The effectiveness of supervision of capital flows by the central bank and the Ministry of Finance was called into question in a recently published report on capital flight from developing countries, which placed Malaysia fifth-highest after China, Russia, Mexico and Saudi Arabia. The report, entitled Illicit Financial Flows from Developing Countries, was published by a US-based watchdog, Global Financial Integrity (GFI). In the document, the institute studies illicit financial flows, proposes ways to curtail illegal crossborder monetary flows and pays special attention to developing countries. The GFI makes the point that in many cases illicit outflows far exceed foreign aid or investment inflows, and that such outflows tend to aggravate poverty and hold back economic development.

Using two economic models-one of which is used by the World Bank to measure changes in external debt, while the other measures discrepancies in the direction of trade statistics published by the IMF-the institute estimates that illicit flows of funds out of Malaysia more than tripled from US$22.2bn in 2000 to US$68.2bn in 2008. This puts Malaysia far ahead of all Asian countries covered by the GFI with the exception of China, which is in highest place in 2008, recording an outflow of US$344.3bn. The GFI admits that it is baffled by Malaysia's massive outflows. One of the report's authors, a former IMF economist, Dev Kar, points to the coincidence of the tripling of illicit outflows with the failure of economic growth to regain momentum after the Asian financial crisis. The GFI's estimates indicate that illicit funds were transferred from Malaysia during this period through export under-invoicing and mispricing of imported goods. Malaysia also lost significant capital through unrecorded transfers using non-trade channels, Mr Kar said. The GFI's report has brought mixed reactions from officials in Malaysia. Mr Najib called on the BNM to comment on the GFI's claims and study the issue of illicit monetary outflows in greater depth, but a deputy finance minister, Donald Lim, cast doubt on the veracity of the report, and queried its timing and the motives of the report's authors.