The flavour of the week is about financial crisis and scandals during Faust of ‘Flip-Flop’ Tun Dr Mahathir’s administration as Fourth Prime Minister, surfacing in various form and template and opening up more ambiguity to the Malaysia public, particularly the Millennials.
NST online story:
‘Actual losses were more than the ones reported by central bank’
27 JANUARY 2017 @ 10:56 AM
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The following are excerpts from a question-and-answer session with former Bank Negara Malaysia (BNM) assistant governor Datuk Abdul Murad Khalid. Murad, who resigned from BNM on Feb 1, 1999, was the manager of the central bank’s banking department (between April 1992 and March 1994) and was its bank regulation department manager (April 1988-March 1992).
During his tenure with BNM, Murad was involved in the investigation into Sime Bank. He took over BNM’s foreign exchange operations in late 1992 after the central bank incurred paper losses of more than RM9 billion, in that financial year.
He was also made the central bank’s representative in the Oversight Committee of Pengurusan Danaharta Nasional Bhd and director of Danamodal Nasional Bhd.
Question: What were the total losses incurred by BNM in foreign exchange (forex) during that period?
Answer: The total losses were US$10 billion and not ringgit. Our losses were in foreign currencies. It means that our reserves in US dollar, pound and yen all went down the drain. We lost them just like that. This (amount) was accumulated losses over several years. Over the years, we discovered and closed the book in 1994, and recognised all the losses. The total losses depends (on the exchange rate). It would become RM44 billion if you convert it based on the present exchange rate. The exchange rate was between RM2.3 and RM2.5 for US$1 at that time.
Q: What were the causes?
A: There was no control. No internal control and nobody knew what was happening at that time. It was real money. As if we lost the money that we had in our pocket. For example, if you buy Tenaga Nasional Bhd shares at RM10 (per unit), a week later, you will have to pay. Tomorrow, (if) it falls to RM7, you will have to pay the difference if you sell it. They kept on rolling over the contract.
Q: When was the bulk of the losses recorded?
A: I think from 1991 to 1993. I’m not sure (if Datuk Seri) Anwar (Ibrahim) was involved. I cannot say that (the then prime minister) knew about it as I was not involved in the top management (meetings) between the minister and governor. I didn’t know what happened.
Q: Who was responsible? Would you name them?
A: No, I would not name them. The most important thing is there was no investigation at all. You lost US$10 billion, but there was no investigation. The police or the Anti-Corruption Agency (now the Malaysian Anti-Corruption Commission) did not come. No one came to investigate.
Q: In your knowledge, did anyone lodge a report with the ACA?
A: It was highlighted in the newspapers. The stories were big and (nothing was done), even after the governors have changed several times.
Q: Did the Public Accounts Committee (PAC) investigate the case?
A: PAC only called (us) and asked us as a group from BNM. That’s all.
Q: It was reported as losses in the BNM report… didn’t the then prime minister know about it?
A: I’m sure the governor briefed them. Because the transactions were so big, you cannot unwind them in one day as it would take months to unwind. It involved mainly major currencies, such as the US dollar and Deutsche mark, as they didn’t have euro at that time, yen and pound.
Q: At the bank level, was any action taken against the dealers?
A: No. It was not their (the dealers’) decision. They only executed, but were not (involved) in the decision-making. I don’t know how it could happen as it was not the role of BNM to speculate.
Q: Was it a pure business decision or were there other things that motivated them?
A: I cannot say for sure. It’s possible (that they did it to make a lot of money). For example, in 10 transactions, if you can make profit from one, then that is possible (to make money).
Q: Is it only on paper or real losses?
A: It was real losses. Real money was involved. Our money from our reserves. As I told you earlier, if you have a bank account and you have lost some profits, you have to issue a cheque to pay. It’s the same. Very simple analogy there. It’s not the role of BNM to speculate. It should only intervene to smoothen the movement of the ringgit.
Q: Normally, the government will charge those involved and retrieve the funds… in this case?
A: No. And it’s up to the government as the case occurred more than 20 years ago. I will tell you what I know, but the most important thing is to ensure that the records are still there.
Q: Is it the biggest loss in our history?
A: Not only in Malaysian history, but in the world for forex losses. Even the Nick Leeson case (whose fraudulent, unauthorised speculative trading caused the collapse of Barings Bank) is small. US$10 billion is not a small amount. It was quoted as RM9 billion in the Bank Negara 1992 Annual Report. But, the total accumulated amount is much more than that.
Q: Do you have proof to support your claim that the actual loss was US$10 billion?
A: You can go to BNM and look at its accounts in that few years. The RM9 billion, or US$4 billion, was only recognised by BNM for 1992, while the US$10 billion was accumulated from several years. The actual losses were more than the ones reported in the BNM account.
Q: Does it surprise you that the opposition did not raise the issue at that time?
A: They raised it, but there was nothing much they could do. The power is in the government’s hand.
Q: Should the authorities reopen the case?
A: They should and I’m willing to cooperate. The records are already more than 20 years old and might have been eaten by termites. The dealings were done here (in Malaysia). There are two things, one is speculation and another is reserve management . Reserve management is where you move your assets or foreign currencies, such as the US dollar to Deutsche mark. It’s a real thing and (involves) real assets if you invest in Treasury bills or government bonds. That’s the role of BNM, but what it did (at that time) was speculation. This one (forex speculation), they could be rolled over or take position. They used to call it “contra” dealing in the stock market before, but it’s actually forward trading or betting.
Q: How did it cover the losses?
A: In the BNM account, it already had RM10 billion. It (might have) used that reserves first.
Q: Is BNM the only central bank involved in “betting” in the world? A: Yes. It’s a big loss, but there is no investigation. Bigger than other cases and why there was a cover-up? The truth must prevail.
For an Ex-Assistant Governor of Bank Negara Malaysia (BNM) Abdul Murad to admit the accumulated foreign exchange losses was in excess of USD10 bil in very damning. It created minus capitalisation to BNM.
USD10 bil losses to foreign exchange simply wiped 55% of BNM foreign reserve, which is RM18 bil.
The losses saw the untimely departure of Governor Tan Sri Jaafar Hussein. However, no one in the Malaysian Government took to fall for this economically hazardous gamble.
Asst Governor Murad’s revelation is adding the public curiosity, to the Pandora’s Box which was opened earlier in the week upon the Asian Correspondent story about CIA files on the BMF scandal being declassified.
Prime Minister Dato’ Sri Mohd. Najib Tun Razak reacted that BNM views on Assistant Governor Murad’s revelation would be sought by Cabinet before any further action be taken.
Cabinet seeks BNM’s views on alleged foreign exchange loss: Najib
Posted on 27 January 2017 – 07:37pm
Umno president Datuk Seri Najib Abdul Razak during a media conference after chairing the party’s Supreme Council meeting at Menara Dato Onn, Putra World Trade Centre on Jan 27, 2017. — Bernama
KUALA LUMPUR: The Cabinet will seek the opinion of Bank Negara Malaysia (BNM) on the alleged foreign exchange losses of US$10 billion in the early 1990’s before taking any further action.
Prime Minister Datuk Seri Najib Abdul Razak said the government took a serious view on the matter.
“However, other members of the administration and I need to get the opinion and comments of BNM and other parties. Later, the Cabinet will make a decision on the matter,” he said.
Najib, who is also UMNO President, said this to reporters after chairing the UMNO Supreme Council meeting, here today.
Former BNM Assistant Governor Datuk Abdul Murad Khalid was reported to have said that the central bank suffered foreign exchange losses of US$10 billion in the early 1990’s.
BNM said in a statement replying to the allegation that the institution had achieved progress that was stronger, more transparent and responsible since the foreign exchange losses occurred almost 25 years ago. — Bernama