Make use of Bank Negara reserves
November 30, 2010
Make use of high reserves, says Malaysia’s self appointed Economic Advisor
Malaysia’s high international reserves can be mobilised, says former prime minister Dr Mahathir Mohamad.
“Our reserves today are too high. We have over US$100 billion as reserves, which can sustain eight months of retained imports,” he said.
The country only needs to have reserves up to three or four months of retained imports, he said in his address at the ‘Revisiting Vision 2020′ organised by the Institute of Marketing Malaysia in Kuala Lumpur today.
“Out of the US$100 billion, you can actually mobilise US$50 billion, which will help the government. It is saying it does not have the money to do this and that, no money to subsidise.
“So, why not use this money,” he said. During the 1997/98 Asian financial crisis, Malaysia’s foreign reserves was only US$17 billion and during recovery it was US$30 billion, he said.
Dr Mahathir however said he was not sure if the higher reserves were due to the depreciation of the US dollar or it was the actual reserves the country has.
The US dollar has depreciated about 20 per cent versus the ringgit. Bank Negara Malaysia announced that as at November 15, its international reserves amounted to RM326.5 billion (equivalent to US$105.8 billion).
The reserves position is sufficient to finance 8.8 months of retained imports and is 4.5 times the short-term external debt, it said.
Dr Mahathir also said Malaysia could easily emerge as a rich nation if the ringgit strengthens to the pre-crisis level of RM2.50 to a US dollar. Currently, the ringgit is hovering at RM3.1 versus a greenback.
More focus on domestic direct investments
“If the ringgit strengthen to the (pre-crisis) level of RM2.50, of course the country’s gross domestic product growth would have become higher,” he said.
Dr Mahathir said due to external factors and the crisis, Malaysia’s per capita income did not grow to US$16,000 as envisaged under Vision 2020. He said the country has a good 10 years to work to realise Vision 2020 goals provided the government very carefully manages the country’s economy and its finances as well as supervise these things vigilantly.
There should also be more focus and drive towards domestic direct investments (DDIs) as compared with foreign direct investments (FDIs), said Dr Mahathir who helmed the nation for 22 years as prime minister.
“There is not much money coming in and at the same time you should remember that there are two million foreign workers who remit money home,” he said.
“Hence, if the country continues to woo more foreign investments, the revenue will not be high enough to achieve Vision 2020.
“It will take much longer to achieve Vision 2020 and not in 2020. Therefore, the country needs more DDIs, whereby the profits remain here and achieve the seven per cent GDP growth that is needed to achieve Vision 2020. I am very sure that our industries will grow even faster and contribute to the nation’s GDP and per capita income provided the government gives good incentives as well as free them from obstacles for their growth,” he said.
Hence, the strategies to attain Vision 2020 has to be changed as “we can’t follow the path we took before, which is very dependent on foreign direct investments to domestic direct investments.”
“The government is already thinking about it and I hope a decision will be made (soon),” he added.
I recall the days in Bank Negara under Tun Ismail Mohamed Ali. The then Governor was always worried about the level of reserves required to meet any contingency and to back the Malaysian ringgit. It was never enough he used to tell us. He was also concerned about prudent management of those reserves. Those reserves are a required to finance imports of goods and services, and deal with outflows of portfolio capital.
One needs to be careful when advice comes from a former Prime Minister during whose tenure Bank Negara lost billions of ringgits betting on sterling (British pound). Leave the management of our reserves to the Governor and her team of professionals. Never allow politicians to dictate what the Bank should do with its reserves. In fact, there is a strong case to be made for the independence of Bank Negara. It should be like the German Central Bank and the Federal Reserve.–Din Merican
dinobeano - November 30, 2010 at 6:17 am
We should not act on his thoughts or opinions because he takes no responsibility after his demise. Fault lies not in his senility but his past actions have surfaced to haunt him even now and in the future!
davidquellsgoliath - November 30, 2010 at 7:32 am
…so Vision2020 is gone. The target is going to be revised and we may need not just glasses but a microscope to see what the next target is going to be.Just like the NEP. Keep pushing and shifting the goal posts.And if visions and what not are not achieved, just blame the foreigners and the external crisis and the Jewish conspiracy.
But if achieved it is due to the brilliance of the master planners like Octo and he-whose-wife-has-got-him-by-his-cojones.
So now master planner wants the gomen to dig into the reserves. Don’t lah give ideas to the current crop of thieves in Putridjaya. Where do you think the money is going to go? The people? Development?
Hasn’t enough been taken to feed the egos and lifestyles of our leaders and their wives and families?
This man is just trying to keep himself relevant, though none take him seriously except where they see benefit for themselves.
Mr Bojangles - November 30, 2010 at 7:46 am
I attended the talk yesterday (my thoughts here). Reading between the lines, it appears he doesn’t have a chummy relationship with TS Zeti or BNM, so I think BNM’s independence won’t be threatened.
I agree with much of what Tun Mahathir said yesterday, but the idea of using reserves isn’t very well thought out (which is the nicest way I can say it – my first reaction was: this is a real dumb idea).
If you go through the mechanism through which international reserves (denominated in foreign currencies) can be converted to Ringgit so that it can be used domestically, it’s actually tantamount to printing money…which Tun seems to be opposed to.
hishamh - November 30, 2010 at 8:40 am
The former PM is only interested in his vision 2020.
Forget it and the government must be foolish to listen to this selfish and irresponsible thoughts.
Time to move away from his 2020!!!
Eagle - November 30, 2010 at 9:32 am
The U.S. Federal Reserve which sets the country’s monetary policy is unique in that it is only subject to legislative oversight by the U.S. Congress. The U.S. President has no influence in its decisions. It’s structure is unique in that it has separate and independent parts both private and public.
In Malaysia we had a politician who started his tenure as Prime Minister chipping away at the doctrine of Central Bank being an independent institution, ignoring tradition and ended up micromanaging the country’s monetary policy only to be outsmarted by a Jewish Hungarian currency speculator on one Black Wednesday.
Fast forward two decades, this man still has dreams of putting his finger up the Governor’s ass but for the fact that the present Governor is a married woman.
Mr Bean - November 30, 2010 at 10:03 am
To me it does not make sense to ” break ” Savings ” – the more we save the better for the future, UNLESS we are desperate to cover all the current shortfalls caused by the inverse proportion of cost over income : in other words, incomes generated are much much less in proportion to costs incurred in many of the mega projects. Most of that too, because of monies ” dissipated ” or syphoned off behind “dark clouds ” without the public being aware of the ” dealings ” & transactions.
Anyway, as a comparison, some years back, we had official figures showing Singapore Reserves amounting to USD250 Billion !
Abnizar7 - November 30, 2010 at 10:45 am
Exporters are crying because of the sliding dollar. Remember, our manufacturers sell in US dollars and now they are getting less and less ringgit for the same export and they are finding it difficult to make ends meet.
Some are losing money!
And here we have this old goat who spent our billions as though it was his father money wants the ringgit to revert to RM2.50 to a dollar.
Lawyer - November 30, 2010 at 10:56 am
Er..Mahathir you never heard of the phrase ” saving for rainny days ” ?
John - November 30, 2010 at 10:56 am
Aiya, just as i finished my mid-morning’s barking, i open up Din’s blog and lo & behold: Octo’s tentacles everywhere!!
Yup, we should oppose his slimy ruminations in dabbling with the Reserves. Notice he glibly says he doesn’t want to suggest where the ‘excess’ should go to? Probably his senget bridge, dubious mega-projects and bailing out all those domestic debts his cronies accumulated.
FDI is dead in water, with occasional wavelets splashing onboard. DDI doesn’t exist due to capital flight to neighboring countries. Who’d wanna expand operations in this jello-like political atmosphere? Policies are made and unmade in the blink of an eye.
Lawyer is right about the sliding Dollar – Dead duck.
Menyalak-er - November 30, 2010 at 11:23 am
Din
TDM has never understood economic or monetary concepts which is why during hsi tenure, we lost hundreds of billions in speculation or gambling on tin and foreign exchange, leakages through overpricing of development projects like the highways, airports, ports, military acquisition etc. Malaysia is fortunate in that it has a lot of natural reserves which were and are being plundered by the Pirates of Putrajaya. Barry Wain has the full story in his book “The Maverick”.
The reserves of Bank Negara are part of the national reserves, held in various forms of investments.Among the variuos reasons on the need for the reserves is the need to protect the value of the national currency. It represents the savings of the country agaisnt which we can borrow in the domestic and international markets at good rates if we maintain and manage our reserves well! The size of the reserves measured against the volume of our imports is purely to gauge our financial strength and prudence.
It is not to be used for development purposes. Development expenditures are sourced from the surplus from the current budget and some borrowing which is normally the balanced approach to development funding. Obviously Apanama does not understand basic economic theory otherwise he wouldnt have said what he did. He should be put to pasture.
si rusa - November 30, 2010 at 11:42 am
If he spent the reserves, the Ringgit will not drop to RM2.50 to the dollar, but instead goes up to RM3.50 to the dollar… this Apanama is obviously not talking sense…
BTW how could we have DDI when his son invested USD2.9 billion in San Miguel Corporation (brewery in Manila) – why not bring it home Apanama? Takut kena rampas nanti ya?
Sentinel - November 30, 2010 at 12:33 pm
This old man do talk sense.
How about we nominate him Finance Minister.
Any one seconding the motion?
Pak Abu - November 30, 2010 at 12:38 pm
When he said he would not interfere in goverment after retirement, did he swear to that effect?
sam t - November 30, 2010 at 12:55 pm
This guy is so accustomed to getting away with whatever he does, including “pocketing” Petronas money, feels that breaking the country’s piggy bank is perfectly alright. He should just shut up and move on..
Tok Cik - November 30, 2010 at 1:50 pm
Firaun seems to have forgotten that our internal and external national debt stands at an all-time record high. Break the kitty while being hocked to the hilt? Whither Reserves?
dpp
we are all of 1 Race, the Human Race
donplaypuks - November 30, 2010 at 4:33 pm
Tok Chik,
You once referred to this man as a ” baduwah “. Do u think of him any differently now ?
salmiah hassan - November 30, 2010 at 4:55 pm
sorry .. i meant Tok Cik .
salmiah hassan - November 30, 2010 at 4:56 pm
I remember when PM Pak Lah was criticised for buying an Airbus A319 as a private jet… The truth was someone was holding on to the Bombardier Global Express Jet as the Petronas Advisor, he transferred the plane across for his own use before stepping down. ow, he wants to touch the reserves?
Sentinel - November 30, 2010 at 5:18 pm
I thought Din was not supposed to even mention him in his blog – ini apanama dia?
Sentinel - November 30, 2010 at 5:19 pm
Is he at it again? Every time theres a sniff of money, he has to say something and interfere. What now? Mobilise money t o where, to whose pocket? If Government doesnt have money whose pocket did go into?He is so ysed to dictating where money should go that he is doing it even now blatantly.
Kathy - November 30, 2010 at 5:32 pm
Austerity is the name of the current game worldwide and that’s the way it is going to stay for a long, long while. This can only mean one thing – the more reserves we have the better. Simple common sense.
If we can plug the numerous leakages in our affairs, I reckon we do not even have to touch the reserves.
Isa Manteqi - November 30, 2010 at 5:51 pm
I’ll gladly add “rascal” to the “baduwah” you mentioned, salmiah. He’s a scoundrel of the highest order. The devil reincarnated.
Like Shylock he’s exacting his pound of flesh from the rakyat via the country’s piggy bank.
Tok Cik - November 30, 2010 at 5:57 pm
Please keep it simple. When time are only do projects that will enhance the value of the nation, such as infrastructure, and show returns on investment. We need to look for new engine of growth. Over to you EPU. Throughout this Global Financial Crisis we have not had the benefit of your wisdom.
thumblogic - November 30, 2010 at 6:05 pm
Wonder whether the people in EPU are made of sterner stuff. If they’re are the “carma” (cari makan) type, we’re in for trouble. Al Kutty’s stranglehold on the Administration is still evident. Jibby and Rosie are well aware of that.
We can’t let this sly fox out of our sight. He’s capable of many more tricks before the curtain drops.
Tok Cik - November 30, 2010 at 6:15 pm
I met Tun Ismail Ali, your former boss, in his capacity as Governor in his office at Bank Negara once in the 70s and, on an another occassion, had a picture with him (just me and him) taken enjoying a buffet after a conference in the Utusan Melayu. I remember that one. I should have preserved that one for my scrap book of newspaper cuttings.
As the country’s central bank governor, he was the last of his breed. A no-nonsense guy, who believed in austerity and who managed the country’s monetary policy the same way he managed his life. A two percent inflation rate was too high. He struck a lonely figure — almost reclusive. The office of Governor of the country’s central bank during his time was a lonely one as the buck stopped outside the door to his tiny office at the end of a long narrow corridor. He had only a tiny office which he shared with his books and a few pieces of English chippendale furniture which betrayed his exquisite taste for the finest in life.
He was a man of the highest integrity and as governor he was fiercely independent. It is sad that it would be his own brother-in-law who was to change all that.
I wonder how the office of the present Governor looks like.
Mr Bean - November 30, 2010 at 8:37 pm
This old man can smell where the money is even it is underground he will die for it. Maybe
not he rather rob it before he die.
ajajal - November 30, 2010 at 10:09 pm
What the old man wanted to say was “Why not flush the market with ringgit?” and “Why not the government of Malaysia tap the world’s capital market for dollars and spend?” and let the ringgit slide. The value of the Ringgit is strong vis-a-vis the Dollar – and whatever basket of currencies Central Bank keeps to keep the Ringgit stable.
Mr Bean - November 30, 2010 at 10:52 pm
That’s the work of the MoF and the Treasury but they would need the green light from Bank Negara.
Mr Bean - November 30, 2010 at 10:54 pm
He has had to resort to twisting the arm of the governor of the country’s central bank to get his way at first but that later became an art in which he was well skilled in his later years as Prime Minister. From being an art it became a mere tool in his tool bag to be used as and when he liked.
Mr Bean - November 30, 2010 at 10:59 pm
Even if we need to concentrate on domestic economic growth ,we dont want this man to interefere as he has done for so many years and it doesnt even get to where it supposed to go, all the monies disappear anway. havent you learnt your lesson yet about this man?WE NEED LEADERS WITH CREDIBILITY.Do I have to say it over and over?
Kathy - December 1, 2010 at 3:41 am
Ellese, Since you reckon we are all ignorant please enlighten us as to how it should be done. Right back at you!
Kathy - December 1, 2010 at 1:10 pm
What the old man wanted to say was “Why not flush the market with ringgit?” – Bean
How to flush the market with Ringgit when Apanama himself made the Ringgit not legal tender outside of Malaysia way back in 1998. Soon they will have to print “Tak sah diperlakukan diluar Malaysia” That’s the reason Mat Tyson was carrying millions in foreign currencies instead of Malaysian Ringgits in shopping bags.
semper fi - December 1, 2010 at 2:01 pm
Mohammad son of Mohammad thought he was carrying Japanese banana notes meant for the museum. He would be lucky if he could buy half a rotten banana with those.
As it turned out it was one of those rare occasions when ‘ Ignorantia juris non excusat’ didn’t quite work out for the prosecution.
Mr Bean - December 1, 2010 at 11:33 pm
After reading this, I decided to pack my bags and go back to KL. My plan is to go high profile, sell my soul. I will convert to Islam, like Riduan Teo, and my ass is available for any UMNO to play with. I must get the Malays not to change their current ways, because then, they will become smart and hardworking. If I keep the Malays to the same course, there is a good chance that my children will be able to feed on the crumbs from the fifty billion dollars of looting that Dr. Mahathir is planning.
I just need to get close to his kids, so that I can do some deals. I like his cuban biotech venture, or even get into a 4G deal with YTL as they seem to be able to get licenses without any work.
Yes! I got it, it finally came through! I got a office lease at Menara UMNO, thats the first step to this 50 billion dollar looting. Care to join in? Only non Malays can apply as we are the AliBaba Subs. Company Name: Hamba Buntuk Sewa Sdn Bhd. Tel: 1-800-screw-62529
james - December 2, 2010 at 6:39 am