By Salahuddin Hisham
THE SunDaily report dated July 6, 2006 highlighted Tan Sri Tajuddin Ramli telling the court of a secret deal to sell Bank Negara Malaysia (BNM)-owned block of shares in Malaysia Airlines (MAS) at the price of RM8 per share.
Since it is not a controlling block, the over-inflated price was structured with a buyback option as kicker for buyer.
Tajuddin was accused of causing MAS to lose money. However, MAS did not lose operationally but the losses were due to forex translation arising from the sharp decline in ringgit vis-a-vis the US dollar. Aircraft purchases are financed off-shore and in US dollar.
The sharp decline is now known to be due to shortfall in BNM’s true foreign reserve by RM32.5 billion. As a result, BNM could not fend off speculators’ attacks on ringgit.
This is among the questions that should be explained to the Royal Commission of Inquiry (RCI) on BNM’s forex trading losses in 1994. The RCI is to resume from today (Sept 18) till 20.
Why the BNM cover up of the true foreign exchange reserve and gave a false impression on the financial strength of the country?
How were the foreign exchange trading losses hidden? Is it true that they were hidden under the item (of) deferred expenditure? Did the treatment of the forex trading losses receive approval from the Auditor-General of the time, Tan Sri Ishak Tadin? Was it an internationally acceptable practice?
At the RCI proceeding, it was mentioned by witnesses who were called in that BNM was trading up to US$1 billion a day.
The person that called the shots for such trade was the then BNM Adviser, and former Banking Department Manager-cum-Chief Dealer, Tan Sri Nor Mohamed Yakcop. Was he authorised to do trade of such size?
It was mentioned that BNM had a Reserve Management Committee. Did the decision to move reserve from one currency to another currency made out by a committee based on extensive macroeconomic research and forecast or by traders based on gut feel of the market and in an instinctive manner?
Since the country’s foreign exchange reserve was estimated then at around USS$20 billion did the reserve committee or traders take account of the risk in trading up to US$1 billion a day?
Since Nor Mohamed admitted responsibility, what was he responsible for?
Did he report to his superior the true profit and loss of BNM reserve movement or trading activities? Who was his immediate superior? Was it the then Governor of BNM, the late Tan Sri Jaffar Hussein?
Did Jaffar Hussein report to the Minister of Finance (MOF)? Was the then Prime Minister (now Tun) Datuk Seri Dr Mahathir Mohamad subsequently made aware of the high risk trading activities and the large amount of losses occurring when they began in a large way from 1988 or 1989?
The public need to know why trading activities still continued when losses were already in the billions in 1991. They continued till they had to be stopped in 1994.
If the MOF and PM were not in the know, did the late Governor not tell the truth? The reporting flow needs to be made known to ascertain who was responsible. Resigning alone is insufficient.
If the profit and loss figures were cooked up and the Governor, MOF and PM were not given the true picture of the trading activities, profit and loss, and foreign reserve status, then who manipulated the figures?
Was it the traders, and/or their Chief Dealer? Was it done in-cahoots with the bosses of the accounts department?
Did the dealing room have influence over what ws supposed to be a separate and independent accounts department to monitor and provide check and balance on traders activities?
Most glaring in the previous session was the statement by former Attorney-General Tan Sri Ainum Mohamed Saaid, who then was heading a section for consulting services at the AG’s Office.
In the testimony of former Assistant Auditor-General, P. Kanason Pothinker to the RCI, he enquired her on the legality of BNM foreign exchange trading activities and was told over the phone that”the higher-ups said stop meddling.” Ainum did not make known the names. She told the RCI that she had forgotten.
The legal breach of BNM foreign exchange trading activities was known at the early stage in 1990, before the major losses from 1992 onward. Ainum told the RCI that she disagreed with BNM’s legal interpretation of foreign exchange trading as per a letter dated February 1990 signed by Nor Mohamed.
In a meeting attended by BNM and Audit Department, she told them it did not comply with the Central Bank Ordinance 1958 and other laws related to BNM.
Thus far, the reports on the RCI proceeding gave the wrong impression that the power of BNM superceded the MOF or the PM. In turn, the wrong impression was that the dealing room was more powerful than the Bank’s management.
The report on the proceeding has not firmly established a procedure of regular briefing and reporting to the MOF and PM of the large foreign exchange trading position taken. And, whether they were kept abreast of the accumulating large losses.
It is hard for anyone to believe that the then PM, Dr Mahathir, is not in the know of something this big.
In his testimony to the RCI, former Treasury Secretary-General, Tan Sri Clifford Herbert when told that Dr Mahathir’s reaction was nonchalant, said: “Sometimes, we make profits, sometimes we makes losses”.
Anwar told the RCI that he assigned the task to inform Dr Mahathir to Clifford. And, Datuk Abdul Murad Khalid claimed to the RCI that he told Anwar of the losses.
Before the RCI started, Dr Mahathir admitted to “know quite a lot” of the BNM forex losses. Why did he say so?
In his testimony to the RCI, Anwar did not blame Dr Mahathir this time but blamed Nor Mohamed for failure to provide an accurate report on the losses to him and Dr Mahathir. But in an open forum in 2012, Anwar blamed Dr Mahathir and his MOF predecessor, Tun Daim Zainuddin.
Daim resigned in 1991 and was replaced by Anwar. Former BNM staff member, Abdul Aziz Abdul Manaf told the RCI that more than RM30 billion losses occurred between 1991 and 1994. Nevertheless, the trading in small sum started at around 1988.
On many occasions before the RCI, Dr Mahathir blamed Nor Mohamed, Jaffar Hussein and Anwar.
Though Nor Mohamed admitted responsibility to the RCI, he passed it off as purely losses without any criminal intent. He also told the RCI that he never discussed forex trading with PM or then MOF, Daim.
The former Director of Foreign Exchange Management Department, Azman Mat Ali, who was not in London at the time, told the RCI that Dr Mahathir did not enter the dealing room during his visit. But in his memoir, Dr Mahathir wrote of his visit to the London dealing room and consented to the operation to be continued.
Did Nor Mohamed discuss with Jaafar Hussein?
As told by former Deputy Governor, Tan Sri Dr Lin See Yan, and Special Adviser to BNM Governor, Lee Siew Kuan to the RCI, Jaffar Hussein was shocked at the extent of the losses upon being told of the true figure. Jaffar had requested Lee to recheck the loss figures again with BNM’s Account Department.
Lin told the RCI that he enquired Jaffar on the rumours of forex trading losses. Jaffar reacted, saying : “I got the Bank into this mess”, and intended to clean up the mess.
A former bank employee, Ishak Ismail insisted to the RCI that BNM did not adjust its accounts to cover up its forex losses. Everything was done in accordance with the accounting policies and procedures.
On the contrary, former BNM Auditor, Datuk Ahmad Hizzad Baharuddin told the RCI that there was a manipulation of figures to hide the true losses. He also mentioned that there was no “check and balance” in BNM system.
In the letter entitled “A report on Bank Negara” dated August 8, 1994 to Anwar Ibrahim, former Governor Tan Sri Ahmad Don mentioned that the forex loss was the “… error of judgement of a few officers”.
Only Nor Mohamed owned up but no other officers did. He claimed that the country gained the know-how to formulate measures in facing up to the 1998 Asian financial crisis.
In the last session of RCI, Ahmad Don laughed it off. In a cynical way, he said, “I don’t know if it was worthwhile, but I do know that we had to do a lot of tightening up (of policies and bank procedures) following that.”
Nor Mohamed also blamed the Paris Accord for the losses. However, the 1985 event did not make any trading decisions for BNM. Trading started few years after.
The RM32 billion losses are equivalent to building many new sophisticated buildings, or reviving failed economic projects or highways and roads throughout Sabah and Sarawak.
BNM was supposed to monitor the foreign exchange trading of banks. However, they themselves had no proper policy on foreign exchange trading, reporting and check and balance system then.
Subsequent investigations, including forensic analysis should have been done.