Fall in BNM’s reserves due to foreign fund outflow, not forex losses – Johari

KUALA LUMPUR: The alleged US$ 39.6 billion ( US$ 1= RM4.07) loss between 2013 and 2015 is actually an amount that reflected the decline in international reserves due to outflows of foreign funds and not losses due to forex trading by Bank Negara Malaysia ( BNM), Second Finance Minister Datuk Johari Abdul Ghani said.

He said this ran contrary to the allegation made by former prime minister Tun Dr Mahathir Mohamad in a video posting on a popular video hosting site.

“These outf lows 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 said all these external factors practically pushed foreign investors to liquidate their investments in Malaysia’s stock and bond markets, leading to greater demands for the US dollar vis- à-vis the ringgit when foreign investors converted such funds into the US dollar and repatriated the same to their respective countries.

“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,” he said.

He said during this period, capital outf lows were not only unique to Malaysia but also affected other emerging markets, including Indonesia, the Philippines, Singapore, Thailand, India, China, South Korea, and Taiwan.

Commending the current reserve management system by BNM, he said in his view, it has worked remarkably well and the financial markets were orderly and stable notwithstanding the large capital outflows.

“Given our solid fundamentals, the decline in reserves during the 2013-2015 period had no material impact to the functioning of the Malaysian economy, as well as the financial position of the central bank,” he said.

Johari said BNM, in fact, continued to record healthy net profits throughout the period, unlike in 1993 when a net operating loss was recorded due to speculative forex trading activities.

“I must stress that international reserves remain as a crucial buffer against external shocks and is essential in maintaining stable operating environment in the domestic economy. Since then, Malaysia’s international reserves has been on the increase,” he said.

He said as at end of November 2017, the country’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 can only support 3.4 months of retained imports,” he said.

Johari also condemned the insinuation made in the video that BNM had been negligent in managing international reserves during the 2013- 2015 period, describing it as not only reckless but also an attempt to undermine its institutional mandate to safeguard the economic and financial stability of the nation by creating doubts and misperception among the general public.

“Instead falling for such ruse which could potentially divide us further, it would be in the best interest of all Malaysians that we work together to engender a robust and sustainable economy for the benefit of our future generation,” he added. — Bernama