Feb 22 2017
By Salahuddin Hisham
In the last column, “Mystery surrounding Bank Negara’s forex loss”, there was one question raised that needed to be answered and clarified: “Were MAS and MISC shares originally registered under BNM?”
The answer is yes.
In the 1991 annual accounts of Malaysian International Shipping Corporation Berhad (MISC) and Malaysian Airlines System Berhad (MAS), the 32 per cent and 42 per cent shares were registered under Bank Negara Malaysia (BNM), respectively.
The shares were purchased under Section 30 and 31 of the Central Bank of Malaysia Act. It was perfectly legal.
So perish any suspicion that the bailout of BNM was done via creative transfer of shares before it was sold off to private sector buyers. Nevertheless, the question remains as to how serious the forex losses were? How was it covered?
Enquirie into BNM’s past annual accounts were unnerving. In 1993, the authorised and paid-up capital of the central bank was only RM200 and RM100 million, respectively. The announced loss of RM5.7 billion would have made Malaysia without an operational central bank.
Was the claim by former BNM Adviser, Dato Abdul Murad Khalid of losses more than US$10 billion true? Deputy Umno Youth chief Khairul Azwan Harun claimed the loss to be more than RM30 billion at the exchange rate of the time.
The BNM annual report did not reflect the forex losses as an item but hidden in the balance sheet under deferred expenditure. The note explained:
“This represents the net deficiency arising from foreign exchange transaction in 1993. The government has undertaken to make good this deficiency as and when required to do so by the Bank. Nevertheless, the Bank will amortised the amount outstanding over a period of 10 years commencing 1994.”
Deferred expenditure is a cost that has already been incurred, but which has not yet been consumed. The cost is recorded as an asset until such time as the underlying goods or services are consumed; at that point, the cost was charged to expense.
In currency speculation, the purchase of one currency as asset means liability in another currency. The net asset is practically zero.
Central bank accounts are different from regular banks and companies. Could the “net deficiency arising from foreign exchange transaction” mean losses from forex trading? If that was the case, how could the loss be considered as assets not yet to be consumed?
Is this a misrepresentation of the true state of the accounts?
A qualified accountant and former BNM officer viewed that the amount classified under deferred expenditure maybe part of a bigger amount.
At the press conference in 1993, the then Governor the late Tan Sri Jaafar Hussein mentioned that the loss was merely paper loss and not realised. Probably, the loss was too large to be absorbed for that year. It had to be carried forward for future years so the public would forget about it.
The final loss could be accumulated over the years. The accumulated figure is not available. The loss for 1993 was RM5.7 billion. Deferred expenditure for 1994 and 1995 were RM5.1 billion and RM4.6 billion, respectively.
Presuming the amount continued to reduce by RM400 million annually till 2003, the accumulated loss could be at least between RM34 to RM36 billion or equivalent to US$13.6 to US$14.8 billion.
Not realised could also mean there were outstanding open positions in various foreign currencies not squared off. This is more unnerving because BNM announced a colossal loss but yet still had outstanding exposures.
In BNM’s annual account of 1993, there was a huge jump in gold and foreign exchange from RM46.074 billion for 1992 to RM75.309 billion for 1993. It could mean there was an outstanding exposure of at least RM29.235 billion worth of foreign currency.
Hedge fund traders might have sensed the reported foreign reserve was overstated. It made the ringgit vulnerable to the attack in 1999. The sharp depreciation in the ringgit had a devastating effect on the economy.
MAS and MISC that BNM sold suffered major losses from foreign exchange devaluation. It led to the decline of MAS.
The public needs to be told the truth. No political diversion to redirect to 1MDB or China investment or current decline in foreign reserve should take off the public attention.
For instance, it was not the market practice to sell MAS shares at a premium of RM8 per shares when market price was only RM3.50. Even at a premium of RM5 per shares, it would have been the price for a controlling stake.
The government sold the shares but hid the buyback arrangement from the public.
The price BNM sold MISC to Kumpulan Amanah Wang Pencen (KWAP) and later, the price re-sold to Mirzan Mahathir was not made known.
During the ringgit crisis, Petronas allegedly bailed out Mirzan to buy the MISC shares. Apparently, Mirzan had a better offer, but was obliged to sell to Petronas. Not only was the price not known, but was it also another costly buyback arrangement?
At today’s exchange rate plus interest cost, the forex loss could be as high as RM70 billion. Adding to it, the economic loss from the sale of government assets, the economic crisis as a result of the forex loss, and fallen entrepreneurs, businessmen and industry captains of the era.
The devastation was more than any politics of the day. It is too late for retribution. Time has passed. However, the perpetrators should be made known.
They should not be given the opportunity to repeat their reckless act. The wrong person should not continually be blamed. The country should not be burdened by the ghost of the past. It is time for correction.
The past should not continue to drag the country from moving forward.