Johari: Reserves drop during 2013-15 due to capital outflows, not loss

PETALING JAYA: The US$39.6 billion (RM161 billion) “loss” by Bank Negara Malaysia (BNM) between 2013 and 2015 as alleged by Tun Mahathir Mohamad was actually an amount that reflected the decline in international reserves due to outflows of foreign funds from Malaysia, said Second Finance Minister Datuk Seri Johari Abdul Ghani.
“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. During this period, capital outflows were not only unique to Malaysia but also affected other emerging markets including Indonesia, Philippines, Singapore, Thailand, India, China, South Korea and Taiwan,” he said in a statement today.
Johari said all these external factors practically pushed foreign investors to liquidate their investments in Malaysia’s stock and bond markets. This in turn led to greater demand 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.”
Johari said the current reserve management system by BNM 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 period 2013-2015 had no material impact to 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 added.
Johari stressed 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.
As at end November 2017, Malaysia'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.
"The insinuation made in the video that BNM had been negligent in managing international reserves during period 2013-2015 was not only reckless but was also an attempt to undermine BNM’s institutional mandate to safeguard the economic and financial stability of the nation by creating doubts and misperception among the general public," said Johari.