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Malaysia beats forecasts with 4.9% growth in Q2

Central bank chief quashes talk of capital controls; sidesteps some questions on 1MDB
Friday, August 14, 2015 - 05:50
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''I have to be very careful what I say. It has to be within the confines of the law, otherwise the moment I step out (of here), I will face arrest" - Ms Zeti, when asked if the central bank had been informed by Ambank of the monies deposited into Mr Najib's accounts.

Kuala Lumpur

MALAYSIA'S economy grew 4.9 per cent in the second quarter, driven mainly by private-sector demand, said the country's central bank governor Zeti Akhtar Aziz on Thursday.

Growth moderated from the 5.6 per cent registered in the first quarter, but was better than the consensus of 4.5 per cent; the official projection for the full year's growth is between 4.5 per cent and 5.5 per cent.

"Fact is, we are one of the better-performing economies," said Ms Zeti, who acknowledged that the ringgit will stay volatile until "issues confronting Malaysia are resolved".

She was speaking at a press conference, one more packed than usual because of those very "issues" - the widespread speculation about capital controls, the tanking ringgit, 1MDB and the source of the US$700 million in Prime Minister Najib Razak's personal bank accounts in Ambank.

"This must really be a record turnout. I hope we will live up to your expectations," she quipped in a reference to the media scrum, though she was to tread carefully for the rest of the session to avoid running afoul of the law or the administration.

Reiterating the government's stand on capital controls, she said: "I want to categorically emphasise that we do not intend to peg the currency. . . . We have moved on. The financial system is more developed now and our markets, larger, so they can absorb the volatility."

She added that Malaysia believed that the ringgit volatility is temporary, and that when external and domestic issues are sorted out, the currency will better reflect its fundamentals.

The ringgit's slump to more than 4.00 to the US dollar - it has lost about a fifth of its value since last Sept 1 - has caused considerable pain to Malaysian consumers; businesses are also reeling, prompting tycoons Tony Fernandes and Nazir Razak to urge the government this week to fix the problem.

Bank Negara Malaysia (BNM) still does not consider conditions to be worse than that during the Asian financial crisis of 1997-1998, when Malaysia shocked the world by implementing capital controls and pegging the ringgit at 3.80 to the US dollar. The peg was lifted only in 2005.

Economists have warned that the country's depleting international reserves - US$96.7 billion as at the end of July, from a high of US$137 billion in 2011 - could spell trouble if Malaysia fails to meet its obligations.

But Ms Zeti said she is comfortable with the current level of reserves, which she said were more than enough to take Malaysia into the next year. "That's why we say during the good times, you have to build up your buffers." She added that unless Malaysia falls into "extreme" circumstances - a serious recession for instance - she is confident in the resilience of the economy, and said it would stay on track for steady growth (of between 4 per cent and 6 per cent).

She suggested that the resolution of 1MDB's RM42 billion in debts would be enough to renew investor confidence. Even the chief executive of the state-owned entity Arul Kanda Kandasamy has said he expects to bring the debts under control in about six months.

Investors may disagree.

The credibility of Mr Najib, who is also the finance minister and chair of 1MDB's advisory panel, has taken a beating because of how he has handled the state agency's financial problems, including that of the US$700 million in allegedly 1MDB-linked funds finding their way into his personal bank accounts. He reshuffled his Cabinet, removing ministers who had publicly questioned the deposits; he also fired the attorney-general and pulled off other political manoeuvres that have been read as attempts to stymie investigations into 1MDB.

The anti-corruption agency has since declared that the funds were not from 1MDB, but were political donations from a Middle East source, and that the identities of the donors could not be revealed.

In any event, local and foreign investors are not convinced and are cashing out of the country - depressing the ringgit further.

Asked if BNM had been informed by Ambank of the monies deposited into Mr Najib's accounts, Ms Zeti replied: "I have to be very careful what I say. It has to be within the confines of the law, otherwise the moment I step out (of here), I will face arrest … and I am sure you wouldn't want that.

"Bank Negara has shared all the information that it has relating to any account with the relevant enforcement agency, because it is not the enforcement agency for those wrongdoings."

She added that BNM completed investigations into 1MDB-related areas under its purview this week, specifically transactions by 1MDB that are subject to BNM approval under the law; the central bank has since submitted the papers to the current Attorney-General with recommendations for appropriate action.

Did BNM look into Mr Najib's account, she was asked. She replied: "That is not under our purview. But we have assisted other enforcement agencies."

Did Ambank inform BNM of the deposits? Here, she prevaricated, saying: "Banks are supposed to inform us. If everything is in order, they won't inform us unless they think something is suspicious."

BNM's deputy governor Nor Shamsiah Yunus said that under the law, banks are supposed to do due diligence and tip off the central bank if they have reason to be suspicious of specific transactions; the responsibility is thus on banks to lodge suspicious transaction reports or STRs.

Ms Zeti disclosed that seven BNM officers had been questioned about leaks related to 1MDB investigations, and on allegations against her and BNM, and that steps are being taken to identify the culprits.

Asked if she planned to complete her current term, she said yes, and that when her contract expires next year, she plans to retire and write a book after 16 years as governor.

Addressing rumours that she had had a heart attack recently, she said: "My doctors have told me my heart is very strong and arteries are very clean."

"I have to be very careful what I say. It has to be within the confines of the law, otherwise the moment I step out (of here), I will face arrest … and I am sure you wouldn't want that. Bank Negara has shared all the information that it has relating to any account with the relevant enforcement agency, because it is not the enforcement agency for those wrongdoings."

Ms Zeti, when asked if the central bank had been informed by Ambank of the monies deposited into Mr Najib's accounts.

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