Government should respond to the IMF study that there are no compelling evidence that hedge funds took the lead in driving down currencies in the Asian economic crisis


Media Statement
by Lim Kit Siang  

(Petaling Jaya, Thursday): The Malaysian Government should respond to the latest International Monetary Fund (IMF) study that it hasnít found compelling evidence that hedge funds take the lead in driving down currencies in the Asian financial and economic crisis.

The Malaysian Government, led by the Prime Minister, Datuk Seri Dr. Mahathir Mohamad had charged that currency speculation by hedge funds had caused economic havoc and wiped out decades of development in South East Asia and had asked the IMF to conduct a special study on the matter.

The IMF study on the role of hedge funds was summarized in the latest IMF World Economic Outlook 1998 released on Monday. It estimates that hedge fund capital (excluding "funds of funds" or hedge funds that invest only in other hedge funds) was in the neighbourhood of US$100 billion as of the third quarter of 1997. Of that, some US$25 billion was in the hands of the macro funds, which typically leverage their capital by borrowing by four to seven times.

Although these numbers are large, the hedge funds are relatively small operators compared with other institutional investors such as pension funds, mutual funds, insurance companies and commercial banks, which, in the mature markets alone, exceeds US$20 trillion. These other institutional investors are increasingly active in international markets.

The types of hedge funds that have been the target of attacks by Mahathir are the "macro funds", which bet on a certain direction they think national markets are going.

The IMF, however, found that macro funds arenít the only ones playing that game. Multinational firms also routinely take positions in these markets to protect their large reserves of capital, so what the hedge funds do isnít all that extraordinary except for their more relentless pursuit of profits, IMF officials say.

The IMF study concludes:

(16/4/98)


*Lim Kit Siang - Malaysian Parliamentary Opposition Leader, Democratic Action Party Secretary-General & Member of Parliament for Tanjong