KUALA LUMPUR, Aug 17 — The ringgit’s steepest slide since 1998 is evoking memories of the clash between then-Prime Minister Tun Mahathir Mohamad and hedge-fund manager George Soros.

The currency slid 3.8 per cent against the dollar last week as central bank governor Tan Sri Zeti Akhtar Aziz said Thursday foreign- exchange reserves will need to be rebuilt after they fell below US$100 billion (RM406.9 billion) for the first time since 2010.

She ruled out introducing a currency peg or capital controls, the solutions Malaysia turned to 17 years ago when faced with a tumbling exchange rate.

Mahathir blamed foreign investors for the demise of the ringgit and labeled Soros a “moron” for his part in it.

“The fallout is reviving memories of hedge-fund attacks in the 1997/98 crisis,” Chua Hak Bin, an economist at Bank of America Merrill Lynch in Singapore, said Friday in an interview.

“We don’t think capital controls are likely, but cannot rule out the risk given the rapid depletion of foreign reserves.”

Malaysia’s currency led losses in Asia over the past year with a 22 per cent drop and is being battered by a political scandal, a yuan devaluation, slumping oil prices as well as the prospect of higher US interest rates.

That compares with a 30 per cent slide in the 12 months before Mahathir imposed capital controls in September 1998 and some investors say the risk of a repeat is fueling an exodus of money from Malaysia.

The ringgit has retreated in each of the last eight weeks and slid to a 17-year low of 4.1225 per dollar on Friday. Bank Negara Malaysia declined on Friday to comment on move in the ringgit and on whether it was intervening in the market.

‘Draconian’ responses

Malaysia has a “history of draconian policy responses” and that may be spurring the flow of funds from the country as the currency weakens, said Alan Richardson, a Hong Kong-based money manager at Samsung Asset Management Ltd, which oversees about US$112 billion.

Global funds held 32 per cent of Malaysian sovereign bonds in July, compared with 17 per cent for Thailand, according to the latest available central bank data.

There’s “fear in the market that they would impose macro- prudential measures to limit outflows,” said Anthony Chan, Asian sovereign strategist at AllianceBernstein LP, which oversees US$485 billion globally.

The benchmark stock index sank to its lowest since 2012 on Friday and 10-year government bonds slid the most in two months. Overseas investors cut holdings of sovereign notes by 2.4 per cent in July to RM206.8 billion , the least since August 2012, official data showed last week.

Mahathir’s Peg

“There are similarities to the 1997/1998 crisis,” said Gerald Ambrose, who oversees the equivalent of US$3.6 billion as managing director of Aberdeen Asset Management Sdn in Kuala Lumpur.

“There’s a certain amount of emotions involved, a certain amount of panic but I think not so much from the equity market. The real worry is Malaysian government securities, where foreign ownership levels are much higher.”

Back in 1998, Mahathir ignored the advice of the International Monetary Fund in taking the steps he did to stabilize the ringgit, including a peg of 3.8 to the dollar. The IMF, which called the ringgit peg a “retrograde step” at the time, later acknowledged it was a “stability anchor.”

A 17 per cent slide in foreign-exchange reserves this year to US$96.7 billion at the end of July suggests the central bank had been intervening to prop up the ringgit, just as Prime Minister Datuk Seri Najib Razak faces a probe of fund transfers into his personal bank accounts. Political machinations were among the causes of the ringgit’s decline, the prime minister wrote in his blog on Thursday.

“I think there is a concerted effort to test Bank Negara Malaysia’s reserves,” said Mixo Das, an equities strategist at Nomura Holdings Inc in Singapore.

“Sentiment is bad, which is why the central bank needs to break the cycle.

"Public comments by Zeti or others at BNM would be useful.” — Bloomberg