INTEREST RATES AND THE ROLE OF EXCHANGE RATE REGIMES IN MAJOR SOUTHEAST ASIAN COUNTRIES

English Version

I. INTRODUCTION

Over the past two decades or so major Southeast Asian countries have followed different paths of exchange rate regimes. Prior to the crisis in 1997, the Philippines implemented the most flexible exchange rate regime, while Indonesia, Malaysia, Singapore and Thailand followed the less flexible crawling-band or managed-floating arrangements. Specifically, before the crisis, Indonesia followed a crawling-band exchange rate arrangement; Thailand pegged its currency to a currency basket; and Malaysia and Singapore followed a managed float exchange rate regime.

As a response to the currency crisis in 1997, the governments of the major Southeast Asian countries introduced various economic policy instruments, particularly to the policy regarding exchange rate. Following the currency crisis, Indonesia and Thailand have adopted a more flexible exchange rate regime, where the governments in these countries let their exchange rates be determined by supply and demand in foreign exchange markets with occasional unannounced intervention. By contrast, since September 1998 the Malaysian government has formally pegged its currency to the US dollar. The Philippines and Singapore, formally, have followed the same exchange rate regimes before and after the crisis.

In addition to changing its exchange rate regime, as a response to the crisis the Malaysian government also undertook an important change in its policy regarding capital flows. In order to reduce the pressure on its currencyƒthe ringgitƒand to regain monetary independence, in September 1998 the Malaysian government introduced a package of capital controls. The controls included a requirement for non-residents to hold the proceeds from sale of Malaysian securities for one year, and a prohibition of some off-shore ringgit trading. The control on capital outflows was removed in May 2001.


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