By Salahuddin Hisham
THE foreign exchange trading loss by Bank Negara Malaysia (BNM) in 1994 reminds us of the mystery shrouding the delisting of Ayer Molek Rubber Plantation Berhad (Ayer Molek).
It is a plantation company established in 1909 and one of the pioneering companies listed on the Kuala Lumpur Stock Exchange in 1930 (now Bursa Malaysia).
Ayer Molek out-sourced the management of its plantations. Subsequently, the original shareholders lost control of the company and its plantation sold at allegedly below the true market value. It could be linked to Rakyat First Merchant Banker lending scam in 1994 in which BNM had to step in.
Since it is no longer listed, information is hard to come by for interested parties to know what really happened. A similar concern to BNM’s forex loss.
If not for the recent revelation by former BNM Adviser, Dato Abdul Murad Khalid, it would suffer the same fate of Ayer Molek.
What was the actual loss?
The late BNM Governor, Tan Sri Jaafar Hussein said RM5.7 billion. Later BNM statement mentioned RM9.3 billion. Wikipedia puts it at RM30 billion. And, Murad at US$10 billion.
Murad’s figure implied BNM’s annual accounts were manipulated and the auditor was in cahoots to cover-up the true figure. Though Enron happened decades later, it seemed unlikely to happen yet.
But, his allegation puts the integrity of BNM accounts in question and invites speculation. It opens the ringgit to attack by the likes of George Soros.
The published BNM accounts might have been adjusted to show a smaller loss. There was a sale of investment in Malaysian Airlines System Berhad (MAS) and Malaysian International Shipping Company Berhad (MISC) shares.
It is somewhat embarrassing but the private sector was brought in to bailout a government institution. The extent of bailout in that era was more than what is already known.
The bulk of any central bank’s asset side of the balance sheet are gold and foreign reserves, bonds issued by the government and money market lending to financial institutions. It is strange for BNM to hold public-listed ordinary shares as it has nothing to do with a central bank operation.
Were MAS and MISC shares originally registered under BNM? Usually, the government’s strategic shareholdings are placed under Ministry of Finance Incorporated.
A former big time chief editor, in his blog, tried to deflect the blame for the losses from the then Prime Minister Tun Dr Mahathir Mohamad by claiming the loss was due to currency intervention in the market. To be fair, one cannot expect ministers to be directly involved in day-to-day decisions to buy and sell currencies.
However, the excuse given by the former chief editor is weak.
The purpose of intervention is to control any wild gyration of the local currency vis-à-vis US dollar. There is no trading profit and loss as it is buying and selling for and from the foreign reserves. BNM accounts have no profit and loss as commercial banks have.
Perhaps, the former chief editor is hinting that the currency intervened is not ringgit. If BNM intervened to buy other currencies against the dollar, it should be done on behalf of the respective central bank. If BNM had done so, it means they had taken a speculative position.
For many years, a former deputy manager of BNM claimed that BNM made a bet to sell the British pound for a handsome profit.
In a later trade, BNM bought a falling pound before Britain left the European Exchange Rate Mechanism (ERM) in September 1992. That could have been the major contribution to BNM’s forex loss. It was reckless to take a position before a major policy decision.
Apparently, the other side of the trade was George Soros. He was later vilified for selling down the ringgit in 1998.
It’s a bit too late for the former chief editor to claim there was no currency trading operations. Many statements from BNM and government officials in the past admitted its existence.
The market was aware of BNM’s currency trading operation before 1991. It was smaller in size and done through local banks, but successfully generating profit. BNM dealers were snapped up with job offers from foreign banks in Singapore, specifically Swiss banks.
The immediate blame for forex debacle would the person tasked with the job. Tan Sri Nor Mohamed Yakcop was heading BNM intervention operation in the foreign exchange market. He was chief trader responsible for “moving” foreign reserves from one currency to another.
“Encik” Nor was in Hong Kong in the late 1980s to visit banks. A gossip column in the Wall Street Journal then claimed that he was seen at a Paris sidewalk café with Andy Krieger, a successful trader at Bankers Trust New York who later joined Soros.
Nor was establishing a relationship with big banks to trade. Local banks would bust their trading limits to handle BNM’s trading size.
BNM’s reserve management became active in the years 1991 to 1993 that it resembled a day trading operation. The difference being Bank day traders buy and sell in dollars but BNM in yards. A dollar to currency dealers is US$1 million, while a yard is US$1 billion.
Luck ran out as the market got wind of BNM “buying at the top and selling at the bottom”. The market speculated that BNM was hiding its losing trades in the foreign reserve. When there is only hope left, one is in a losing position.
BNM admitted to the losses in 1994. But who is supposed to be responsible?
Murad claimed that there was no investigation done. Governor Jaafar took responsibility and resigned but he remained silent till his death.
Son-in-law, Dato Nurjazlan Mohamed claimed that Jaafar took the fall for the mistakes of others. There was a news report claiming Jaafar was aware of the losses.
So why did Jaafar not act upon the initial losses and allow it to turn into a colossal loss? Who was Jaafar covering for?
Dr Mahathir was asked before but he evaded the questions. The mystery remain as to why he protected and promoted the rogue trader as he protected and awarded contracts to businessmen alleged to be his cronies.
The mystery does not end there.
Why did it take Murad decades to spill the beans? Was he trying to avert investigations for alleged impropriety in managing a political war chest?
Like Ayer Molek, more needs to be made known of the BNM forex trading losses in 1994. Who knows, it may be remotely linked.
The living participants should shed more light for the sake of accountability and transparency.
At today’s exchange rate, US$10 billion could pay for seven years of BR1M, F1 race track at Sepang, double tracking ETS, PLUS highway and to abolish the toll, KLCC twin tower, KLIA, and Pan Borneo Highway.
It is encouraging that Mahathir is willing to participate in a Royal Commission of Inquiry. The only worry is he forgets during hearings and court trials.
Age is catching up.
(The writer was involved in various financial markets but has since, turned political and online.)