SHAH ALAM: Malaysia may lose its right to impose currency controls to stave off a financial crisis if it were to sign the Trans-Pacific Partnership Agreement (TPPA), Tun Dr Mahathir Mohamad said.

“One of the things about the TPPA is we cannot have currency control. We must allow for currency freedom,” said the former prime minister.

“So (this is) one of the objections to the TPPA for it may result in a currency crisis once again,” he told reporters during a visit to i-City’s wax museum here yesterday.

Mahathir said this when commenting on the possibility of a repeat of the 1997 Asian financial crisis in the wake of the slide in the value of several Asian currencies.

The TPPA is being negotiated by a dozen countries. Despite government assurances to allay concerns, critics are still concerned over matters pertaining to sovereign control over capital and financial markets.

In 1997, Malaysia faced its worst financial crisis after currency trading left the ringgit devalued to almost half its worth.

The Malaysian government, then helmed by Mahathir, initiated fiscal and monetary measures in 1998 to stem the ringgit from further declining in value and resisted aid from the International Monetary Fund.

Economic developments in the region coupled with the US reassessment of its monetary policy have resulted in concerns of an impending financial crisis in India and certain Southeast Asian countries such as Indonesia, Thailand and Malaysia.

Due to a decrease in export output as a result of China’s slowing growth and uneven demand in the US and Europe, these economies have started to run large current-account deficits, which occur when imports outweigh exports.

The Indian rupee has been declining in value over the past few days and the Indonesian rupiah has also decreased significantly in value.

Meanwhile, Malaysia has also witnessed a fall in the value of the ringgit since May, with a decrease of about 8% against the US dollar.

Fitch Ratings has placed Malaysia’s A minus rating on negative outlook, citing weak prospects for reforms to fix public finances.

Mahathir said this development was “very bad” and the government needs to tighten its belt over its expenditure.

“I heard the government is trying to reduce the deficit. One way is to reduce local expenditure,” he said.

“We must not spend money especially money we don’t have, where they (the government) keep borrowing money and spending the money. It is wrong for them to do that,” he added.

Prime Minister Datuk Seri Najib Razak has said that measures to strengthen the fiscal policy will be announced in October but analysts are of the view that drastic reforms to control public expenditure would be taken as he seeks re-election as party president in the upcoming Umno elections.

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This article first appeared in The Edge Financial Daily, on August 30, 2013.