'Excessive speculation' caused RM31.5b forex losses in the 90's

Published on: Wednesday, December 27, 2017

KUALA LUMPUR: Excessive speculative activities had caused Bank Negara Malaysia (BNM) to suffer foreign exchange transaction losses amounted to RM31.5 billion in the 90's, said Second Finance Minister Datuk Seri Johari Abdul Ghani).

Citing an internal audit report prepared by BNM's internal auditors dated Jan 21, 1994, he said the monthly maturing buy and sell foreign exchange transactions which amounted to an average of RM140 billion in 1992 increased to a staggering RM750 billion in 1993.

"A substantial portion of such transactions was very speculative in nature and did not reflect BNM's mandate to maintain orderly condition of the foreign exchange market as per Section 4 of the Central Bank of Malaysia Ordinance 1958," he said in an open letter to former prime minister Tun Mahathir Mohamad, Tuesday.

Johari said the audit report also highlighted that the magnitude of such foreign exchange speculative transactions was considered very excessive, given that BNM's shareholders' fund was only at RM4.4 billion and the country's international reserves were merely at RM43.98 billion at the material time.

The audit report also stated that the voluminous speculative foreign exchange trading activities that the central bank had undertaken during that time were carried out by the Foreign Exchange Division of the Banking Department of BNM, headed by its then advisor/manager Tan Sri Nor Mohamed Yakcop, who later became second finance minister.

Johari said because of the scale of the foreign exchange speculative activities losses, the government was forced to transfer its shares in Telekom and Tenaga Nasional Bhd (TNB) to BNM at the nominal value of RM1 per share, and these shares were immediately revalued by BNM at RM22.10 and RM19.30 per share for Telekom and TNB, respectively.

Additionally, BNM had to dispose of its Malaysia Airlines shares to a third party at the price of RM8 per share and MISC shares at RM10 per share to the Retirement Fund Incorporated in order to realise the gain.

"If the speculative foreign exchange losses were not real, the government would not have taken these drastic actions in order to cover BNM's losses at that material time," he said. – Bernama

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