November 12, 2008
Bank Negara Reserves Fall by USD7.4bn
Where will Malaysia stand in the next few years? This is from Singapore Business Times, something I’m not sure our local papers would report:
KUALA LUMPUR, Nov 11 — Malaysia’s international reserve position shows a further US$7.4 billion decline to US$100.2 billion as at Oct 31, according to latest figures released by Bank Negara. The amount, said the central bank, was “enough to finance 8.1 months of retained imports and is 3.7 times the short-term external debt position”.
For the whole of October, the central bank’s reserves fell by US$9.5 billion compared with US$12.8 billion the previous month. In fact, Malaysia’s reserves have fallen by US$25.5 billion since it peaked at US$125.7 billion in June this year. The sharp falls illustrate the growing risk-aversion of foreign investors as they flee emerging markets before the fallout from the global financial turmoil begins to seriously affect countries like Malaysia. It also mirrors the central bank’s bid to maintain the stability of the ringgit.
Most analysts attributed the fall in reserves to the outflow of short-term capital because the exit of capital coincided with a contraction in the capitalisation of the local bourse which declined to RM655.3 billion at end-October from over RM719 billion on Oct 15. The ringgit fell from RM2.51 against the greenback to RM2.55.
Even so, some analysts drew comfort from the figures. Arab-Malaysian’s research house, for instance, said the steep reserve drop from June suggested that “almost all the hot money that came in the first half of 2008 had left, leaving behind the long term investment in the system”.
The securities house said this was reflected in the “narrowing” of short-term debt which was reduced to 3.7 times the short-term external debt position. Meanwhile, it said that the 8.1 level of retained imports that the reserves covered was well over the international norm of three months and that was enough to maintain ample liquidity estimated at RM254 billion at end-September.
Going forward, these sentiments would seem to vindicate fund manager Tan Teng Boo’s assertion two weeks ago that the Malaysian market had bottomed out. Arab-Malaysian agreed, saying that there would be “positive capital inflow going forward”. It pointed out that the stock market capitalisation had edged upwards to nearly RM680 billion while the ringgit remained steady at RM2.55 to the US dollar.
Tonight, the CPPS held an open forum on “The Financial Crisis and Implications on Malaysia” at UM. We’ll be writing a short review of what took place, but in short, everyone (both panelists and audience alike) seemed to be very pessimistic going forward. There was some criticism of the economic package recently released by Government, and views were exchanged on the role of government. This sounded repetitious of arguments made in the States, with some agreeing in economic liberalisation whilst others stated the role of unions and social democratic stances were appropriate. The irony lies in the need for liberalisation combined with good regulation (if not necessarily more regulation per se). With limited resources, Government needs to be selective in how it spends its money, in order to optimise it and not let it go to waste again. With this, transparent mechanisms are necessary to ensure that the money spent is reaching their rightful intended places.
In the meantime, KLIA receives subsidies for its operations yearly:
The 10-year-old Kuala Lumpur International Airport has come under criticism from lawmakers for relying on a government handout of RM1 billion each year to fund its operations. As a major regional aviation hub, the KLIA should be self-sustaining and be able to meet its operational costs, Tan Sri Abdul Khalid Ibrahim, the PKR MP for Bandar Tun Razak, was quoted as saying.
Also erstwhile, the Government’s EPF is going to inject RM5billion to ValueCap, amidst lots of dissension.
“This is part of its mandate, for example, through the bonds offered by the corporate sector,” said Nor Mohamed. “Valuecap is not for raising the Bursa Malaysia index or to shore up the market,” he emphasised. He clarified that Valuecap was a long-term investment institution and would only invest in shares listed on Bursa Malaysia and not in any foreign portfolio.
“It would be used for investments in companies where the share prices are low but have strong fundamentals and potential,” he said, noting that now was a good time for Valuecap to invest.
What makes of the Malaysian economy? Fear, trials and tribulation?
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