Bank Negara's reserves at levels which should cause concern.

Malaysia's reserves of Gold ,Foreign Exchange and Other Reserves including SDR as at 29 June 2007 stood at MYR 339,774,970,225.

67.4% of this amount was financed by deposits from financial institutions which totalled RM
229,099,593,853.

It was a similar asset-liability position that left Malaysia and the Ringgit vulnerable to speculative attacks in 1997.
As then finance minister, " Dr" Anwar Ibrahim was responsible for financing Malaysia's foreign reserves almost entirely out of statutory deposits -- placed at no interest by financial institutions -- at the Central Bank. (for full story by Sahathevan see http://findarticles.com/p/articles/mi_m0BJT/is_24_6/ai_55143627)

To illustrate:

At 30 June 1997 , Gold and Foreign Exchange and Other Reserves including SDR totalled RM
70,705,200,558 ; while deposits from financial institutions totalled RM 61,771,338,858; or 87.3% of the reserves.

However, by 31 December 1998, after Mahathir removed and replaced "Dr" Anwar as finance minister , Gold and Foreign Exchange and Other Reserves including SDR totalled RM 9,438,053,960 , while deposits from financial institutions totalled RM 34,650,553,608; or only 34.84% of reserves.

Nevertheless, by 30 October 2003, when Mahathir left office,
Gold and Foreign Exchange and Other Reserves including SDR totalled RM
165,805,782,524, while deposits from financial institutions totalled RM 94,302,076,338, or 56.87% reserves.

As mentioned, that percentage has now risen to 67.4%,despite the massive oil and gas revenue provided by Petronas.

The problem with an over reliance on deposits from financial institutions as a means of financing the reserves is this : what happens if Ringgit deposits are withdrawn suddenly, thus requiring a draw-down of the statutory deposit to meet at least short-term demand, and there is at the same time an increased demand for foreign currency from depositors wanting to repatriate funds off-shore ? Would not Bank Negara be then supplying the demand for both from the same pool?

The collapse of the Ringgit in 1997 shows us that such a scenario is not fantasy, and recent reports that "Bank Negara Malaysia (BNM) is unfazed by the inflow of what is said to be speculative funds into the country as the bond market has reached a size where it can absorb such inflows and outflows"(see http://www.theedgedaily.com/cms/content.jsp?id=com.tms.cms.article.Article_b3486968-cb73c03a-d647d800-d2aa7a39) sound too much like the explanations then governor Ahmad Don use to provide in 1997-98,when he managed to stop himself laughing.

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