BANK NEGARA GOVERNOR REPLIES TO SINGAPORE ENVOY

Dear Sir,

I refer to the letter by H.E. K. Kesavapany, High Commissioner of Singapore in Malaysia, which appeared in the Business Times on Tuesday, August 10 1999. I would like to make two points in reply to the article.

Firstly, on the short-selling of Malaysian shares in Singapore, there is no doubt that there was short-selling of Malaysian shares through CLOB.

We had a situation where short-selling was not legal for Malaysian shares in Malaysia but was legal for Malaysian shares traded in Singapore. This was certainly not tolerable. Undoubtedly, short-sellers used CLOB shares to manipulate Malaysian shares downward.

Investors in Singapore are welcome to invest in Malaysia by purchasing shares on the KLSE directly. Malaysia did not accuse the Singaporean investors of CLOB of short-selling. What we said was that the share manipulators (mainly the foreign hedge funds) borrowed the shares from CLOB to short-sell.

The Singapore authorities contributed to the short-selling since they did not disallow CLOB shares from being borrowed to be short-sold by the manipulators.

Secondly, the very high interest rate for the ringgit in Singapore in 1998. It should be noted that the reason for the high interest rate was that the currency speculators were borrowing ringgit in Singapore and making profit by short-selling the ringgit that was borrowed. Although, the cost of borrowing was high, the profit on short-selling the ringgit was even higher.

The short-selling of ringgit in Singapore resulted in sharp depreciation of the ringgit, which very severely affected the Malaysian economy.

If the Singapore authorities had put a stop to the short-selling activities of the ringgit in Singapore, there would have been no need for the banks in Singapore to borrow the ringgit at such high interest rates.

H.E. Mr Kesavapany claims that "as a close neighbour with long standing ties, Malaysia's well being if of vital interest to Singapore".

If this is true, the Singapore authorities should have taken steps to prevent the short-selling of the ringgit in Singapore.

Not only did they do not do that, one gets the impression that the Singapore authorities assisted the short-selling activities since Singapore newspapers were in the habit of spreading negative rumours about Malaysia, which resulted in the short-sellers reaping large profits on their short-positions.

TAN SRI ALI ABUL HASSAN SULAIMAN
Bank Negara Governor