Ghost of Bank Negara forex scandal awakens

The ghost of the multi-billion ringgit Bank Negara forex speculation scandal, perhaps the largest financial scandal in Malaysian history, has returned with a vengeance to haunt the masterminds.

I remember this mother of all banking scandals well. (It was rivalled in scale only by the non-performing loans crisis which hit our nation with the onset of the Asian financial crisis in the late 1990s and some US$3.5bn from government/public funds had to be used to rescue the banking system.)

In the case of the Bank Negara forex gambling scandal, billions of ringgit were lost. RM10bn? RM30bn? Or many times more? No one outside the corridors of power knows for sure  but it left Bank Negara splattered with red ink. And as usual, there was no accountability to the public.

Some of the principal personalities around at that time were:

• Mahathir – PM for 22 years until 2003;
• Daim Zainuddin – Finance Minister from 1984 until he resigned in 1991;
• Anwar – Finance Minister from 1991 until he was sacked by Mahathir in 1998;
• Jaffar Hussein – Bank Negara governor from 1985 until he resigned in 1994, the period when Bank Negara was in the thick of it and landed up in dire straits;
• Nor Mohamed Yakcop, the then Bank Negara advisor in charge of the investment department. He served in Bank Negara from 1968 until he resigned in 1994 (only for him to return to Bank Negara during the Asian financial crisis for another stint from 1997 to 2000);
• Kit Siang – Opposition leader.

So who among this lot were the ‘mastermind(s)’ behind the scandal? Retired Bank Negara deputy manager Dr Rosli Yaakop has named those he regards as the “forex scandal elite club masters” in this Free Malaysia Today report. His revelation merely confirms the suspicions of many.

Wikipedia describes the scandal as follows:

In 1985, following the “Plaza meeting” of G-5 finance ministers in New York City, the US dollar fell sharply causing major losses in Bank Negara’s dollar reserves. The bank responded by starting a program of aggressive speculative trading to make up these losses (Millman, p. 226). Jaffar Hussein, the Bank Negara Governor at the time, referred to this strategy as “honest-to-God trading” in a December 1988 speech in New Delhi.

In the late 1980s, Bank Negara under Governor Jaffar Hussein, was a major player in the forex market. Its activities caught the attention of many; initially, Asian markets came to realize the influence Bank Negara had on the direction of forex market. Alan Greenspan acting the Federal Reserve chairman later realized Bank Negara’s massive speculation activities and requested the Malaysian central bank to stop it.

BNM sold between $500 million on September 21, 1990 – $1 billion worth of pound sterlings in a short period, driving the pound down 4 cents on the dollar (Millman, p. 228). In response, bankers began front running Bank Negara’s orders. Two years later, Bank Negara attempted to defend the value of the British pound against attempts by George Soros and others to devalue the pound sterling. George Soros won and Bank Negara reportedly suffered losses of more than USD 4 billion. [1] Bank Negara lost an additional $2.2 billion in speculative trading a year later (Millman, p. 229). By 1994, the bank became technically insolvent and was bailed out by the Malaysian Finance Ministry (Millman, p. 229).

This is a commentary by Himanshu Bhatt of theSun:

BNM saga reawakened
Posted on 6 June 2012 – 07:27pm
Last updated on 6 June 2012 – 09:22pm

THE ghost of Bank Negara Malaysia’s (BNM) epic foreign exchange trading losses, said to have run into tens of billions during the 80s and 90s, has reawakened.

Like a dormant volcano whose time to re-erupt has come, the controversy involving the central bank’s infamous speculative practices blew up with such a shudder last weekend that even Tun Dr Mahathir Mohamad was called to respond.

Mahathir, who was prime minister at the time, commented to reporters that he was not afraid to be investigated. The Opposition can open any file they had on him, he said in response to DAP adviser Lim Kit Siang’s assertion that Pakatan Rakyat, should it take over the federal government, must initiate a royal commission of inquiry into the affair.

Other key figures reportedly implicated are the then finance minister Tun Daim Zainuddin and BNM governor during that period, the late Tan Sri Jaffar Hussein. A fourth person, the then BNM deputy governor, Tan Sri Nor Mohamed Yackop, is now a minister in the Prime Minister’s Department.

Although the issue has been raised before, this time it was perhaps more damning and detailed. This is because the individual who spoke about it at a forum organised by the Penang Institute, a state government think-tank, on Saturday was privy to the internal happenings at BNM until 1994.

Dr Rosli Yaakob was a senior manager during the crucial years when the speculative practices were said to occur, and was even on the panel that prepared and presented the bank’s semi-annual brief. He is currently Negri Sembilan PAS deputy commissioner.

Incidentally, Opposition Leader Datuk Seri Anwar Ibrahim, who was finance minister from 1991 to 1998, also spoke at the forum. Anwar maintained that the matter was kept from him after he assumed the post. He has however been accused of covering up for it, including by Lim – the opposition leader and DAP’s Tanjung MP in the early 90s – who held Anwar personally responsible for the losses.

The problem with this whole affair is that there has been neither an official investigation nor an inquiry into the matter to assuage public confusion and concerns. No one, aside perhaps from the perpetrators, knows how much money, if any, was lost or how this was done.

Rosli’s account, delivered to a packed hall seated in stunned silence, would have raised more curiosity about what could have occurred.

Even the volume of money that was supposedly involved has come into question. Lim has put the losses at about RM30 billion. Rosli, however, pointed out that it was once reported that at the height of the speculation BNM had spent RM270 billion. “This is no small amount,” he said. Full article here.