Malaysian primary industries minister Lim Keng Yaik said the cabinet had approved the country's withdrawal from the International Natural Rubber Organisation (INRO).

He said Malaysia's decision would be officially announced in Bangkok at a meeting of the Association of Natural Rubber Producing Countries (ANRPC) on August 20-21.

Lim said Malaysia would present a new price stabilisation mechanism along with alternative strategies for higher rubber prices.

Thai deputy agriculture minister Somchai Sunthornwat told Reuters last week his country might also quit INRO but has not said when.

Both producers have long pinned their hopes on INRO for preventing price declines.

But now they have turned on the worlds only surviving commodity pact, saying it is unable to support prices.

"Supply of rubber is nowtremendous and INRO has done nothing to reduce it despite this being one its primary objectives," said David Kay, a rubber dealer with Kuala Lumpur-based K.L. Trading.

"I think if Malaysia and Thailand withdraw now, they may actually speed up the end of INRO, and without such a mechanism in place, producers may arbitrarily raise prices which have been depressed for so long," he said.

INRO has a buffer stock mechanism to buy and sell rubber in the market. But the level at which it is authorised to intervene to buy rubber has been too low to boost prices during Asia's year-long Financial crisis.

Traders could not pin down a reason for this.

"Does it have something to do with funding or what? We never know," said a trader in Jakarta.

"But based on our past experience, even if INRO enters the market, prices will only rise temporarily. In addition, INRO can only buy a limited amount of rubber," the trader said.

Dealers were still sceptical on Monday that Thailand, the worlds largest rubber producer,and Malaysia, the third largest, would risk ending a price mechanism both have struggled to preserve.

"They have been talking for a long time about quitting and were still waiting to see if they'll do it," said a Singapore-based rubber dealer.

The dealer pointed out that INROs operations itself were based in Kuala Lumpur and its executive director, Ahmad Zubeir Noordin, is Malaysian.

Dealers pointed out that Indonesia, the worlds second largest producer, had not voiced any intention of joining Malaysia and Thailand in their crusade for higher prices.

Despite the Asian economic crisis and historic lows in rubber prices, Indonesia has taken to selling rubber at the lowest levels in the region.

"The Indonesians now grab any offer of between 24 and 25 cents for a pound of rubber," said one dealer in Kuala Lumpur.

"At this price, one container of rubber makes an instant billionaire of an Indonesian in rupiah terms. He may be happy, but it doesn't help the overall price in the region."

INRO was set up16 years ago to ensure stability of supply and demand in the world rubber market and to protect both consumers and producers against price fluctuations.

The organisation groups 16 rubber consumers, including the United States and the European Union, and the six top importers, as well as producers Thailand, Indonesia and Malaysia.

Its existence is based on a UN brokered pact, called the International Natural Rubber Agreement, which was renewed by the group last year after much persuasion from producers such as Malaysia and Thailand.

But since the start of the new five-year pact, minister limhas severely criticised INRO for failing to help rubber prices, which have fallen to $0.70 a kg from $1.05 a year ago.