Lehman Brothers has endorsed the Government's bid to defeat dual-play speculators by channelling billions of dollars into stocks. The Government had the right to protect the dollar exchange rate and 'to decide the best way to do that', the company's chief economist, John Llewellyn, said. 'The currency board system should, with a little luck, have a long life,' the London-based Mr Llewellyn said yesterday in Hong Kong. He also expressed sympathy for Malaysia's recent decision to impose capital controls. He said Kuala Lumpur's moves would fail if they were not backed up with macroeconomic reforms. While Hong Kong's intervention has found support among business and some fund managers, few investment bankers have spoken out on its behalf. Among those who have criticised the action are United States Federal Reserve Board chairman Alan Greenspan and Nobel laureate economist Milton Friedman. Critics have argued that Hong Kong's equity prices have been distorted by the Government's estimated US$15 billion of purchases last month. They have also complained that recent regulations aimed at speculators would handicap legitimate market activity. Mr Llewellyn said Malaysia's recent decision to implement capital controls to protect its currency and assets was understandable. 'Today's world of open trade and payments systems is proving for some countries to be too hard a taskmaster,' he said. 'The exchange rates have been too volatile for comfort, to the extent on occasion of damaging emerging countries' economic fundamentals.' In the long run, Mr Llewellyn said, the International Monetary Fund should formulate a less-volatile trade-and-payments regime for small countries, although he offered few details of what structure such a regime would take. In the meantime, he said countries such as Malaysia needed to act rapidly to put in place economic reforms, among them the cutting of fiscal spending, the strengthening of banking systems and the improving of accuracy and transparency of economic data. Mr Llewellyn said that Malaysia's reputation as an investment centre would survive if it used 'this period of grace, this breathing space it created by imposing capital controls, to really tackle the underlying macroeconomic problems.'