Speech (Part 1) by Parliamentary Opposition Leader, DAP Secretary-General and MP for Tanjong, Lim Kit Siang, in the Dewan Rakyat on the Royal Address debate on Monday, April 11, 1994
The colossal forex losses in the last two years have knocked out a big hole in Bank Negara, not only making it insolvent but destroying it credibility and authority as the ‘banker’ and guardian of banks in Malaysia.
Parliament is debating Bank Negara’s colossal foreign exchange losses for the second consecutive year and it is apt that we start with the story told by Tan Sri Jaffar Hussein at a lecture in New Delhi in December 1988 on the topic, “Central Banking in an Era of Change”, which was also used as the book title for Bank Negara’s “landmark speeches from 1959-1988”.
Tan Sri Hussein’s story was about a captain of a super oil-tanker at the bridge, who was called up at the middle of the night by his number two, who said,
“Captain, Captain, I have bad news and good news for you.”
The captain said, ”You might as well tell me the bad news first.”
“Well, ” the officer reported, “we had struck a reef and are taking in lots of water.”
“And what is the good news?” asked the Captain.
“Captain, sir, the hole is at the other end of the ship.”
The colossal forex losses of Bank Negara in the last two years have knocked out a big black hole in Bank Negara, not only making it, insolvent but destroying its credibility and authority as a ‘banker and guardian of banks’ in Malaysia.
When Bank Negara’s 1992 Report was released last year, however, Tan Sri Jaffar Hussein, denied there was any ‘hole’ in Bank Negara, asserting that the RM9.3 billion forex losses which it was prepared to admit were mere “paper losses” and that “BankNegara’s loss is the nation’s gain”!
When Bank Negara’s 1993 report was released two weeks ago, there was another exercise to deny that the ‘hole’ at all, with the Prime Minister, Datuk Seri Dr. Mahathir Mohamed declaring that the RM5.7 billion forex losses last year came from “profits made in forex dealings in preceding years”!
Bank Negara’s forex losses in the past two years could total as high as RM30 billion, making it the biggest financial scandal in Malaysia as well as a world-class financial scandal.
There was in fact a conspiracy of disinformation and misinformation to ‘cover up’ the real nature, cause and magnitude of Bank Negara forex losses in the past two years which I will show in the course of my speech could total as high as RM30 billion. It is not only the greatest financial scandal in Malaysia, but has reached the standing to be a world-class financial scandal!
In the special DAP motion on the Bank Negara forex losses in Parliament last April, the Finance Minister , Datuk Seri Anwar Ibrahim strenuously denied that Bank Negara had “speculated” or “gambled” in foreign exchange.
Anwar said that as Finance Minister, he was “fully satisfied with the reasons” given by Tan Sri Jaffar Hussein for the Bank Negara’s forex losses.
However, truth cannot be concealed forever, as it would always find some way of declaring itself.
This time, it is the Economic Adviser to the Government, Tun Daim Zainuddin, who had got the ‘cat out of the bag’. On Monday, April 4, 1994, Daim Zainuddin was reported in the press as saying that “Central Banks must not play with the risks or losses are high”.
The Daim said that while those responsible for the huge forex losses of Bank Negara had accounted for their mistake by resigning, central banks should never go into such ventures.
He said:”It is wrong to think that you cannot lose when you play in money markets. You see, if you make, someone else has to lose. When you have limited funds, you do not speculate.
“You must not go into this. It is different if you are pursuing long-term investments but if you are speculating, do not go into this unless you are prepared to face losses.
“Central banks have a certain role to play and this (speculative venture) is a dangerous area where the risks are high. You should not play with fire.
“But now that the central bank has suspended such trading, I think it is all right.”
Daim may know even more than Anwar about Bank Negara’s forex losses as Bank Negara’s forex ‘speculation’ was started when Daim was Finance Minister.
What more authoritative admission can Parliament or the country get that Bank Negara’s colossal losses stemmed from imprudent foreign exchange speculation, as Tun Daim cannot be accused like the Opposition of ‘speculating’ about the causes of Bank Negara’s forex losses?
Apart from the Prime Minister and the Finance Minister, there is no other person in the country who could speak with greater knowledge and authority about the real cause of Bank Negara’s colossal forex losses. In fact, Tun Daim may know even more than Anwar Ibrahim because it was under Daim’s tenure as Finance Minister that Bank Negara ventured into speculative foreign exchange trading at that time with some minor success!
It is most unfortuned that when he was Finaice Minister, Daim did not warn and direct Bank Negara to stop ‘playing with fire’, and for this reason, Tun Daim must also bear responsibility for the colossal forex losses suffered by Bank Negara.
Tun Daim praised Tan Sri Jaffar Hussein for resigning as Bank Negara Governor and praising such ‘culture of accountability’.
Is Tun Daim prepared to accept such ‘culture of accountability’ himself for his failure to stop such speculative foreign exchange trading by Bank Negara when he was Finance Minister, as such speculative forex trading during his tenure?
Anwar must also bear responsibility for the colossal Bank Negara forex losses.
However, the person who must also bear responsibility for the colossal Bank Negara forex losses, apart from Tan Sri Jaffar Hussein, must be the Finance Minister, Anwar Ibrahim, himself.
As Anwar had assured Parliament last April that he was ‘satisfied’ with Tan Sri Jaffar’s explanation for the 1992 Bank Negara forex losses, why had Tan Sri Jaffar done differently in 1993 with regard to the 1993 Bank Negara forex losses to require his resignation?
In Fact, if the Prime Minister is right that the Bank Negara’s RM5.7 billion forex losses last year are from profits made in forex dealings made in preceding years, there is no need for Tan Sri Jaffar Hussein to resign at all.
Jaffar should be made a Tun instead of having to resign in ignominy if it could be shown that over the years, Bank Negara had cumulatively made more profits from forex speculation despite the colossal losses in the past two years.
If it could be shown that since it ventured into speculative forex trading under his Governorship, Bank Negara had cumulatively made more profits from such speculative forward forex trading despite the colossal losses in the past two years, Jaffar should be rewarded with a Tun instead of having to resign in ignominy!
Dr. Mahathir said last year that there was no need for him to take action against any Bank Negara official, and that “it would not be fair as no one made any compliment when Bank Negara would not be fair as no one made any compliment when Bank Negara made large profits from its foray into the forex markets earlier”.
Dr. Mahathir was being unfair himself, as Malaysians had not known that Bank Negara had been an active forex speculator.
This is why the DAP had called on the Government to present a White Paper to give full details of its annual profits or losses from forex dealings in the preceding years, so that Malaysians can know whether the cumulative profits from Bank Negara forward forex dealings are able to absorb the RM5.7 billion forex losses let alone the RM30 billion which could be the total forex losses in the past two years!
There are two other reasons why Anwar Ibrahim must bear personal responsibility for Bank Negara’s forex losses.
Anwar Ibrahim said last week that he had directed Bank Negara to stop forward foreign exchange trading when he discovered its forex losses 18 months ago. If Bank Negara had followed his instructions to stop forward forex trading in 1992, then how could Bank Negara suffer RM5.7 billion losses in 1993, on top of the RM10.1 billion to RM13.1 billion losses in 1992?
Furthermore, Anwar Ibrahim had misled Parliament last July when I questioned him whether Bank Negara had suffered more forex losses. Anwar said that this was not true as he had been monitoring the Bank Negara’s forex dealings weekly.
On July 19, 1993, I asked Anwar Ibrahim a supplementary question during question timw as to whether at that date, Bank Negara’s provision of RM2.7 billion contingent liability for forward forex trading in the 1992 Bank Negara accounts had not only been confirmed, but even more forex losses had been incurred.
This is Anwar’s reply, from the Hansard of 19th July 1993(p. 28):
“Dato Seri Anwar bin Ibrahim: Tua Yang di-Pertua, dukacita saya memaklumkan ini satu berita yang kurang baik bagi Yang Berhormat dari Tanjong. Kerugian yang dimaksudkan itu tidak berlaku dan tidak bertambah. Yang Berhormat mahu percaya atau tidak, tetapi saya ada maklumat yang sebenar tentang keadaan tersebut. Saya juga meneliti tiap-tiap minggu perkembangan kerana masalah yang dihadapi sebelum ini…. Saya ingin member jaminan kepada Yang Berhormat bagi Tanjong bahawa perkara ini kita teliti lebih dekat dan kita lebih waspada kerana pengalaman yang lalu.”
In this one short answer, Anwar Ibrahim had misled Parliament and the nation on three matters:
- that by July 1993, the provision in the 1992 Bank Negara accounts for RM2.7 billion contingent liability for forward forex trading had not been confirmed;
- that Bank Negara had not suffered more forex losses; and
- that his weekly monitoring of Bank Negara’s forex dealings would prevent firther colossal losses arising from Bank Negara’s forward forex trading.
If Anwar Ibrahim claims that he had directed Bank Negara to stop forward forex trading 18 months ago, and that “there are no new trading arrangements” last year as the central bank unwound its forward positions in the market last year (Business Times April 6, 1994), then Bank Negara should not have incurred RM5.7 billion when its contingent liability provision for such forward forex trading in end-1992 was RM2.7 billion.
Furthermore, there should not be another provision of RM1.4 billion as contingent liability for forward forex trading for 1994 in its end-1993 Account.
As forward forex deals are usually for three or six months, this must mean that Bank Negara was still dealing in new forward forex trades at least until June 1993.
Anwar’s claim that there were no new forward forex trading by Bank Negara in 1993 had been contradicted by Tan Sri Jaffar Hussein, who said in his press conference on March 31 as well in his foreword to the 1993 Bank Negara report:
“In the Bank’s 1993 accounts, a net deficiency in foreign exchange transactions of RM5.7 billion is reported, an amount which will be written off against the Bank’s future profits. This loss reflected errors in judgement involving commitments made with the best of intentions to protect the national interest prior to the publication of the Bank’s 1992 accounts towards the end of March 1993. As these forward transactions were unwound, losses unfolded in the course of 1993. In this regard, global developments over the past year had not been easy for the Bank; indeed, they made it increasingly difficult for the Bank to unwind these positions without some losses. For the most part, time was not on the Bank’s side. Nevertheless, this exercise is now complete- there is at this time, no more contingent liability on the Bank’s forward foreign exchange transactions on this account. An unfortunate chapter in the Bank’s history is now closed. ”
This is an admission that until late March 1993, Bank Negara was still dabbling in new forward foreign exchange transactions, with the suggestion that after March, all these forward transactions were unwound.
But the provision of RM1.4 billion contingent liability for forward forex trading in the end-1993 account (Note 12) shows that new forex trading were still being entered into well after March 1993.
Clearly Datuk Seri Anwar and Tan Sri Jaffar are not telling the truth as to when Bank Negara ceased new forward forex trading.
Only a full and independent investigation into the Bank Negara’s colossal forex losses can establish the truth about its forex activities, as well as other important aspects of the Bank Negara forex losses scandal.
Dishonest and unethical accounting is treating the RM5.7 billion in forex losses as an asset item in the 1993 Balance Sheet.
Bank Negara has used dishonest and unethical accounting to manipulate the 1993 Balance Sheet to hide the RM5.7 billion in forex losses so that the losses will not be fully reflected in the accounts. This is done by including the RM5.7 billion forex losses as an Asset item under Deferred Expenditure.
Such treatment of extraordinary forex losses as an asset is most shocking, unacceptable and violates generally accepted accounting principles.
Under any international accounting standards, including Malaysia, such huge forex losses should be treated as an extraordinary loss item in the Profit and Loss Account.
Under no circumstances should such forex losses be capitalised and treated as an asset item in the Balance Sheet! How can such losses be treated as an asset item when it is not an asset that benefits Bank Negara but is a huge loss to Bank Negara.
As a charted accountant, Tan Sri Jaffar Hussein should know that it is unethical and dishonest to treat such huge forex losses as an asset to Bank Negara! It is a shame not only to Bank Negara but to all Malaysians for Bank Negara to try to hide the red ink by resorting to such silly methods that any accounting student will spot immediately.
Bank Negara is insolvent- where its liabilities exceed its assets- by RM20.1 billion, and it would have been taken over if it had been a commercial bank.
It is clear that the intention of such malpractices is to hide the fact that Bank Negara is technically insolvent or bankrupt. In accounting terms, the Net Assets is used as a rough indicator of a company long-term solvency, value and financial performance. According to the Bank Negara Annual Reports the net worth or net assets since 1990 are as follows:-
| 1990 | 1991 | 1992 | 1993 | |
| RM Millions | ||||
| Paid-up Capital | 100 | 100 | 100 | 100 |
| General Reserve Fund | 3,258 | 3,458 | 3,556 | 3,556 |
| Other Reserves | 8,749 | 10,053 | 753 | 41 |
| Net Assets | 12,107 | 13,611 | 4,409 | 3,697 |
Bank Negara’s net worth only dropped by RM712 million in 1993 to RM3,697 million because it only took into account the net operating loss of RM712 million suffered by Bank Negara, not the RM5.7 billion in forex losses. If the RM5.7 billion in forex losses were thaken into account, Bank Negara would have a negative net worth of (RM2,010) million or is technically insolvent.
Bank Negara is therefore insolvent- which means its liabilities exceed its assets- by RM2,010 billion, and the Governor and its Board would have been suspended and the bank taken over if it had been a commercial bank!
If Bank Negara is bankrupt, then where is its authority morally or ethically to regulate commercial and merchant banks to ensure that they are solvent and maintains sufficient capital adequacy ratio. What difference is Bank Negara now from Rakyat Merchant Bankers (RMB) which it took over on 3.3.94 because it breached its capital adequacy ratio requirements and was technically insolvent? In fact what difference is Bank Negara now r=from the 24 Deposit-Taking Co-operatives which collapsed in 1986 or from the other collapsed banks and finance companies which it took over in the past?
Bank Negara has always acted as the lender of last resort and the rescuer of troubled financial institutions. Who is there now to rescue the rescuer that is now in severe financial trouble? And why does Bank Negara not come out cleanly and openly recognize the RM5.7 billion forex losses for what they were as losses in their financial accounts instead of trying to disgrace themselves by trying to package it and dress it up as an asset!
Government should ‘top up’ Bank Negara’s deficiency in net worth so that Ahmad Mohamad Don would not be humiliated in international monetary circles as a Governor of an insolvent Bank Negara.
Bank Negara Malaysia had always been held in high esteem by the international banking community, but this esteem had been lost as a result of Bank Negara’s colossal forex losses in 1992, I understand that at the recent International Monetary Fund meeting, the Bank Negara officials were treated like pariahs by the other central bankers.
With Bank Negara insolvent, how could the new Bank Negara Governor, Ahmad Mohamed Don, stand tall in international conferences with central bankers from other countries?
The Government should ‘top up’ Bank Negara’s deficiency in net worth so that Ahmad Mohamed Don would not be humiliated in international monetary circles as a Governor of an insolvent Bank Negara. Let us remember that the humiliation of the Bank Negara Governor is a humiliation of all Malaysians!
The proper thing for the Government to do is to recognise the insolvency of Bank Negara and to inject RM3 billion in capital into Bank Negara to overcome the RM2.01 billion in deficiency in net worth, give sufficient capital funds for Bank Negara to operate as well as restore the credibility and image of the Bank Negara Governor and other officials with their peers in international conferences.
Or is the Finance Ministry itself out of funds that it could not ‘top up’ Bank Negara’s deficiency in net worth?
Has Bank Negara concealed RM6.1 billion forex losses by revaluation of the quoted investments.
This is not the only accounting malpractice to be found in the 1993 Bank Negara accounts. The revaluation of Bank Negara’s quoted investments are also not taken into account leading to the likelihood that these revaluation gains have been used to conceal even greater forex losses last year than the RM5.7 billion that have been admitted.
Under Notes 1(a) to the 1993 accounts, it is started that the Bank Negara has “now consistently applied” the current cost accounting method for all quoted investments – extending the 1992 change of valuation of gold to mark-to-market basis.
Usually in such a revaluation exercise, there is a revaluation gain because these investments were valued at the original cost they were bought years ago, which was very much lower compared to current prices. This is shown by Other Assets jumping up by RM6.1 billion from RM3.64 billion in 1992 to RM9.75 billion in 1993 because of the revaluation exercise.
However, this revaluation gain of RM6.1 billion is not recognized or taken into account in the 1993 Balance Sheet as would be required under generally accounting principles. There is no RM6.1 billion increase in either Other or General Reverses Account nor any RM6.1 billion gain in the Bank’s Net Worth.
It is likely that the revaluation gain of Rm6.1 billion has been completely offset by further hidden and secret forex losses. In other words, the 1993 forex losses do not amount only to RM5.7 billion but may be as high as RM12.8 billion!
This is another area which calls for full and independent investigations, as to whether the Bank Negara had concealed RM6.1 billion forex losses by the revaluation of its quoted investments like MAS and MISC.
In my speech on the Bank Negara forex losses in Parliament last year, I had drawn attention to various accounting malpractices in the 1992 Bank Negara Balance Sheet to deceive the public about the extent of Bank Negara’s forex losses.
For instance, Bank Negara and the Government had tried to mislead the public by claiming that Bank Negara had suffered ‘paper losses’. According to Bank Negara’s own 1992 Balance Sheets, its losses were not RM9.3 billion but RM10.1 billion as reflected by the drop in the Other Reserves Account of RM9.3 billion after having transferred in RM800 million. This RM10.1 billion loss can also be double-checked and confirmed by calculating the true drop in its not worth.
In accounting terms, retained profits will increase the net worth of a company and reduce it if losses are incurred. Bank Negara recorded a profit of RM1,398 million in 1992, of which only RM898 million was retained because the remaining RM500 million was paid to the Government. This is shown as follows:-
PROFIT AND LOSS APPROPRIATION ACCOUNT for BNM As At 31 December:-
| 1992 | 1991 | 1990 | |
| RM Millions | |||
| NET OPERATING PROFIT | 1,398 | 1,200 | 1,074 |
| ——————————————— | |||
| Transfer To General Reserve Fund | 898 | 200 | 274 |
| Amount Payable to Federal Government | 500 | 1,000 | 800 |
| ——————————————— | |||
| Total | 1,398 | 1,200 | 1,074 |
In other words, assuming no forex losses or gains, Bank Negara should have increased its net worth by RM898 million in profits, its net worth dropped by RM9,202 million because of forex losses instead of increasing. This means that the true fall in the Bank’s net worth positions is RM10.1 billion, caused by forex losses of RM10.1 billion. This is an example where Snwar and Tan Sri Jaffar have tried mislead the public by understanding the 1992 Bank Negara’s losses as RM9.3 billion when it should be RM10.1 billion.
Furthermore, there was also the failure by the 1992 Bank Negara’s accountants to take into account the revaluation gain from gold. BNM had changed its accounting practice in 1992 by revaluing gold which they had bought at a low price in the past 20 years ago at current prices. Since the current price is higher than the purchases price, the amount gained would have been included in the Other Reserves Account.
It had been estimated that gold was US$100 an ounce in 1984 just before Tan Sri Jaffar became Bank Negara Governor, but by the end of 1992 its price had now risen to more than US$300. With the further estimate that BNM had RM1.5 billion at that time, and that this $1.5 billion worth of gold had still been retained, the gold revalued at current prices will be worth more than RM4.5 billion. This gain of more than RM3 billion from such revaluation of gold in 1992 must be reflected in the 1992 Balance Sheet and put in the Other Reserves Account.
The fact that this RM3 billion gain in revaluation of gold was not taken into account shows that even the gain from gold revaluation was also lost. Just like the missing RM6.1 billion revaluation gain of quoted investments in 1993, it is likely that the 1992 gold revaluation gain was again offset by additional secret hidden forex losses.
In other words, the 1992 forex losses suffered by Bank Negara is not RM10.1 billion not likely to be RM13.1 billion. In 1993, Bank Negara suffered RM5.7 billion for forex losses and RM711 million for net operating loss. Taking into account the RM6.1 billion loss that could be hidden by the revaluation of quoted investments, Bank Negara could range from RM6.4 billion to RM12.5 billion.
Taking both years together, Bank Negara could have suffered forex losses ranging from RM16.5 billion to RM25.6 billion.
How Did RM10.1 billion In Forex Losses Suffered By Bank Negara In 1992 Change From Paper Losses To Realised Losses Within A Year?
In a statement by Tan Sri Jaffar to the press on 20th April 1993, Tan Sri Jaffar denied that Bank Negara lost RM9.3 billion in forex losses and insisted that they were only beek losses- or paper losses. Tan Sri Jaffar even said that such paper losses could even turn out to be a profit. Datuk Seri Anwar confirmed this in Parliament on 27th April 1993 that the RM9.3 billion in forex losses were not real losses but merely paper losses.
The issue is what have occurred in the space of one year for the Government and Bank Negara to now admit that the RM10.1 billion forex losses in 1992 were not paper losses but actually real losses? Such blatant accounting malpractices not only show that the Bank Negara’s financial reports do not represent a true and fair view but that Bank Negara could have suffered more losses and is hiding the real extent of such forex losses.
It is shocking that the Auditor-General Tan Sri Ishak Tadin could still continue to approve Bank Negara’s Accounts that it represents a true and fair view when it is misleading and dishonest and can only harm our international reputation.
Assets Alone Do Not Determine Financial Viability.
Anwar should not be misled by Bank Negara officials that Bank Negara can afford up to RM25.6 billion losses in two years because its assets exceed to RM100 billion. It is such wrong advice that caused Datuk Seri Anwar to come out openly to state last year that the RM10.1 billion in foreign exchange (forex) losses suffered by Bank Negara in 1992 were “paper losses”.
The additional Rm6.4 billion to RM12.5 billion losses suffered by Bank Negara in 1993 has proven Datuk Seri Anwar to be embarrassingly wrong that the RM10.1 billion losses were not the same mistake by saying that the country’s financial position will not be affected because Bank Negara’s strong reserves and assets exceeded RM100 billion.
It is true that has reserves and assets of RM100 billion as stated in its 1993 Balance Sheet. But to only concentrate on the assets portion of the Balance Sheet is to miss correctly interpreting the real situation. This is because the Balance Sheet also contains a Liabilities portion that also exceeds RM100 billion.
To fully understand the Balance Sheet to obtain the financial health of an institution is to make a simple calculation of its net worth or net assets. From my explanation just now, Bank Negara’s actual position is not as good as Datuk Seri Anwar said because it does not have assets exceeding RM100 billion but is actually insolvent with a negative net worth of (RM2,010) million.
It is therefore also wrong for Prime Minister Datuk Seri Dr Mahathir Mohamed to say that the country’s financial positions is not threatened because the forex losses are from profits made in forex dealings in the past. Which ASEAN country’s economy can avoid suffering losses ranging from RM6.4 to RM12.5 billion by its Central Bank in a year without any adverse impact?
Making profits in the past is no justification for losing RM16.5 billion to RM25.6 billion in two years, especially when as a result of such huge losses Bank Negara’s net worth is now insolvent with a negative net worth of (RM2,010) million.
How can Bank Negara lose RM712 million as a result of combating inflation in 1993 if it can successfully combat inflation in 1992 and yet also record profits in excess of RM1 billion? Why is 1993 so unusual that when combating inflation Bank Negara has to lose RM712 million?
Why Does A Weaker Ringgit Not Bring About Reserves Gain?
Tan Sri Jaffar said on 20th April 1993 that the RM10.1 billion forex “paper losses” was due to a stronger ringgit because a stronger ringgit would bring about losses in its international reserves. The ringgit appreciated by RM5.63% in terms of the composite basket in 1992. Tan Sri Jaffar said such appreciation was the reason why the forex losses were incurred.
We should therefore expect Bank Negara to make forex gains if the ringgit depreciates. According to the 1993 Bank Negara’s Report the ringgit depreciated or declined by 5.22% in terms of the composite basket in 1993. However instead of recording forex gains, Bank Negara suffered a total loss of RM6.4 billion to RM12.5 billion.
This only shows that massive speculation or gambling in the forex market has resulted in losses which has wiped out any gains from a weaker ringgit.
How much are the forward forex positions? They must be RM30 billion or RM40 billion to be able to incur losses of up to Bank Negara’s admitted forex losses of RM5.7 billion in 1993. What gives the right to one or two persons to have the authority to gamble so much money in the forex market?
Bank Negara forex traders operate in huge lots in the foreign exchange markets. While the market norm is to deal with US$1 million, US$5 million or US$10 million lots, Bank Negara operates in a very aggressive manner, operating in US$50 million lots. I understand that there had also been occasions when Bank Negara operated with US$500 million in one call!
Malaysians are entitled to the full facts of the Bank Negara forex losses scandal. I had last year called for a Royal Commission of Inquiry and I repeat this call.
Royal Commission of Inquiry should inquire whether the total Bank Negara forex losses since 1992 could exceed RM30 billion.
The Royal Commission of Inquiry should first determine the actual extent of the forex losses suffered by Bank Negara since 1992.
I had said that for the two years of 1992 and 1993, Bank Negara’s forex losses could range from RM16.5 billion to RM25.6 billion. The total forex losses could be more when we take into account the RM1.4 billion contingent liability for 1994 arising from forward forex commitments.
Could there be other hidden and secret forex losses in the 1992 and 1993 Bank Negara accounts apart from those who had discussed?
There could be. I will just give one possibility. Bank Negara had been accused for instance of dumping large amounts of ringgit into the market in the closing days of 1993 to buy U.S. dollars, causing the ringgit to fall steeply. That manoeuvre improved Bank Negara’s year-end financial position by raising the value of its currency and gold reserves in ringgit terms.
It is interesting to note that as of November 30, 1993, Bank Negara’s Gold and Foreign Exchange and Other Reserves including SDRs stood at RM60 billion, but within a month by December 31, 1993, it had shot up by RM16.4 billion to RM76.4 billion – and hefty increase of 26 per cent in one month.
Bank Negara’s Gold and Foreign Exchange and Other Reserves including SDRs stood at RM46.2 billion. If it had increased at 26 per cent per month, as happened in the one month of December 1993, Bank Negara’s Gold and Foreign Exchange and Other Reserves would have multiplied to the impossible figure of RM587 billion!
It is therefore possible that the RM16.4 billion increase of Gold and Foreign Exchange and Other Reserves could conceal forex losses, bringing total forex losses to over RM30 billion since 1992.
The first task of the Royal Commission of Inquiry is to ascertain whether Bank Negara’s forex losses since 1992 could exceed RM30 billion.
The second task of the Royal Commission of Inquiry is to ascertain whether there had been any financial` malpractices and abuses in view of the inconsistencies and conflicting explanations about the colossal forex losses.
It is ridiculous for Bank Negara to blame the late delivery of sophisticated computers for causing such huge forex losses. After all, how is it that Bank Negara can not only not lose money but make profits in the past without these sophisticated computers? And how is it that unsophisticated Central Banks of other countries which do not have sophisticated computers do not incur such colossal losses from forward forex operations?
Thirdly, the Royal Commission of Inquiry should establish as to how the Bank Negara could incur such colossal losses.
In fact, Anwar Ibrahim should be able to tell Parliament the size and details of Bank Negara’s foreign exchange losses, by releasing details on Bank Negara’s foreign trans actions, the composition of its reserves, aspects of its intervention operations and its forward commitments in the various currencies.
Last April, Jaffar said that to give details would be “show my hand to the market”, and that “There should be no problems disclosing such information if the bank is no longer in the foreign exchange business.”
Anwar Ibrahim said the same thing in Parliament during question time on July 19.
Now that Bank Negara had announced that it has ceased all forward forex transacyions and that all positions had been unwound, Anwar Ibrahim should have no reason to refuse to furnish all these details about the Bank Negara’s colossal forex losses to Parliament.
What intrigues me is the position of Nor Mohamed Yakcop, the man with direct oversight of the bank’s forex dealings and therefore directly responsible for the colossal Bank Negara forex losses.
Although Nor Mohamed has also submitted his resignation, which takes effect on July 10 after a three-month leave, the talk is that Nor Mohamed would be transferred to a very responsible government-connected position, and the new Kuala Lumpur International Airport has been mentioned.
After the Banks Negara Report on the RM10.1 billion to RM13.1 billion forex losses was made public , Nor Mohamed was appointed senior Adviser to Bank Negara, and he was conferred Darjah Johan Setia Mahkota(JMN) on the birthday of the Yang diPertuan Agong on June 5, 1993.
Malaysians must wonder whether the ‘culture of accountability’ which Daim talks about following the resignation of Jaffar Hussein is a force.
The BN Government must realize that Bank Negara is owned by all Malaysians and these losses cannot just be ignored as irrelevant and unimportant. As shareholders, all Malysians are entitled to demand full accountability and responsibility by all those responsible for the losses to our international financial credibility and funds built up over 37 years whether he be Bank Negara Government or even Finance Minister.
Tan Sri Jaffar said in his New Delhi lecture in 1989 that when he joined Bank Negara in 1985 from the private sector, he was informed that the main thrust of reserves management in Ban k Negara was to preserve the value of what we have and the main consideration were safety and liquidity. He said he had added a third and fourth dimension: profit optimization and market expertise.
It is finally the failure of these two new dimensions that have led to Bank Negara’s colossal forex losses and the ignominious departure of Tan Sri Jaffar Hussein.
RM30 billion losses would be tantamount to seven or eight years of tax holiday for all Malaysians from having to pay individual income taxes.
The Government has still to convince the people that it is serious about the colossal Bank Negara forex losses which could exceed RM30 billion since 1992.
With RM30 billion, the4 Government can declare a ‘holiday’ for all Malaisians fgrom having to pay individual income tax for seven to eight years!
Let the Government prove its seriousness by establishing a Royal Commission of Inquiry to investigate into the biggest financial scandal in Malaysia, and for all concerned, starting bear his responsibility fir the colossal Bank Negara forex losses scandal.
Call for urgent appointment. Of PAC Chairman, who should be an Opposition MP, to inquire into the 1993 forex losses of Bank Negara.
I had told Parliament last July that in Mangolia, two former central bank governors and three of their staff were charged in court for negligence and over-stepping their authority in gambling for two disastrous years on the world’s foreign exchange markets, causing a loss of US$90 million.
This is a puny figure compared to the RM30 billion losses that could have been lost by Bank Negara since 1992.
It is most regrettable that the Federal Government has not supported the proposal for the establishment of a Royal Commission of Inquiry into the colossal Bank Negara forex losses. In fact, the Finance Ministry and the Bank Negara had refused to allow the Public Accounts Committee to conduct a full investigation into the colossal forex losses, and Tan Sri Jaffar did not attend the PAC meeting in July last year to discuss the forex losses.
Now, with a second consecutive year of colossal forex losses, the PAC is unable to operate and meet because it has no chairman as its former chairman, Datuk Dr. Affifudin Omar had been appointed a Parliamentary Secretary.
I call on the Deputy Prime Minister to introduce a motion to appoint a new PAC Chairman without any further delay so that the PAC could meet urgently over Bank Negara’s 1993 forex losses.
The Cabinet and Parliament should accept the established parliamentary convention in Commanwealth Parliaments by appointing an Opposition MP to head the PAC.
This will also show that the Government and Bank Negara have nothing to hide and are not afraid of a full and thorough investigation into the forex losses by the PAC.