Second Finance Minister Johari responds to Mahathir’s blog post in open letter

Johari Abdul Ghani

Malaysia’s Second Finance Minister Datuk Seri Johari Abdul Ghani has responded to Dr Mahathir Mohamad’s blog post which called for an explanation on why the international reserves shrank between 2013 and 2015.

Johari had earlier said that the 2013 to 2015 losses were caused by outflows of foreign funds, New Straits Times reported.

On Dec 24, former prime minister Mahathir wrote in a blog post titled “Dear Johari” that the RM160 billion outflow “can only be caused by Bank Negara selling US dollars from the national reserves, causing the reserve to lose money”.

“This is what happens when the Ringgit is allowed to float,” he added.

In his response published on Dec 26, Johari said that there was a need to explain the difference between speculative foreign exchange activities and orderly management of foreign exchange market to the man on the street.

He said that Bank Negara Malaysia (BNM) was involved in voluminous foreign exchange trading activities in the early 90s, “so much so that the monthly maturing buy and sell foreign exchange transactions which amounted to an average of RM140 billion in 1992 had increased to a staggering RM750 billion in 1993”.

“The substantial portion of such transactions was very speculative in nature and did not reflect BNM’s mandate to maintain orderly condition of the foreign exchange market as per Section 4 of the Central Bank of Malaysia Ordinance 1958,” he wrote.

He added that the government at the time was forced to transfer its shares in Telekom and Tenaga Nasional Bhd to Bank Negara at the nominal value of RM1 per share due to the scale of these speculative activity losses.

BNM also had to dispose its Malaysia Airlines shares to a third party at the price of RM8 per share and MISC shares at RM10 per share to Kumpulan Wang Pencen in order to realise the gain, he said.

“If these speculative foreign exchange losses were not real, the government would not have taken these drastic actions in order to cover the Bank Negara losses at that material time,” he added.

Johari also said that BNM and Malaysia “have since come a long way, particularly in instituting the necessary reforms and check and balance with regard to its foreign exchange forward transaction activities”.

“As a result of these reforms, despite volatility of capital flows and the ringgit in the recent period, our economy continues to remain resilient and BNM’s ability to safeguard the financial and economic stability remains uncompromised.

“In fact, our international reserves continues to strengthen ever since and as at end November 2017 the reserves amounted to USD101.9 billion and were able to support 7.5 months of retained imports,” he wrote.