Malaysia has stepped out of the shadows of the Asian financial crisis and showed its growing confidence by removing the last vestiges of the period, the ringgit peg to the US dollar, analysts say.
Malaysia's central Bank Negara startled markets and observers when it announced Thursday that the peg had been abandoned in favor of a managed float, just minutes after China announced the revaluation of the yuan.
Economists and industry leaders lauded the decision to allow the ringgit to be dictated by market forces for the first time in seven years, saying it was time to dismantle the last of the crisis-era financial controls.
Malaysia's economy has "recovered sufficiently and the floating reflects the economic strength we have," said Michael Yeo, chief executive officer of the Asian Strategy and Leadership Institute.
"Generally there's greater economic buoyancy," he told reporters. "There's a greater sense of confidence now than several years ago."
Former prime minister Mahathir Mohamad introduced capital controls and the ringgit peg to the dollar on September 1, 1998 in response to the Asian crisis which had begun ravaging regional economies the previous year.
By that time, the currency had dropped 40 percent from pre-crisis levels, while hundreds of millions of ringgit had been wiped off the value of the stock market.
A day later, Mahathir sacked his deputy and finance minister Anwar Ibrahim, who had disagreed with him on how to bring Malaysia's crippled economy out of freefall. Anwar was subsequently jailed on corruption and sodomy charges.
The assertion of Mahathir's will over Malaysia's politics and economy earned him a firestorm of criticism, badly bruising the leader's reputation and casting a pall over the country.
But Mahathir's financial moves have since been applauded for enabling the country to weather the Asian crisis better than many of its neighbors.
And Anwar's release from jail in September last year after the sodomy charges were overturned signalled a measure of closure under the new administration of Abdullah Ahmad Badawi.
Yeoh said there was now a general "feelgood factor" in the country.
"There's been been a steady buildup and economic recovery and progress coupled with the new administration under the prime ministership of Abdullah Badawi," he said.
While there will be eventual benefits to un-pegging the ringgit, such as lower inflation, the short-term economic impact will be muted as the central bank is expected to intervene through the managed float system to keep the currency from appreciating drastically.
"To a certain extent, it's symbolic rather than something to really change the situation because at the end of the day, the currency will remain heavily managed," said Kevin Chew from the Malaysian Institute of Economic Research.
He added that the value of the currency had traditionally involved "a lot of intervention from the government." even in pre-crisis days.
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