In an interview with Channel News Asia, she said: “Right now we have ability and capability. What we have in place now is our surveillance mechanism: we know well before hand where the funds flow from.
“We didn’t have this real time info in those days. Now we have real time information on where the flows are coming from – so the market and our institutions can intermediate these flows which are much larger than we experienced during the financial crisis.”
She also noted, in the interview which focused on Malaysia’s experience during that turbulent period and the lessons learned, that the challenges faced by the ringgit today were different from that which it faced during the Asian financial crisis after the fall of the Thai baht in July 1997, the ringgit also came under speculative attacks, causing then prime minister Dr Mahathir Mohamad to impose capital controls in 1998.
Asked if the challenges facing the ringgit now were different from that during the Asian financial crisis, as the US dollar was now back in the 4 ringgit range, worse than the ringgit 3.80 peg of 1998, Zeti said:
“Yes things are different. The ringgit certainly does not reflect our fundamentals but fundamentals aren’t the only factors that determine the level of currency.
“Sentiment, confidence and sometimes contagion affect our currency. Right now it would take something very positive to move it to a stronger level. If confidence is restored that will be a factor that takes us out of trading range.”
On what it would take to restore confidence, she said it was very challenging to rebuild confidence.
“You can lose confidence in a short period of time – and to regain it, it requires time, rebuilding of trust and the rebuilding of every aspect to bring confidence to country and economy.
“But the point that needs to be recognised is we do have the capacity, we have the capability to manage the concerns to see a country through any challenging moment. We are in a state of preparedness.”
Zeti said Malaysia suffered a major economic contraction in 1998, but it did not raise rates as recommended by the International Monetary Fund.
“Danaharta was set up as an asset management company, while Danamodal was set up to recapitalise banks and we had an orderly management of carving out the bad assets, merging the good part of a bank with another bank and so on.
“What was distinctive about what Malaysia did was we did not just deal with financial institutions (to ensure they continued to supply credit), but also with the borrowers; we brought them together to discuss debt restructuring.”
As a result of the measures taken, Zeti said, the cost of the crisis for Malaysia was one of the lowest in the world.
“Never before in our history had we experienced contraction, the economy contracted by 7% in 1998. But because of all the measures we took, the economy grew by 7% the following year; it was a rapid ‘V-shaped’ recovery.”
Zeti noted that at the time capital controls were implemented, the stock market collapsed from more than 1000 points to 262. But when Malaysia lifted capital controls 12 months later, its value was enhanced and the stability and functionality were restored to the market.
One important lesson Malaysia had learned, she said, was the need to build resilience because crises would happen again and again.
“The key is to strengthen your foundation, improve capability of surveillance and capability of managing the crisis.”