A top priority of NEAC to restore confidence is to further strengthen the economic fundamentals of Malaysia by increasing our external reserves and slashing our external debts

Media Statement
by Lim Kit Siang

(Penang, Tuesday): Confidence-restoration must be the first top priority of the National Economic Action Council (NEAC). While the NEAC cannot control developments outside the country like the recent events in Indonesia which have a most dampening effect on investment sentiments for the region, the NEAC must move aggressively in areas where the government can restore public and investor confidence.

One aspect the NEAC should focus on is how to strengthen further Malaysia's economic fundamentals, as for instance, in increasing our external reserves and slashing our external debts.

Latest statistics released by Bank Negara has shown that the nation's international reserves have fallen by 2.5 billion ringgit in the first 15 days of January, falling from RM59.1 billion on 30th December 1997 to RM56.6 billion on 15th January 1998.

The country lost RM2.5 billion in international reserves when Bank Negara had to intervene in the money market in the first week of January to shore up the ringgit, when it breached the psychological RM4 level to the US dollar on 5th January and again when it fell to the historic low of 4.8800 against the US dollar on 7th January 1998. Bank Negara intervened a third time on January 9 to sell dollar at 4.70 until it went down to 4.65, with the local currency quoted at 4.5600 against the greenback at the close of trading as compared to 4.6250 at the previous day's close.

At 12 noon today, the Malaysian ringgit was hovering in the region of 4.5650, raising questions about the effectiveness of Bank Negara's interventions which has cost the country RM2.5 billion in international reserves in the first half of January.

This is the second major loss in the nation's international reserves in the seven-month-long financial crisis as a result of Bank Negara entering the money market to defend the ringgit. The first time was in the first half of July last year when the international reserves lost RM8.8 billion because of Bank Negara's interventions to defend the ringgit.

Bank Negara's international reserves on 30th June 1997 was RM70.7 billion, which fell to RM61.9 billion on 15th July. On 30th June, the value of the ringgit was US$1= RM2.5235, and it was US$1=RM2.5560 after Bank Negara had spent RM8.8 billion to defend the ringgit.

Was it wise and prudent for Bank Negara to lose RM14.1 billion international reserves to defend the ringgit in the past six-and-a-half months?

In retrospect, was it wise and prudent for Bank Negara to spend RM8.8 billion to prop up the Malaysian ringgit in the first half of July, propping up the ringgit at 2.5560 against the US dollar on July 15, when the ringgit continued to depreciate against the US dollar in the subsequent months, to 2.6360 on 31st July, 2.9620 on 29th August, 3.1975 on 30th Sept, 3.4370 on 31st October, 3.5010 on 28th November, 3.8900 on 30th December and 4.5025 on 26th January yesterday?

After losing RM8.8 billion in the losing battle to prop up the ringgit in the first half of July last year, was it prudent for Bank Negara to intervene in the first week of January to prop up the ringgit, which proved to be another losing battle costing another RM2.5 billion?

The position of Bank Negara's international reserves last year is as follows:

It should be a matter of grave concern that the international reserves of the country had fallen by 20.8 per cent in six-and-a-half months from RM70.7 billion on 30th June to RM56.6 billion on 15th January 1998.

Did the Bank Negara act prudently and correctly when it lost RM14.1 billion of the international reserves in six-and-a-half months in defence of the ringgit? How should Bank Negara conduct itself when the ringgit come under attack in future?

Shouldn't there be more informed national debate as to what the Bank Negara should do when the ringgit comes under attack in such circumstances?

The NEAC should give this matter serious consideration as well as the important issue as to whether it is not time to further strengthen the economic fundamentals of the country by increasing the international reserves to at least US$50 billion and slashing Malaysia's external debts which stood at US$45.2 billion as at end-June 1997.

It is here worth noting the external reserves and external debts of other countries:

These comparative data should be serious food for thought, especially when we also take into consideration the US$2 billion which Malaysia had committed to be part of the IMF bailouts for Thailand and Indonesia which, under current exchange rate, would cost Malaysia over RM9 billion ringgit, and whether the NEAC should also take the bold decision that Malaysia cannot afford to behave like a rich country to bail-out our neighbouring countries when we ourselves are in dire need of these RM9 billion.


*Lim Kit Siang - Malaysian Parliamentary Opposition Leader, Democratic Action Party Secretary-General & Member of Parliament for Tanjong