The central bank, Bank Negara, said the controls would insulate Malaysia's recession-hit economy from the global financial "crisis", allowing cuts in interest rates without affecting the business of traders and investors.

"The overriding objective of the new measures is to regain monetary independence and insulate the Malaysian economy from the prospects of further deterioration in the world economic and Financial environment," Bank Negara said in a statement.

"In the process, the nation would be adequately prepared to minimise the impact of a possible global economic crisis and a breakdown in the international financial system."

The range of measures threw the foreign exchange market into confusion but the ringgit strengthened dramatically, rising to about four per US dollar at0614 GMT from 4.18 late on Monday.

Mahathir, who has repeatedly pointed a finger of blame at speculators for Asia's troubles, was set to take questions from a panel of three interviewers over nationwide television at 3 P.M. (0700 GMT).

The central bank said the measures would affect some types of short-term capital flows but current account transactions and foreign direct investment would be unaffected.

It said foreigners now needed the central bank's approval to convert ringgit into foreign exchange.

The measures would limit speculators' ability to deal in the ringgit, which has lost nearly 40 per cent of its value against the US dollar since the outbreak of Asia's financial crisis in mid-1997.

Dealers said the move would virtually put an end to speculative trade in the ringgit but also undermine Malaysia's reputation as having one of the most open economies among developing countries.

"Overall, although the ringgit is likely to strengthen as a result of this as speculators are effectively wipedout from the market, Malaysia's efforts in financial liberalisation have experienced a considerable setback," markets consultancy I.D.E.A. said.

The central bank said on Tuesday that Malaysia was still committed to the free market and the trend towards liberalisation, but there were limits to its commitment.

"The benefits of the market can only be realised in an environment of stable and efficient global financial markets," it said, adding that it would withdraw the controls once there was a "discernible normalisation" of the financial markets.

Malaysia's moves were the latest example of a government intervening to shield the economy and followed efforts by Hong Kong, Taiwan and Russia to protect their markets.

Bank Negara chastised the international community for failing to tackle the risks linked to globalised markets.

"While arguments have been put forward for emerging economies to undertake economic and financial reforms," the central bank said, "of greater urgency is the need to reform theinternational financial system to better cope with the changed international financial environment."

Mahathir has repeatedly railed against currency speculators, accusing them of undermining the gains that Malaysia made during a decade of eight per cent or more annual economic growth.

Malaysia's economy shrank 6.8 per cent between the second quarters of 1997 and 1998. Since it had also fallen 2.8 per cent during the year to the first quarter, the economy is now formally in its first recession in 13 years.