FROM MURAD’S FOREX LOSSES TO 1MDB- MURAD THE FORMER ASSISTAN GOVERNOR FORGETS THAT ONLY PM NAJIB COULD HAVE APPROVED THE DISBURSEMENT OF USD LOANS TO PARTIES OUTSIDE MALAYSIA
For all intents and purposes, Najib as PM and FM is Bank Negara
In 1998 Malaysia introduced capital control rules that added to an already strict regime of capital controls.
Those rules were introduced as a result of the USD 10 billion forex loss that Murad Khalid says Bank Negara suffered.Many would disagree and insist that the Asian Financial Crisis was the cause, but as this writer has explained, by 1998 Malaysia’s forex reserves essentially non-existent.
That being the case, Malaysia, being a capital dependent country, has always had rules, today even more so, to ensure that foreign currency acquired via investment or borrowing is used in the country.
Any departure from that rule required then and still requires the approval of the Finance Minister, who since 1998 has also been the Prime Minister.
This type of use of US dollar borrowings ,even if it did not include that final transfer to PM Najib’s own accounts, would not normally be allowed, and where permission is granted, that permission can only come from the Finance Minister
1MDB’s Goldman Sachs loans could not have been disbursed outside Malaysia unless the Prime Minister and Finance Minister personally approved. That he had no idea what happened to the funds after his approval was granted is simply not believable.Bank Negara and Ministry Of Finance compliance procedures would have ensured that PM Najib was always aware of how the funds were disbursed, in this case even more so for the ultimate liability rested with 1MDB of which he is chairman.
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.