Time for full and total disclosure of the RM30 billion Bank Negara forex losses as to how these “paper losses” had  triggered off other mega-financial scandals like the RM1.8 billion  MAS-Tajudin privatization scam

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Speech
by Lim Kit Siang  
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(Parliament, Wednesday) More than 12 years ago, in my  speech during the debate on the Royal Address on April 11, 1994, I reiterated my call for a Royal Commission of Inquiry into the colossal Bank Negara foreign exchange losses as a result of speculation in the international currency markets from 1992-1994, with the losses  cited as ranging from RM10 billion to RM30 billion. 

The arguments I advanced for such a Royal Commission of Inquiry more than a decade ago are even more valid today. I quote:

“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 RM 16.5 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 US 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 – an 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 transactions, 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 in disclosing such information if the bank is lo 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 transactions and that all positions had been unwound, Anwar Ibrahim should have no reason to refuse to furnish all these details about Bank Negara’s colossal forex losses to Parliament.”

As I said 12 years ago, Bank Negara was at the time insolvent – its liabilities exceeded its assets – and the Bank Negara Governor and its Board could have been suspended and the bank taken over if it had been a commercial bank.

Let me clarify that when I made these assumptions about  Bank Negara forex losses as a result of foreign exchange speculation spree could be as high as RM30 billion, I did not get the facts and figures from thin air, but I had the able and expert assistance of  a former topmost Bank Negara officer.

After more than 12 -14 years, the government has still  failed to “come clean” on the colossal  Bank Negara forex losses  and the ghosts of the RM30 billion Bank Negara forex losses have not been exorcised – resurfacing only last week to haunt the present administration of the Prime Minister, Datuk Seri Abdullah Ahmad Badawi, testing its commitment to accountability, transparency, integrity and good governance.

Many other questions which I had raised over a decade ago  remained unanswered and continues to haunt the corridors of power, viz:

• whether Bank Negara’s maximum exposure at the height of its forward foreign exchange speculation was in the region of RM270 billion, which was three times the country’s GDP and more than five times the country’s foreign reserves at the time; and

• whether at the height of the Bank Negara forex speculation spree, Bank Negara was so aggressive that it operated not only in US$50 million lots but there had also been occasions when Bank Negara operated with US$500 million in one call!

We now know that Bank Negara’s multi-billion ringgit forex losses was because of Mahathir’s nemesis, George Soros who had betted in favour of the British pound against Bank Negara.

The time has come  for full and total disclosure of the RM30 billion Bank Negara forex losses as to how these so-called “paper losses” as described by government leaders had  triggered off other mega-financial scandals like the RM1.8 billion  MAS-Tajudin privatization scam – the purported “national service” of Tajudin Ramli in 1994 to buy MAS shares to help out Bank Negara (which owned the MAS shares) which was hit by the multi-billion ringgit forex losses.

Were the major players in this scam performing a national service or were involved in a national betrayal?

At the time when I raised the Bank Negara forex losses in the House, the then Prime Minister, Dr. Mahathir said the forex losses came from “profits made in forex dealings in preceding years” while  the then Finance Minister, Datuk Seri Anwar Ibrahim, that the Bank Negara forex losses were mere “paper losses”.

Former premier Tun Dr. Mahathir  Mohamad is now an advocate of accountability and transparency, declaring that Official Secrets Act should not be used to hide untruths.  He should be taken at his word, and all secret documents on the Bank Negara forex losses of 1992-1994 should be declassified so that Malaysians can finally know the truth of what is probably the biggest mega-financial scandal in the nation’s history.

Anwar may not be in the loop at the time although he was Finance Minister, with regard to whatever “overriding agreements” Mahathir and his then loyal economic adviser, Tun Daim Zainuddin, devised with other corporate high-flyers to salvage Bank Negara, but Anwar  has now the opportunity to throw light of what he knew about the colossal Bank Negara forex losses when he was Finance Minister and how these “paper losses” had  triggered off other mega-financial scandals like the RM1.8 billion  MAS-Tajudin privatization scam.

Before I end, let me quote from a  1995 book on international high finance, The Vandal’s Crown by Gregory J. Millman to illustrate why Parliament even today should take a serious attitude on  the Bank Negara forex scandal:

"Using all the resources a central bank commands - privileged information, unlimited credit, regulatory power, and more - Malaysia’s Bank Negara became the most feared trader in the currency markets. By trading for profit, Bank Negara committed apostasy against the creed of central banking. Instead of working to ensure global financial stability, Bank Negara repeatedly shoved huge sums of money into the most vulnerable market situations in order to destabilize exchange rates for its own profit" (p.226)

"(Bank) Negara operated behind a thick veil of secrecy. The bank seldom spoke publicly about its controversial trading activities. Yet it was increasingly clear to foreign exchange traders that Bank Negara’s operations in the foreign exchange markets went far beyond simple self-defense. It became the most awesome currency trader in the world." (p. 227)

"(Bank) Negara’s market manipulation was so egregrious that one American central banker said, ‘If they tried this on any organized exchange in the world, they’d go to jail.’ However, in the unregulated international currency markets, there were neither police nor jailers. The only rule was the rough justice of the vandals, and it was this rule that eventually brought (Bank) Negara down.

"In 1992, (Bank) Negara took on a large pound sterling position, apparently expecting Britain to maintain the discipline required by the European Exchange Rate Mechanism. It was a bad economic and political judgement. (Bank) Negara lost approximately $3.6 billion when Britain withdrew from the ERM, letting sterling collapse. The next year, (Bank) Negara lost an additional $2.2 billion. By 1994, Bank Negara was technically insolvent and had to be bailed out by an infusion of fresh money from Malaysia’s finance ministry." (p.229)

(12/07/2006)