Malaysia cental banker blasts Singapore over CLOB

POURING oil on a bilateral dispute, Malaysia's central bank chief has accused Singapore of assisting efforts to push down Malaysian shares and the ringgit currency during the worst of a regional financial crisis.

Bank Negara Malaysia governor Ali Abul Hassan Sulaiman said Singapore authorities did nothing to prevent the short-selling of Malaysian shares and the ringgit until Kuala Lumpur imposed controls on currency flows in September 1998.

"The Singapore authorities contributed to the short-selling since they did not disallow CLOB shares from being borrowed to be short-sold by the manipulators," he said in a letter to Singapore's high commissioner (ambassador), K. Kesavapany.

The letter was released on Friday by the National Economic Action Council, a government body.

Ali was referring to Singapore's Central Limit Order Book (CLOB) market where shares in some Malaysian companies traded until last September, when they were frozen.

The dispute over the shares, held by some 172,000 investors and worth up to US$4.8 billion, has become a major irritant in bilateral relations.

There have been three private sector proposals to resolve the CLOB impasse, but no final settlement has been reached.

Morgan Stanley Capital International Inc (MSCI) said on Thursday the outcome of the CLOB dispute could have a bearing on the re-introduction of Malaysia into its closely watched indices.

MSCI announced it would re-instate Malaysia in February, but only if it did not backtrack on financial liberalisation.

Malaysian Prime Minister Mahathir Mohamad said recently foreign investors had dumped Malaysian shares traded on the CLOB through short-selling -- or selling stock one does not yet own in anticipation the price will fall.

But Singapore's Kesavapany had responded in a letter printed in Malaysia's Business Times that CLOB investors were net buyers of Malaysian stocks between 1996 and 1998.

Mahathir also said Singapore had kept interest rates high to attract ringgit for sale by currency traders.

"In reality, Singapore has no control over interest rates on foreign currency deposits that are offered in its offshore market," Kesavapany said.

The central bank chief took up the cudgels against the diplomat, saying short-sellers used CLOB shares to manipulate Malaysian shares.

Ali said high interest rates in Singapore before September 1998 were used to draw in ringgit that was sold short.

He said Singapore authorities "should have taken steps to prevent the short-selling of the ringgit in Singapore."

"Not only did they not do that, one gets the impression that the Singapore authorities assisted the short-selling activities since Singapore newspapers were in the habit of spreading negative rumours about Malaysia," he said.

Singapore newspapers, like those in Malaysia, frequently reflect the government's views.