Newsmakers 2017: Forex loss RCI: Ghosts from a scandal past

This article first appeared in The Edge Malaysia Weekly, on December 25, 2017 - December 31, 2017.
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ON Nov 30, the findings of the Royal Commission of Inquiry (RCI) into the foreign exchange losses at Bank Negara Malaysia in the 1990s were tabled in Parliament. This followed the RCI’s nine days of public hearings in August and September, at which 25 witnesses testified and 42 documents were presented.

The RCI was a culmination of claims by former Bank Negara assistant governor, Datuk Abdul Murad Khalid, in January that the central bank lost far more due to forex trading in the 1990s than previously reported.

During the hearings, the five-man panel heard that Bank Negara lost a total of RM32.07 billion between 1988 and 1994 — RM12.35 billion in 1992, RM15.29 billion in 1993 and RM3.86 billion in 1994. However, only RM5.7 billion was recorded as deferred expenditure in 1993.

The central bank’s shift to actively participate in forex markets was traced back to the tenure of the late governor Tan Sri Jaffar Hussein, who helmed the bank between 1985 and 1994.

Some witnesses claimed that Jaffar downplayed the losses during his time but later played his part in resolving the mess. The losses depleted two-thirds of Bank Negara’s reserves at the time, the panel was told.

According to witnesses, 123 million Telekom Malaysia Bhd shares and and 47 million Tenaga Nasional Bhd shares were quietly transferred at par value and sold to mitigate the losses.

Parliament heard on Nov 30 that following the hearing, the commission recommended a police investigation into possible criminal breach of trust and cheating by the prime minister and finance minister at the time — current opposition leaders Tun Dr Mahathir Mohamad and Datuk Seri Anwar Ibrahim respectively.

The recommendation also extended to officers and board members of Bank Negara, the Ministry of Finance and the Auditor-General’s Department.


Tun Dr Mahathir Mohamad

Former Prime Minister

With widespread speculation over the political undertones of the RCI, the spotlight of the hearing was firmly on Dr Mahathir, who is now spearheading a federal opposition alliance against his former political coalition.

Outside the inquiry, he questioned the RCI’s motives and unsuccessfully sought to remove panel chairman Tan Sri Mohd Sidek Hassan, who is also Petroliam Nasional Bhd chairman, alleging bias. He also noted that current prime minister Datuk Seri Najib Razak was part of his Cabinet which decided against holding an RCI on the forex losses back in 1993.

During the hearing, the  then-prime minister denied knowledge of the extent of the losses, saying he was only aware of RM5.7 billion in forex losses and not RM32.07 billion.

“If I had known the losses were RM30 billion, I would not have said ‘sometimes we lose, sometimes we win’ or ‘sometimes we make profits and sometimes we make losses’, which Anwar and (former Treasury secretary-general Tan Sri Clifford) Herbert claimed I said when they met me late 1993,” he said.

He also denied knowledge that Tan Sri Jaafar Hussein had moved to active forex trading to counter currency volatility in an attempt to protect Malaysia’s reserves following the Plaza Accord. The 1985 agreement between France, West Germany, Japan, the US and the UK sought to depreciate the US dollar against the yen and deutsche mark.

In its findings, the commission claimed Bank Negara deliberately concealed the losses by not stating these in full. It also claimed that Dr Mahathir had condoned the actions of the then finance minister Datuk Seri Anwar Ibrahim in misrepresenting the true extent of the losses.


Tan Sri Nor Mohamed Yakcop

Former Second Finance Minister

Among the highlights of the RCI must be the startling admission by Nor Mohamed that he had made a mistake in managing forex trading as Bank Negara’s banking department manager at the time.

“I made a mistake of hedging 100% against currencies in the 1990s” instead of 60%, he told the panel. He admitted that “we misread the turn of the market (the European currencies crash) … we learnt a bitter lesson from these incidents”.

He resigned from Bank Negara in 1994 to take responsibility for the losses, ending a 25-year stint with the central bank. Between 1998 and 2000, he became Bank Negara adviser and then finance minister (2004-2009).

Following the hearings, Nor Mohamed resigned from his deputy chairman post at sovereign wealth fund Khazanah Nasional Bhd in September.

However, in his full written statement to the RCI, he contended that the skills acquired and lessons learnt from Bank Negara’s forex trading years were crucial when the nation faced the Asian financial crisis in the late 1990s.

Nor Mohamed was a top adviser to the then premier Tun Dr Mahathir Mohamad, who eventually pegged the ringgit to the US dollar to stem currency outflows.

“In fact, the 45 notes that I wrote to the prime minister between October 1997 and August 1998 analysing in detail the 1997/1998 financial crisis and proposing the solution would not have been possible without the market expertise acquired at Bank Negara’s forex desk, thanks to Allahyarham Tan Sri Jaafar Hussein,” he wrote in the statement.


Datuk Seri Anwar Ibrahim

Former Deputy Prime Minister

Finance minister between 1991 and 1998, opposition leader Anwar Ibrahim was also deputy prime minister between 1993 and 1998. The panel grilled him on whether he knew the full extent of the losses compared to the smaller portion presented in Bank Negara Malaysia’s reports.

In Bank Negara’s 1993 audited annual report, the losses reported amounted to only RM5.7 billion. Anwar admitted knowing that the losses actually stood at RM15.29 billion that year, but contended that he was bound by the annual report, which was audited by the then auditor-general Tan Sri Ishak Tadin.

“I was aware of huge losses amounting to RM9.5 billion in 1993 but I was bound by Bank Negara’s Annual Report 1993 (AR 1993) that was audited by the auditor-general,” he told the panel.

“(But) I cannot use a contentious, false or draft report and inform the Cabinet or Parliament about the actual losses unless it is audited. (Anyway), the Cabinet was aware of the losses; if they didn’t know, then they were sleeping,” he added.

The panel heard that Ishak had known about the losses as he had sent an urgent letter to Anwar stressing its seriousness in March 1993.

In its findings, the five-man panel named Anwar as among those “principally liable for criminal breach of trust” as he, alongside Mahathir and Herbert, were informed of the RM30-odd billion losses in late 1993, the panel said in its report.

The panel added that Anwar, who chaired three Cabinet meetings in March and April 1994, did not correct information on the true extent of the losses despite his knowledge.


Tun Daim Zainuddin

Former Finance Minister

At one time known as Dr Mahathir’s right- hand man, Daim denied knowledge of forex trading activities when he was finance minister between 1984 and 1991.

He told the panel that he did not know of Bank Negara’s change in policy regarding active forex market participation following the Plaza Accord in 1985. Daim was also finance minister for a second time between 1998 and 2001.

“Forex trading was utter rubbish. I would have stopped it had I known. That was not the role of Bank Negara. It is to protect our currency, (and) our reserves,” he said.

In his testimony, Daim said he first learnt of the losses in 1994 when he met Tan Sri Jaffar Hussein in London and claimed that the then auditor-general Tan Sri Ishak Tadin did not inform him despite reporting to him as finance minister at the time.

That “was the first time everyone knew. Before that everything was under the Official Secrets Act (1972)”, he added.

However, he also said that Bank Negara is fiercely independent of the government and should not be told how to manage its trading activities. When asked why he did not question the relevant officers at the time, he responded that “on hindsight, RCI panel chairman Mohd Sidek and I can be brilliant when looking at what transpired 25 years ago”.

In its finding, the RCI panel also named Daim as liable for potential criminal breach of trust for the losses as he had left the central bank “to its own devices”, thereby aiding and abetting Nor Mohamed’s role in the losses.

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