by Ganesh Sahathevan
Free Malaysia Today has reported:
The current decline in the value of the ringgit cannot be likened to its fall during the Asian Financial Crisis in 1998 as the country has a more stable economic foundation now, says Prime Minister Anwar Ibrahim.
The ringgit has slid by over 4% so far in 2024, adding to losses from the previous three years. It opened at 4.7745/4.7800 to the US dollar today, compared with yesterday’s close of 4.7710/4.7800.
Speaking to reporters after officiating the opening of the Tun Razak Exchange Financial Hub at the Exchange 106 Tower here today, Anwar, who is also the finance minister, said the ringgit’s drop in 1998 came amid increases in the inflation and unemployment rate.
The graph above , displaying statistics from Malaysia's Department Of Statistics, says otherwise. Unemployment was at its lowest,and GDP growth at its highest before the Asian Crisis of 97-98.
Anwar's claims add to evidence presented below that Bank Negara's reserves are insufficient to defend the Ringgit
TO BE READ WITH
uesday, February 20, 2024
Does Malaysia's Bank Negara have sufficient USD to defend the Ringgit- Reserves financed by bank desposits ,actual reserves only USD 39 Billion, not USD 113.5 BillionUSD
by Ganesh Sahathevan
The Ringgit's new low of RM 4.80 to the USD , readers may want to take a closer look at Bank Negara's Balance latest balance sheet.
As at close of business on Friday, 29 December 2023
As disclosed in Bank Negara's own balance sheet, actual reserves are only RM 186,743,923,867 or in current USD terms, only USD 39 Billion, not USD 113.5 Billion as reported. That larger figure is financed out of statutory deposits , placed at no interest by financial institutions at Bank Negara, and as was the case in 1997, cannot be relied on in to defend the Ringgit times of crisis, when USD and other foreign currency deposit holders are likely to want to take their cash home.
TO BE READ WITH
Anwar's calculated dismissal.
Western critics have roundly condemned Malaysian Prime Minister Mahathir Mohamed's decision to oust his deputy Anwar Ibrahim and impose capital controls. GANESH SAHATHEVAN(*) begs to differ
The recent dismissal of Malaysia's Anwar Ibrahim from his post as Finance Minister and Deputy Prime Minister is seen by many international commentators as detrimental to Malaysia's economic fortunes.
And capital controls introduced by Prime Minister Mahathir Mohamed, who assumed Anwar's duties after ordering his dismissal on grounds of sexual misconduct and corruption, are thought by many commentators to be regressive and likely to impede Malaysia's recovery.
Mahathir, however, had no choice but to introduce capital controls.
Anwar's policies were bleeding dry the country's cash reserves and meant the imposition of capital controls was necessary to avert bankruptcy.
As finance minister, Anwar was responsible for financing Malaysia's foreign reserves almost entirely out of statutory deposits -- placed at no interest by financial institutions -- at the Central Bank.
Anwar was also responsible for Malaysia's dependence on short-term foreign investment to finance the country's perennial current account deficit. This was a policy particularly evident in 1996 when, in order to shore up the country's reserves, interest rates were raised to attract funds into the country.
Simultaneously, the statutory reserve deposit ratio was raised from 10 per cent to 13 per cent within a period of six months to ensure that the Central Bank took control of the funds drawn into the country.
The need for additional foreign reserves may have also been necessary as a result of two significant losses of foreign reserves by the Central Bank in October 1995 and February 1996. On both occasions the Central Bank reported a loss of 3 billion ringgit, or about 3 per cent of its total reserves over a period of a fortnight.
The magnitude of these falls over such a short time suggests that the Central Bank suffered foreign exchange trading losses. Adding to the need for foreign funds was the public sector budget deficits that Anwar ran for most of the early '90s. This, too, was an issue that was never discussed publicly because the deficits were hidden in the detail of the national accounts.
When delivering his yearly budget speech, Anwar always declared a balanced budget.
The increase in interest rates and statutory deposit ratio saw Malaysia's reserves rise from just below 60 billion to 70 billion ringgit within a period of 10 months in 1996.
This won Anwar praise from Michel Camdessus, managing director of the International Monetary Fund, despite the methods employed.
The flight of foreign capital from Malaysia and the attack on the ringgit by hedge funds in 1997 proved how illusory Malaysia's reserves were.
The Central Bank, unable to cope with having to finance the sudden withdrawal of foreign funds, was left with no choice -- despite the seemingly large pool of reserves -- but to print money in order to avoid a liquidity crunch.
This, in turn, had the effect of exacerbating the fall in the value of the Malaysian ringgit, which made it impossible to defend the ringgit against speculative attacks.
Thus, capital controls became necessary in order to conserve whatever foreign currency the country had left, and rectify the structural weaknesses in the management of the country's reserves.
Anwar now faces criminal charges for sexual misconduct and corruption.
Should he prove himself innocent, he might make a comeback in the Opposition. He could offer himself to the Malay community as an alternative to the ruling UMNO, in which he was deputy president to Mahathir prior to his dismissal.
Re-entering UMNO would be difficult given the opposition he would face from other UMNO leaders, who have long seen him as an obstacle to their own designs on the party's presidency.
However, in Opposition he would not be able to exercise the level of patronage he did as finance minister and deputy leader of UMNO -- and this might diminish his appeal.
Anwar is unlikely to win the support of the ethnic Indian and Chinese voters, who make up 40 per cent of the population, because they fear the right-wing Muslim views he expounds.
His use of the Muslim Youth Movement to incite demonstrations and riots against Mahathir only served to reinforce these fears.
(*) Ganesh Sahathevan is a Malaysian journalist currently based in Sydney.
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