International Economic Research institute has said that our economic growth has declined from 5.4% to 5.1%."

Rosli feared that the timing of the de-pegging may cause 'downward pressure' on the ringgit due to the country's high external debt.

"We need to buy US dollars to settle our external debt. The more we buy, the more the ringgit will depreciate and this could be very alarming."

Currency speculators phobia

Rosli - who was a Bank Negara senior economist before he left for the private sector in 1994 - also said that it was unfortunate that the government had not removed the ban on international trading of the ringgit.

"I believe the de-pegging should coincide with the lifting of the ban on the international trade of the ringgit. I believe until this is done, the true value of the currency will not be properly reflected."

"I suspect that the policy makers are still haunted by currency speculators. They are scared that the speculators would be attacking the ringgit. It shows that they are not confident that the ringgit can stand on its own," he said.

PKR deputy president Dr Syed Husin Ali the government must now ensure that the abolishment of the ringgit peg will benefit the public at large and not only those in the business sectors.

"The decision means that our imports will now be cheaper and we are quite dependant on imported goods like food, cars and petrol ... therefore there should be assurance from the government that these goods would be cheaper for us."

"After all what good would the decision be if it does not benefit the people at large?" he asked.

Although welcoming the decision, he said it appeared to have been made in reaction to China's decision to de-peg the yuan.

"It seemed that we were caught by surprise. If it is true that the decision was a reaction to China's decision, I believe this is very unhealthy for the country in the long term.

"Such important decisions should be made in a very calculated manner because it affects the public at large. The calls to abolish the peg were not new and had been made by economic experts for quite sometime now."

Meanwhile DAP secretary general Lim Guan Eng warns Bank Negara to increase vigilance in its currency trading in the foreign exchange markets to ensure that there is no repeat of US$4 billion foreign exchange (forex) losses in 1993, Bank Negara's largest in history.

"With the return of the managed float of the ringgit, Bank Negara must ensure that all currency trading guidelines and procedures to prevent abuse and minimize risk exposure are complied with to avoid the huge US$4 billion in losses caused by reckless currency speculation," he said in a statement.