Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on December 20, 2017

KUALA LUMPUR: The alleged US$39.6 billion loss in international reserves suffered by Bank Negara Malaysia (BNM) between 2013 and 2015 is reflective of the decline in international reserves due to outflows of foreign funds, Second Finance Minister Datuk Johari Abdul Ghani (pic) said, adding that the losses were not due to foreign exchange (forex) trading.

“These outflows were due to concerns over weak global growth prospects, anticipation of monetary policy normalisation in the US and the sharp decline in global oil prices,” he said in a statement yesterday.

He was commenting on recent remarks made by former prime minister Tun Dr Mahathir Mohamad that BNM lost US$39.6 billion between 2013 and 2015 in managing the country’s international reserves.

Johari said during the three-year period, capital outflows were not only unique to Malaysia, but also affected other emerging markets including Indonesia, the Philippines, Singapore, Thailand, India, China, South Korea and Taiwan.

“All these external factors practically pushed foreign investors to liquidate their investments in our stock and bond markets. This in turn led to greater demands for the US dollar vis-à-vis the ringgit when foreign investors converted such funds into US dollars and repatriated the same to their respective countries,” he said.

“During this period, BNM provided US dollar liquidity to foreign investors in exchange for the ringgit and this was certainly different from the heavy speculative forex trading activities undertaken in the early 1990s,” Johari said, referring to the RM31 billion forex losses BNM had incurred in 1986 to 1993.

“The insinuation made in the video that BNM had been negligent in managing international reserves during the period 2013 to 2015 is not only reckless, but is also an attempt to undermine BNM’s institutional mandate to safeguard the economic and financial stability of the nation by creating doubts and misperceptions among the general public,” he said.

The minister maintained that the current reserve management system by the central bank is working well, and the financial markets are orderly and stable notwithstanding the large capital outflows.

“Given our solid fundamentals, the decline in reserves during the period 2013 to 2015 had no material impact on the functioning of the Malaysian economy as well as the financial position of the central bank. In fact, BNM continues to record healthy net profits throughout the period unlike in 1993 when a net operating loss was recorded due to speculative forex trading activities,” he said.

“I must stress that international reserves remain a crucial buffer against external shocks and are essential in maintaining a stable operating environment in the domestic economy,” Johari also said.

As at end-November 2017, BNM’s international reserves stood at US$101.9 billion and is sufficient to support 7.5 months of retained imports. “The current amount of reserves is five times larger than the US$21.7 billion recorded in 1997, which could only support 3.4 months of retained imports,” Johari said.

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