The Bank Negara RM30 BillionForex Losses Scandal nied that Bank Negara was engaged in speculative activity in theforeign exchange market. "This, however, does not seem to tally with thefacts. In 1989, it was reported that Bank Negara had been criticised by Westernmonetary oficialsfor speculating in the yen and the US dollar at a time when the Group of Seven industrialisedcountries were hying to stabilise the currency markets. "InApril 1991, a Reuter news agency reportfiom London described Bank Negara as 'adominantforce on the foreign exchange scene for some years' and even ac. cused by someforex operators as 'a market bully ' "The Reuter report stal 'Over the past twoyears it has stepped up its d i n g volume, and this year it has started dealing in what dealer described as 'reallymassive amounts '... Typically, Bank Negara operates in US350 million lots, compared with the market norm of US$5million or US$IO million and deals with maybe six major banks in Europe and six in New York, dealers said. One trader said the only dealers rivalling Bank Negara would be the Japanese*&. But while these f i d s enter the market no more than once or twice a year, Bank Negara is coming in and doingyard (billions) of dollars in a day. CONTENTS 1. 2. Foreword .............................................. .III Speech in the Dewan Rakyat on the Royal Address debate on Monday, April 11, 1994 .........................................-1 Speech in the Dewan Rakyat on the 1993 and 1994 Supplementary Estimates on Tuesday, May 3, 1994..........29 Appendix (i) (ii) 3. 4. ............................................. -34 Balance Sheet of BNM as at December 31, 1993 Profit and Loss Appropriation Account of BNM for the Year Ended December 3 1,1994 Important notes to the Account - December 31,1993 (iii) 'said one senior currency dealer with a merchant bank in Singapore.9 billion a year and highest-paid fund-manager in the world and Bank Negarafs colossal forex losses. banking sources said. and its inaction would trim treasurypro$its of Singapore-based ojhshore banks sharply. "'Theforex market is sujhering badIy because there were quite a few banks in Singapore depending on Bank Negara. the RM2. states: "BankNegara 's exit>om activeforeign exchange trading has dented treasury activity at Singapore-based banks and reducedforex trading volumes and volatility in Asian time zones. The first news item from Singapore is a Reuter report under the heading 'Singapore forex trade badly hurt'.George Soros. "'The central bank had kept to its vow to abstain*om speculativeforex trading. some for as much as doper cent of their business. 'The RM30 billion BankNegara Forex Losses Scandal'. Two news items in today's local newspapers provide the most apt material for the foreword for this publication. iii . according to industry sources. The first item shows the magnitude of Bank Negara's involvement in the foreign exchange speculation. took home at least US$l. 7 over TV2 de- .which exceeded the gross domestic product of at least 42 countries in the United Nations.2 billion) so you can imagine the impact they have. ' he said "'Every time they did a deal with one bank alone. The survey showed that the best paid people were hedge fund or commodity fund managers and one fund manager.I billion (RM2."'They were a big operator in the Far East andprovided a lot of liquidity in the market. George Soros. which both the Malaysian Government and Bank Negara had still denied in Parliament in April 1993. " The other news report in today's local newspapers seems to have no relationship whatsoever to Bank Negara's RM30 billion forex losses scandal.' said another senior dealer with a European bank in Singapore. they could do up to two yards (US32 billion or RM5. In my first speech in Parliament on April 27. on "The I00 most highly compensated Wall Streeters". and carries the annual survey of the business magazine.9 billion) last year . I said: "The Finance Minister (Datuk Seri Anwar Ibrahim) in wancara inter vie^ hisfar. Financial World in its July 5 issue. 1993 on Bank Negara's colossal forex losses. Bank Negara is coming in and doingyard (billions) of dollars in a day. does not seem to tally with thefacts. dealers said.. it was reported that Bank Negara had been criticised by Westernmonetary oficialsfor speculating in the yen and the US dollar at a time when the Group of Seven industrialisedcountries were hying to stabilise the currency markets. and this year it has started dealing in what dealer described as 'reallymassive amounts '. Typically. "This. Bank Negara operates in US350 million lots. compared with the market norm of US$5million or US$IO million and deals with maybe six major banks in Europe and six in New York. "InApril 1991. But while these f i d s enter the market no more than once or twice a year. One trader said the only dealers rivalling Bank Negara would be the Japanese*&. cused by someforex operators as 'a market bully ' "The Reuter report stal 'Over the past twoyears it has stepped up its d i n g volume. a Reuter news agency reportfiom London described Bank Negara as 'adominantforce on the foreign exchange scene for some years' and even ac. however..nied that Bank Negara was engaged in speculative activity in theforeign exchange market. . In 1989. Dr.a role which no prudent Central Bank would assume? "The best answer has been given by none other than the Prime Minister. . as I had calculated in my speech in Parliament in April 1994. Then it changes centre and does it all over again. 1994(reproduced in this booklet) I said that Bank Negara must have taken positions up to RM30 billion to RM40 billion to incur losses of up to Bank Negara's admitted forex losses in 1993amounting to RM5.Its recent technique has been to hit major banksfor US350 million each. Bank Negara had dabbled in theforeign exchange markets because of the country's strong economy and large reserves as well as because Bank Negara has the ability and the knowledge. DatukSeri Dr. dealers said. However. last Tuesday. Could Bank Negara's maximum exposure be five times of RM30 billion to RM40 billion. '" The magnitude of Bank Negara's forex speculation is mind-boggling. Commenting on Bank Negara 's active participation in theforeign exchange markets. Mahathir Mohamad. This seems totally unthinkable. then hit them 10 minutes later. In my speech in Parliament on April 14.' ''Is there any truth in these allegationsthat BankNegara has become an active forex trader .7billion. Mahathir said that although not all central banks are activeplayers. Bank Negara's forex losses could be as high as RM30 billion. Malaysian Business . "The Finance Minister. 62.estimated that Bank Negara's maximum exposure in the foreign exchange markets reached as high as RM270 billion -three times the country's GDP and more than five times the country's foreign reserves at the time! Now. This is what I said in Miri on 3rd June 1993 on Bank Negara's 1992 forex losses: "The bulk of Bank Negara's foreign exchange losses was the result of its speculation inforeign currency. George Soros. 1994 (also reproduced here). it would appear that I had given an underestimate. George Soros. should explain how Bank Negara could lose RM16 bil- . to do with Bank Negara's colossal forex losses. As I pointed out in my speech on BankNegara's forex losses on May 3. "I have just read about the exploits of an American money manager and speculator. who is described as a iobber baron' who emerged withpro$@ estimated at w billion by selling sterling short when 5 he led the raid on the Bank of England during last September S European currency crisis. what is the relevance of the world's highest-paid fund manager.However. Datuk Seri Anwar Ibrahim. especially the Britishpound last September when the British pound fell by some 30 per cent as a result of the European currency crisis.which is one ofthe publications in the Anwar Ibrahim mass media conglomerate known hs New StraitsTimes Group . George Soros made his RM5 billionprofit by selling sterling short while Bank Negara made its RMI 6 billion losses by buying sterling long. It is my hope that this publication which contains my two speeches on Bank Negara's colossal forex losses in Parliament in April and May 1994 will help Malaysians to ask more questions about the greatest financial and banking scandal in Malaysian history and develop a healthier and more wholesome culture of accountability in the country. " Many questions about the Bank Negara's colossal forex losses cry out for answer. "Apparently.lion in 1992 when an American money manager could make RM5 billionfrom the Britishpound crisis last September. Lim Kit Siang Parliamentary Opposition Leader Tanjong 18th June 1994 . 30 Billion Forex M Losses. not only making it insolvent but destroying its credibility and authority as the via 'banker' and guardian of banks i - The colossal forex losses of Bank Negara in the last two years have knocked out a big black hole in Bank Negara. April 1 1. When Bank Negara's 1992 Report was released last year. in the Dewan Rakpt on the Royal Address debate on Monday. DAP Secretary-General and MP for Tanjong.3 billion forex losses which it was prepared to admit were mere "paper losses" and that "Bank Negara's loss is the nation's gain"! .The Bank Negara RM30 Billion Forex Losses Scandal (Speech by Parliamentary Opposition Leader.) The colossal forex losses in the last two years have knocked out a big 'black hole' in Bank Negara. 1 994 on Bank Negara R 16. asserting that the RM9. fully backed by the Finance Minister. Datuk Seri Anwar Ibrahim. however. Lim Kit Siang. Tan Sri Jaffar Hussein. denied there was any 'hole' in Bank Negara. not only making it insolvent but destroying its credibility and authority as a 'banker and guardian of banks' in Malaysia.5 . there was another exercise to deny that the 'hole' in Bank Negara had become bigger. the Finance Minister. making it the biggest financial scandal in Malaysia as well as a world-class financial scandal There was in fact a conspiracy of disinformation and misinformation to 'cover up' the real nature. It is not only the greatest financial scandal in Malaysia.7 billion forex losses last year came from "~rofits made in forex dealings in prececding year Bank Negara's forex losses in the past two years could total as high as RM30 billion. Aliwar said that as Finance Minister. cause and magnitude of Bank Negara forex losses in the past two years which I will show in the course of my speech could total as high as RM30 billion. he was "fully satisfied with the reasons" given by Tan Sri Jaffar Hussein for the Bank Negara's forex losses. . Mahathir Mohamed declaring that the RM5. still denying that there was any 'hole' at all. Datuk Seri Dr. with the Prime Minister. Datuk Seri Anwar Ibrahim strenuously denied that Bank Negara had "speculated" or "gambled" in foreign exchange.When Bank Negara's 1993 Report was released two weeks ago. but has reached the standing to be a world-class financial scandal! In the special DAP motion on the Bank Negara forex losses in Parliament last April. Tun Daim Zainuddin. He said: "It is wrong to think thatyou cannot lose when youplay in money markets. Whenyou have limitedfirnds. truth cannot be concealed forever.However. "Central banks have a certain role to play and this (speculativeventure) is a dangerous area where the risks are high. "You must not go into this. someone else has to lose. On Monday. it is the Economic Adviser to the Government. It is dzflerent if you are pursuing long-term investments but ifyou are speculating. April 4. You should not play withfire. Daim Zainuddin was reported in the press as saying that "Central banks must not play with fire by venturing into speculative money markets where the risks or losses are high". you do not speculate. who had let 'cat out of the bag'. "Butnow that the central bank has suspendedsuch trading. Tun Daim said that while those responsible for the huge forex losses of Bank Negara had accounted for their mistake by resigning. I think it is all right. Yousee. ifyou make. do not go into this unless you are prepared toface losses. central banks should never go into such ventures. This time. 1994. '" . as it would always find some way of declaring itself. there is no other person in the country who could speak with greater knowledge and authority about the real cause of Bank Negara's colossal forex losses. Is Tun Daim prepared to accept such 'culture of accountability' himself for his failure to stop such speculative foreign exchange trading by Bank . Daim did not warn and direct ~ a n Negara to stop k 'playing with fire'.at that time with some minor success! It is most unfortunate that when he was Finance Minister. as Tun Daim cannot be accused like the Opposition of 'speculating' about the causes of Bank Negara's forex losses? Apart from the Prime Minister and the Finance Minister. and for this reason. Tun Daim may know even more than Anwar Ibrahim because it was under Daim's tenure as Finance Minister that Bank Negara ventured into speculative foreign exchange trading . In fact. Tun Daim praised Tan Sri Jaffar Hussein for resigning as Bank Negara Governor and praising such 'culture of accountability'. Tun Daim must also bear responsibility for the colossal forex losses suffered by Bank Negara.Daim may know even more than Anwar about Bank Negara's forex losses as Bank Negara's forex 'speculation' was started when Daim was Finance Minister What more authoritative admission can Parliament or the country get that Bank Negara's colossal losses stemmed from imprudent foreign exchange speculation. if the Prime Minister is right that the Bank Negara's RM5. must be the Finance Minister. I. the person w 10 h must aIso bear 1responsit)ility " . Anwar Ibrahim. Jaffar should be made a Tun instead of having to resign i n ignominy if it could be shown that over the years. . Bank Negara had cumulatively made more profits from forex speculation despite the colossal losses in the past two years If it could be shown that since it ventured into speculative forex trading under his Governorship.Negara when he was Finance Minister. . there is no need for Tan Sti Jaffar Hussein to resign at all. Bank Negara had cumulatively made more profits from such specu- .7 billion forex losses last year are from profits made in forex dealings made in preceding years.. A .ala 6u .n As Anwar had assured Parliament last April that he was 'satisfied' with Tan Sri Jaffar's explanation for the 1992 Bank Negara forex losses.I .. " . himself. . what had Tan Sri Jaffar done differently in 1993 with regard to the 1993 Bank Negara forex losses to require his resignation? In fact. for the colossal Bank Nst. .. apalt from Tan Sri Jaffar Hussein. . as such speculative forex trading was started during his tenure? Anwar must also bear responsibility for the colossal Bank Negara forex losses - However. I l G n Iuabca. on top of the RM 1 .7 billion losses in 1993.then how could Bank Negara suffer RM5. Anwar Ibrahim said last week that he had directed Bank Negara to stop foward foreign exchange trading when he discovered its forex losses 1 months ago. This is why the DAP had called on the GovernrnellLLu present a White Paper to give full details of its annual profits or losses from forex dealings in the preceding years. as Malaysians had not known that Bank Negara had been an active forex speculator. 01 billion to RM13. Mahathir was being unfair himself.7 billion forex losses .1 billion losses in 1992? . Dr. so that Malaysians can know whether the cumulative profits from Bank Negara forward forex dealings are able to absorb the RM5. Mahathir said last year that there was no need for him to take action against any Bank Negara official.lative forward forex trading despite the colossal losses in the past two years.let alone the RM30 billion which could be the total forex losses in the past two years! There are two other reasons why Anwar Ibrahim must bear personal responsibility for Bank Negara's forex losses. Jaffar should be rewarded with a Tun instead of having to resign in ignominy! Dr. If Bank 8 Negara had followed his instructions to stop forward forex trading in 1992. and that "it would not be fair as no one made any compliment when Bank Negara made large profits from its foray into the forex markets earlier". . Kerugianyang dimahudkan itu tidak berlaku dun tidak bertambah. On July 19. This is Anwar's reply.Saya ingin memberijaminan kepada YangBerhormat dari Tanjong bahawaperkara ini kita teliti lebih dekat dan kita lebih waspada kerana pengalaman yang lalu.7 billion contingent liability for forward forex trading had not been confirmed. but even more forex losses had been incurred. Bank Negara's provision of RM2.28): of 19th July "Dato ' Seri Anwar bin Ibrahim: Tuan Yang di-Pertua. Yang Berhormat mahu percaya atau tidak tetapi saya ada maklumat yang sebenar tentang keadaan tersebut. dukacitasaya memaklumkan inisatu beritayang h a n g baik bagi YangBerhormat dari Tanjong. Anwar said that this was not true as he had been monitoring the Bank Negara's forex dealings weekly. the provision in the 1992 Bank Negara accounts for RM2.. " In this one short answer.7 billion contingent liability for forward forex trading in the 1992 Bank Negara accounts had not only been confirmed.1993. . Saya juga meneliti tiap-tiap minggu perkembangan kerana masalahyang dihadapi sebelum ini. I asked Anwar Ibrahim a supplementary question during question time as to whether at that date. Anwar Ibrahim had misled Parliament last July when I questioned him whether Bank Negara had suffered more forex losses.. from the 1993 (p.Furthermore. Anwar Ibrahim had misled Parliament and the nation on three matters: * that by July 1993. This loss reflected errors in judgement involving commitments made with the best of intentions " * that his weekly monitoring of Bank Negara's .* that BankNegara had not suffered more forex losses.7 billion when its contingent liability provision for such forward forex trading in end-1992 was RM2. and that "there are no new trading arragements" last year as the central bank unwound its forward positions in the market last year (Business Times April 6. 1994)' then Bank Negara should not have incurred RM5. If Anwar Ibrahim claims that he had directed Bank Negara to stop forward forex trading 18 months ago.1993 Account. Anwar's claim that there were no new forward forex trading by Bank Negara in 1993 has been contradicted by Tan Sri Jaffar Hussein. an amount which will be written o f against the Bank's furure profits.7 billion is reported. a net dejciency in foreign exchange transactions of RMS. this must mean that BankNegara was still dealing in new forward forex trades at least until June 1993. Furthermore.4 billion as contingent liaiblity for forward forex trading for 1994 in its end. and forex dealings would prevent further colossal losses arising from Bank Negara's forward forex trading. who said in his press conference on March 3 1 as well in his foreword to the 1993 Bank Negara report: In the Bank's 1993 accounts.7 billion. As forward forex deals are usually for three or six months. there should not be another provision of RM 1. losses unfolded in the course of 1993. all these forward transactions were unwound.to protect the national interest prior to the publication of the Bank S 1992 accounts towards the end of March 1993. For the most part.4 billion contingent liability for forward forex trading in the end. As these forward transactions were ur?wound. Only a full and independent investigation into the Bank Negara's colossal forex losses can establish the truth about its forex activities. global developments over the past year had not been easyfor the Bank. this exercise is now complete . " This is an admission that unt11 late Marcn 1993. they made it increasinglydv$cult for the Bank to unwind these positions without some losses. with the suggestion that after March. no more contingent liabiliy on the Bank's forward foreign exchange transactions on fhis account. . time was not on the Bank S side.1993 account (Note 12) shows that new forex trading were still being entered into well after March 1993.there is at this time. as well as other important aspects of the Bank Negara forex losses scandal. An unfortunate chapter in the Bank's history is now closed. Clearly Datuk Seri Anwar and Tan Sri Jaffar are not telling the truth as to when Bank Negara ceased new forward forex trading. But the provision of RM1. Nevertheless. In this regard. Bank Negara was still dabbling in new forward foreign exchange transactions. indeed. 7 billion in forex losses as an asset item in the 1993 Balance Sheet. Such treatment of extraordinary forex losses as an asset item is most shocking. such huge forex losses should be treated as an extraordinary loss item in the Profit and Loss Account. including Malaysia. . Under any international accounting standards. BankNegara has used dishonest and unethical accounting to manipulate the 1993 Balance Sheet to hide the RM 5.7 billion in forex losses so that the losses will not be fully reflected in the accounts. This is done by including the RM 5. Under no circumstances should such forex losses be capitalised and treated as an asset item in the Balance Sheet! How can such losses be treated as an asset item when it is not an asset that benefits Bank Negara but is a huge loss to Bank Negara.Dishonestand unethical accounting in treatM ing the R 5.7 billion forex losses as an Asset item under Deferred Expenditure. Tan Sri Jaffar Hussein should know that it is unethical and dishonest to treat such huge forex losses as an asset to Bank Negara! It is a shame not only to Bank Negara but to all Malaysians for Bank Negara to try to hide the red ink by resorting to such silly methods that any accounting student will spot immediately. As a chartered accountant. unacceptable and violates generally accepted accounting principles. 697 Bank Negara's net worth only dropped by RM 7 12 million in 1993 to RM3. and the Governor and its Board would have been suspended and the bank taken over if it had been a commercial bank! .556 10.409 1993 100 3.053 753 13.010 billion.7 billion in forex losses.7 billion in forex losses were taken into account.697 million because it only took into account the net operating loss of RM 712 million suffered by BankNegara.749 Net Assets 12.- It is clear that the intention of such malpractices is to hide the fact that Bank Negara is technically insolvent or bankrupt. In accounting terms. Bank Negara is therefore insolvent . not the RM 5. If the RM 5.556 41 3.by RM2.which means its liabilities exceed its assets . value and financial performance.258 Fund Other Reserves 8.Bank Negara i s insolvent where its liaibilities exceed its assets by RM2.OlO) million or is technically insolvent.611 4. According to the Bank Negara Annual Reports the net worth or net assets since 1990 are as follows:1990 Paid-up Capital 100 General Reserve 3. the Net Assets is used as a rough indicator of a company long-term solvency.107 1991 1992 RM Millions 100 100 3.458 3.01 billion. and it would have been taken over if it had been a commercial bank . Bank Negara would have a negative net worth of (RM2. Who is there now to rescue the rescuer that is now in severe financial trouble? And why does Bank Negara not come out cleanly and openly recognise the RM5.94 because it breached its capital adequacy ratio requirements and was technically insolvent? In fact what difference is Bank Negara now from the 24 Deposit-Taking Co-operatives which collapsed in 1986 or from the other collapsed banks and finance companies which it took over in the past? Bank Negara has always acted as the lender of last resort and the rescuer of troubled financial institutions. but this esteem had been lost as a result of Bank Negara's colossal forex losses in 1992. the Bank . then where is its authority morally or ethically to regulate commercial and merchant banks to ensure that they are solvent and maintains sufficient capital adequacy ratio.3. What difference is Bank Negara now from Rakyat Merchant Bankers Bhd(RMB) which it took over on 3.7 billion forex losses for what they were as losses in their financial accounts instead of trying to disgrace themselves by trying to package it and dress it up as an asset! Government should 'top up8Bank Negara's deficiency in net worth so that Ahmad Mohamad Don would not'be humiliated in international monetary circles as a Governor of an insolvent Bank Negara Bank Negara Malaysia had always been held in high esteem by the international banking community.If Bank Negara is bankrupt. I understand that at the recent International Monetary Fund meeting. Ahmad Mohamad Don.Negara officials were treated like pariah central bankers. give sufficient capital funds for Bank Negara to operate as well as restore the credibility and image of the Bank Negara Governor and other officials with their peers in international conferences. how could the new Bank Negara Governor. The revaluation of . Let us remember that the humiliation of the Bank Negara Governor is a humiliation of all Malaysians! The proper thing for the Government to do is to recognise the insolvency of Bank Negara and to inject RM 3 billion in capital into Bank Negara to overcome the RM2. stand tall in international conferences with central bankers from other countrie! The Government snould 'top up' Bank Negara's deficiency in net worth so that Ahmad Mohamed Don would not be humiliated in international monetary circles as a Governor of an insolvent Bank Negara.01 billion in deficiency in net worth. Or is the Finance Ministry itself out of funds that it could not 'top up' Bank Negara's deficiency in net worth? Has Bank Negara concealed RM6. - - other With Bank Negara insolvent.1 billion forex losses by revaluation of the quoted investments This is not the only accounting malpractice to be found in the 1993 Bank Negara accounts. 64 billion in 1992 to RM 9. there is a revaluation gain because these investments were valued at the original cost they were bought years ago.now consistently applied" the current cost accounting method for all quoted investments .1 billion from RM 3.7 billion that have been admitted. In other words.75 billion in 1993 because of the revaluation exercise.extending the 1992 change of valuation of gold to mark-to-market basis. it is stated that the Bank Negara has ".1 billion gain in the Bank's Net Worth.7 billion but may be as high as RM 1 1.8 billion! .1 billion has been completely offset by further hidden and secret forex losses.1 billion increase in either Other or General Reserves Account nor any RM 6. There is no RM 6.Bank Negara's quoted investments are also not taken into account leading to the likelihood that these revaluation gains have been used to conceal even greater forex losses last year than the RM5. Usually in such a revaluation exercise. this revaluation gain of RM 6. It is likely that the revaluation gain of RM 6. However. Under Notes l(a) to the 1993 accounts.1 billion is not recognised or taken into account in the I993 Balance Sheet as would be required under generally accounting principles. which was very much lower compared to current prices. This is shown by Other Assets jumping up by RM 6. the 1993 forex losses do not amount only to RM 5. 1 billion forex losses by the revaluation of its quoted investments like MAS and MISC. Bank Negara and the Government had tried to mislead the public by claiming that Bank Negara had suffered 'paper losses' of RM9.This is another area which calls for full and independent investigation.1 billion as reflected by the drop in the Other Reserves Account of RM 9.398 million in 1992. retained p net worth of a company and reduce it if losses are incurred. This RMIO. I1 increase the In accounting terms. I had drawn attention to various accounting malpractices in the 1992BankNegara Balance Sheet to deceive the public about the extent of Bank Negara's forex losses.3 billion. Bank Negara recorded a profit of RM 11.3 billion after having transferred in RM 800 million.1 billion losses. when it had suffered RM 10. According to Bank Negara's own 1992 Balance Sheets. as to whether the Bank Negara had concealed RM6. I billion loss can also be double-checked and confirmed by calculating the true drop in ilis net wolrth. In my speech on the Bank Negara forex losses in Parliament last year. For instance. of which only RM 898 millionI was retained because the remaining RM 500 million was paid to the Government. This is shown as follows:- . its losses were not RM9.3 billion but RM 10. Furthermore. 1.PROFIT AND LOSS APPROPRIATION ACCOUNT for BNM As At 3 1 December:1 NET OPERATING PROFIT 1.398 Transfer To General Reserve Fund 898 Amount Payable to Federal Government 500 Total 1.398 291 1990 Millions 1. This means that the true fall in the Bank's net worth position is RM 10.1 billion. Bank Negara should have increased its net worth by RM 898 million. Since the current price is higher than the purchase price.3 billion when it should be RM 10. caused by forex losses of RMIO. there was also the failure by the 1992 Bank Negara's accountants to take into account the revaluation gain from gold. its net worth dropped by RM9. This is an example where Anwar and Tan Sri Jaffar have tried to mislead the public by understating the 1992 Bank Negara's losses as RM9. However despite having retained RM 898 million in profits. the amount gained would have been included in the other Reserves Account.200 1.1 billion. . 274 In other words.1 billion.074 200 1.1992 by revaluing gold which they had bought at a low price in the past 20 years ago at current prices. assuming no forex losses or gains.202 million because of forex losses instead of increasing. BNM had changed its accounting practice in. 5 billion. & .5 billion to RM25. the gold revalued at current prices will be worth more than RM4.1 billion loss that could be hidden by the revaluation of quoted investments. In 1993. In other words.5 billion worth of gold bought 20 years ago at that time.1 billion but likely to be RM 13. but by the end of 1992 its price had now risen to more than US$300.5 billion. The fact that this RM 3 billion gain in revaluation of gold was not taken into account shows that even the gain from gold revaluation was also lost.5 billion worth of gold had still been retained. and that this $1. With the further estimate that BNM had RM1.I It had been estimated that gold was US$100 an ounce in 1984just before Tan Sri Jaffar became Bank Negara Governor.4 billion to RM12. the 1992 forex losses suffered by Bank Negara is not RM 10. Taking both years together. Bank Negara could range from RM6. This gain of more than RM3 billion from such revaluation of gold in 1992 must be reflected in the 1992 Balance Sheet and put in the Other Reserves Account. Bank Negara could have suffered forex losses ranging from RM 16. Just like the missing RM 6.6 billion.1 billion revaluation gain of quoted investments in 1993.7 billion for forex losses and RM 71 1 million for net operating loss.1 billion. Taking into account the RM6. it is likely that the 1992 gold revaluation gain was again offset by additional secret hidden forex losses. Bank Negara suffered RM5. Tan Sri Jaffar even said that such paper losses could even turn out to be a profit. Tan Sri Jaffar denied that Bank Negara lost RM 9. It is shocking that the Auditor-General Tan Sri Ishak Tadin could still continue to approve Bank Negara's Accounts that it represents a true and fair view when it is misleading and dishonest and can only harm our international reputation.6 billion losses . * Assets alone do not determine financial viability Anwar should not be misled by Bank Negara officials that Bank Negara can afford up to RM 25. Datuk Seri Anwar confirmed this in Parliament on 27th April 1993that the RM 9.1 billion in forex losses sufM fered by Bank Negara in 1992 change from paper lossesto reaiised losseswithin a year? In a statement by Tan Sri Jaffar to the press on 20th April 1993.3 billion in forex losses were not real losses but merely paper losses. a .1 billion forex losses in 1992 were not paper losses but actually real losses? Such blatant accounting malpractices not only show that the Bank Negara's financial reports do not represent a true and fair view but that Bank Negara could have suffered more losses and is hiding the real extent of such forex losses.or paper losses. The issue is what have occurred in the space of one year for the Government and Bank Negara to now admit that the RM 10.How did R 10.3 billion in forex losses and insisted that they were only book losses . 5 billion losses suffered by Bank Negara in 1993 has proven Datuk Seri Anwar to be embarrassingly wrong that the RM 10. It is therefore also wrong for Prime Minister Datuk Seri Dr Mahathir Moharned to say that the country's financial position is not threatened because the forex losses . It is such wrong advice that caused Datuk Seri Anwar to come out openly to state last year that the RM 10. The additional RM 6. This is because the Balance Sheet also contains a Liabilities portion that also exceeds RM 100 billion. From my explanation just now. But to only concentrate on the assets portion of the Balance Sheet is to miss correctly interpreting the real situation. Anwar should not make the same mistake by saying that the country's financial position will not be affected because Bank Negara's strong reserves and assets exceeded RM 100 billion.1 billion losses were not 'paper losses' but real losses.O 10)million.in two years because its assets exceed RM 100 billion. To fully understand the Balance Sheet to obtain the financial health of an institution is to make a simple calculation of its net worth or net assets. BankNegara's actual position is not as good as Datuk Seri Anwar said because it does not have assets exceeding RM 100 billion but is actually insolvent with a negative net worth of (RM2. It is true that Bank Negara has reserves and assets of RM I00 billion as stated in its 1993 Balance Sheet.4 billion to RM12.1 billion in foreign exchange(forex) losses suffered by Bank Negara in 1992 were "paper losses". 4 to RM12. I How can ~ a i Negara lose RM 712 million as a result k of combating inflation in 1993 if it can successfully combat inflation in 1992 and yet also record profits in excess of R M 1 billion? Why is 1993 so unusual that when combating inflation Bank Negara has to lose RM 712 million? Why does a weaker ringgit not bring about reserves gain? Tan Sri Jaffar said on 20th April 1993 that the RM 10.are from profits made in forex dealings in the past. Which ASEAN country's economy can avoid suffering losses ranging from RM 6. especially when as a result of such huge losses BankNegara's net worth is now insolvent with a negative net worth of (RM 2. We would therefore expect Bank Negara to make forex gains if the ringgit depreciates.63% in terms of the composite basket in 1992.010) million. According to the 1993 Bank Negara's Report the ringgit depreciated or declined b 1 . Tan Sri Jaffar said such appreciation was the reason why the forex losses were incurred.5 billion by its Central Bank in a year without any adverse impact? Making profits in the past is no justification for losing RM 16.1 billion forex "paper losses" was due to a stronger ringgit because a stronger ringgit would bring about losses in its international reserves.5 billion to RM25. The ringgit appreciated by 5.6 billion in two years. What gives the right to one or two persons to have the authority to gamble so much money in the forex market? Bank Negara forex traders operate in huge lots in the foreign exchange markets. Royal Commission of Inquiry should inquire whether the total Bank Negara forex losses since 1992 could exceed RM30 billion The Royal Commission of Inquiry should first determine the actual extent of the forex losses suffered by Bank Negara since 1992. While the market norm is to deal with US$I million. operating in US$50 million lots.22% in terms of the composite basket in 1993. . 1 understand that there had also been occasions when Bank Negara operated with US$500 million in one call! Malaysians are entitled to the full facts of the Bank Negara forex losses scandal. Bank Negara suffered a total loss of RM 6.4 billion to RM12. However instead of recording forex gains.7 billion in 1993. How much are the forward forex positions? They must be RM30 billion or RM40 billion to be able to incur losses of up to Bank Negara's admitted forex losses of RM 5. US$5 million or US$IO million lots. This only shows that massive speculation or gambling in the forex market has resulted in losses which has wiped out any gains from a weaker ringgit. I had last year called for a Royal Commission of Inquiry and I repeat this call.5 billion. Bank Negara operates in a very agressive manner.by 5. 1993. It is interesting to note that as of November 30. Bank Negara's Gold and Foreign Exchange and Other Reserves would have multiplied to the impossible figure of RM587 billion! .4 billion to RM76. Could there be other hidden and secret forex losses in the 1992 and 1993 Bank Negara accounts apart from those which had been discussed? There could be. 1993. but within a month by December 31. I will just give one possibility. The total forex losses could be more when we take into account the RM1.6 billion. dollars. That manoeuvre improved Bank Negara's yearend financial position by raising the value of its currency and gold reserves in ringgit terms. as happened in the one month of December 1993. Bank Negara's forex losses could range from RM 16.I had said that for the two years of 1992 and 1993. Bank Negara had been accused for instance of dumping large amounts of ringgit into the market in the closing days of 1993 to buy U.2 billion. causing the ringgit to fall steeply.4 billion . If it had increased at 26 per cent per month. Bank Negara's Gold and Foreign Exchange and Other Reserves including SDRs stood at RM60 billion. it had shot up by RM16.4 billion contingent liability for 1994 arising from forward forex commitments. Bank Negara's Gold and Foreign Exchange and Other Reserves including SDRs stood at RM46.5 billion to RM25.S.and hefty increase of 26 per cent in one month. aspects of its intervention operationsand its forward commitments in the various currencies. bringing total forex losses to over RM30 billion since 1992. The second task of the Royal Commission of Inquiry is to ascertain whether there had been any financial malpractices and abuses in view of the inconsistencies and conflicting explanationsabout the colossal forex losses.4 billion increase of Gold and Foreign Exchange and Other Reserves could conceal forex losses. . The first task of the Royal Commission of Inquiry is to ascertain whether Bank Negara's forex losses since 1992 could exceed RM30 billion. how is it that Bank Negara can not only not lose money but make profits in the past without these sophisticated computers? And how is it that unsophisticated Central Banks of other countries which do not have sophisticated computers do not incur such colossal losses from forward forex operations? Thirdly. In fact. the composition of its reserves. It is ridiculous for Bank Negara to blame the late delivery of sophisticated computers for causing such huge forex losses.It is therefore possible that the RM16. After all. by releasing details on Bank Negara's foreign transactions. Anwar Ibrahim should be able to tell Parliament the size and details of Bank Negara's foreign exchange losses. the Royal Commission of Inquiry should establish as to how the Bank Negara could incur such colossal losses. Anwar Ibrahim should have no reason to refuse to furnish all these details about the Bank Negara's colossal forex losses to Parliament. and the new Kuala Lumpur International Airport has been mentioned. .1 billion to RM 13. Jaffar said that to give details would be "show my hand to the market". and that "there should be no problems disclosing such information if the bank is no longer in the foreign exchange business. After the 1992 Bank Negara Report on the RM 10. the talk is that Nor Mohamed would be transferred to a very responsible government-connected position. and he was conferred Darjah Johan Setia Mahkota (JMN) on the birthday of the Yang di Pertuan Agong on June 5. Nor Mohamed was appointed Senior Adviser to Bank Negara. What intrigues me is the position ofNor Mohamed Yakcop. which takes effect on July 10 after a three-month leave.1 billion forek losses was made public. Although Nor Mohamad has also submitted his resignation.Last April. Now that Bank Negara had announced that it has ceased all forward forex transactions and that all positions had been unwound. .1993. the man with direct oversight of the bank's forex dealings and therefore directly responsible for the colossal Bank Negara forex losses. " Anwar Ibrahim said the same thing in Parliament during question time on July 19. whether he be Bank Negara Governor or even Finance Minister. The BN Government must realise that Bank Negara is owned by all Malaysians and these losses cannotjust be ignored as irrelevant and unimportant. RM30 billion losses would be tantamount to seven or eight years of tax holiday for all Malaysians from having to pay individual income taxes The Government has still to convince the people that it is serious about the colossal Bank Negara forex losses which could exceed RM30 billion since 1992. he was informed that the main thrust of reserves management in Bank Negara was to preserve the value of what we have and the main considerationswere safety and liquidity. He said he had added a third and fourth dimension: profit optimization and market expertise. . As shareholders. Tan Sri Jaffar said in his New Delhi lecture in 1989 that when he joined Bank Negara in 1985 from the private sector. It is finally the failure of these two new dimensionsthat have led to Bank Negara's colossal forex losses and the ignominous departure of Tan Sri Jaffar Hussein.Malaysians must wonder whether the 'culture of accountability' which Daim talks about followingthe resignation of Jaffar Hussein isa farce. all Malaysians are entitled to demand full accountability and responsibility by all those responsible for the losses to our international financial credibility and funds built up over 37 years . two former central bank governors and three of their staff were charged in court for negligence and over-stepping their authority in gambling for two disastrous years on the world's foreign exchange markets. starting with the Finance Minister.With RM30 billion. stepping forward to bear his responsibility for the colossal Bank Negara forex losses scandal. This is a puny figure compared to the RM30 billion losses that could have been lost by Bank Negara since 1992. to inquire into the 1993 forex losses of Bank Negara I had told Parliament last July that in Mongolia. It is most regrettable that the Federal Govefnment has not supported the proposal for the establishment of a Royal Commission of Inquiry into the colossal Bank Negara forex losses. causing a loss of US$90 million. In fact. the Government can declare a 'holiday' for all Malaysians from having to pay individual income tax for seven to eight years! Let the Government prove its seriousness by establishing a Royal Commission of Inquiry to investigate into the biggest financial scandal in Malaysia. the Finance Ministry and the Bank Negara had refused to allow the Public Ac- . and for all concerned. Anwar Ibrahim. Call for urgent appointment of PAC Chairman. who should be an Opposition MP. counts Committee to conduct a f i l l investigation into the colossal forex losses. with a second consecutive year of colossal forex losses. Now. This will also show that the Government and Bank Negara have nothing to hide and are not afraid of a full and thorough investigation into the forex losses by the PAC. and Tan Sri Jaffar did not attend the PAC meeting in July last year to discuss the forex losses. the PAC is unable to operate and meet because it has no chairman as its former chairman. . Affifudin Omar had been appointed a Parliamentary Secretary. Datuk Dr. I call on the Deputy Prime Minister to introduce a motion to appoint a new PAC Chairman without any further delay so that the PAC could meet urgently over Bank Negara's 1993 forex losses. The Cabinet and Parliament should accept the established parliamentary convention in Commonwealth Parliaments by appointing an Opposition MP to head the PAC. If a person is to strike a RM2 million lottery everyday. or build 45 universities. which would resolve the long-standing lowcost housing problem in the country. five North-South Highways and four Kuala Lumpur International Airports like the one being built in Sepang! . alternatively.578! Or. everyone will be entitled to RM1.RM30 billion is a colossal sum. it could mean a tax holiday for all Malaysians where no individual income tax need be paid by all Malaysians for eight years! Or it could be used to build 1. it would take him 41 years to reach 30 billion! If RM30 billion is divided among the 19 million Malaysians.OOO per unit.2 million low-cost houses at RM25. including new-born babies. Firstly. . then in future.Bank Negara speculated a s much a s RM270 Billion at one time = = Speecn by ranramentary Opposition Leader. which was three times the country's GDP and more than five times the country's foreign resewes two years ago? Up to now. the real losses suffered by Bank Negara as a result of its speculation in the forward foreign exchange markets since 1992.Lim Kit Siang. uAr secretaryGeneral and MP for Tanjung. in Dewan Rakyat on Tuesday. to give answers to five aspects of the colossal Bank Negara forex losses scandal. there would be even bigger financial scandals! I therefore call on the Finance Minister. May 3. Datuk Seri Anwar Ibrahim. Malaysians must realise that if the Barisan Nasional Government is allowed to get away scot-free with the colossal Bank Negara forex losses without full accountability as to what really happened.1994 on the 1993 and 1994 Supplementary Estimates Was Bank Negara's maximum exposure at the height of its forward foreign exchange speculation in the region of RM270 billion. neither Parliament nor the country has got the fill and true story as to what really happened to cause the colossal Bank Negara forex losses since 1992. Even if Bank Negara had been so imprudent as to speculate with one-year deals. 1992 and if so. could Bank Negara provide for a contingent liaiblity for RM1. all such forward foreign exchange contracts should have been wound up by 1993 itself. then.4 billion losses in 1994 arising from its forward foreign exchange commitments? Was Anwar Ibrahim telling the truth that he had directed Bank Negara to stop forward foreign exchange trading around October. then there is no reason for the Bank Negara to suffer any forex losses in 1994 at all as forward forex commitments are usually for three-month or six-month contracts. the truth of the statement by Anwar Ibrahim that he had directed Bank Negara to stop forward exchange trading when he discovered its forex losses IS months ago. had Bank Negara disregarded the directiveof the Finance Minister as to suffacontinued losses from such forward forex speculation in 1994? . Secondly. Datuk Seri Anwar Ibrahim. and the Finance Minister. I have said in my urgent motion in Parliament on the Bank Negara forex losses two weeks ago that Bank Negara's forex losses since 1992 could have amounted to as high as RM30 billion. How come. It had not fully and publicly admitted any Bank Negara forex losses in 1992 .but only 'paper losses' of RM9. had failed to give a full rebuttal to my figure.e.7 billion forex losses in 1993.3 billion. i. around October 1992.The Government had only admitted that Bank Negara had suffered RM5. If this was true. who operate in huge lots in the foreign exchange markets. that Bank Negara forex traders were 'very aggressive' players. US$5 million or even US$IO million lots. and one-year forward forex deals. whether it is true that at the height of Bank Negara's speculation in the forward foreign exchange market in 1992. six-month forward forex deals.such as the total commitmentsof Bank Negara at that time on three-month forward forex deals. if not the detailed figures. even as high as RM$500 million in one call! . Bank Negara operated in US$50 million lots. the Bank Negara must be deplored as being utterly irresponsible with the funds of Malaysian taxpayers! I have not invented this figure of Bank Negara speculating at the international foreign currency markets with as much as RM270 billion at one time. Bank Negara's maximum exposure was in the region of RM270 billion . at least the global figures of the commitments of Bank Negara in its forex speculation at the time Anwar Ibrahim ordered a stop in forward forex trading around October 1992 .Parliament and the nation are entitled to know. This confirms what I said in Parliament last month.three times the country's GDP and more than five times the country's foreign reserves at the time! This is a completely unthinkable figure and if true. and on occasions. This figure came from the latest issue of Malaysian Business . Thirdly. While the market norm is to deal with US$l million.which is a publication close to the 'establishment'. Datuk Dr. there should be at least another Parliamentary meeting some time in July.Fourthly. Although speculation is rife of early dissolution of Parliament. then clearly. If the Finance Minister is not prepared to provide answers to these five questions on the colossal Bank Negara forex losses. the total profits it had made since it started forays into the forward forex speculations. the Government and Bank Negara has something to hide. Jamaludin Jarjis.caused such colossal lossesto BankNegara and the Malaysian taxpayers. . and the real nature of the "unfortunate circumstances and errors of judgement" which .7 billion by the end of December 1993? Fifthly.then how could Bank Negara lose RM5. If this was the case . for how long had Bank Negara indulged in forward foreign exchange speculation. has his first immediate task cut out for him . the assurance given by Anwar Ibrahim to me in Parliament during question time on July 19. and the PAC should work over-time to present a report on its investigations into the colossal Bank Negara forex losses to the next meeting of Dewan Rakyat.that as of July 1993 Bank Negara had not suffered 'any new or increased forex losses' .to examine into Bank Negara's colossal foreign exchange losses and to find answers to the five questions which I havejust posed. who was appointed by Parliament last week.1993 that BankNegara had not suffered any 'new or increased forex losses' as he was "examining Bank Negara's developments every week". In such circumstances. the new Chairman of the Parliamentary Accounts Committee. then it will only conf r criticisms about the fundamental flaw of appointim ing an MP from the government to chair the PAC.OOO per unit. If a person is to strike a RM2 million lottery every day.If the PAC dare not investigate into the colossal Bank Negara forex losses. including a new-born babe. or build 45 universities. for they are not losses suffered by Tan Sri Jaffar Hussein personally or BankNegara. it could mean a tax holiday for all Malaysians where no individual income tax need by paid by all Malaysians for eight years! Or it could be used to build 1. which would resolve the longstanding low-cost housing problem in the country. the PAC and Malaysians cannot take lightly the RM3O billion Bank Negara forex losses.2 million low-cost houses at RM25. but RM3O billion losses suffered by the peopleRM30 billion is a colossal sum. Parliament. every one will be entitled to RM1. or is unable to present its report to the next meeting of Dewan Rakyat. it would take him 4 1 years to reach RM30 billion! If RM30 billion is divided among the 19million Malaysians.578! Or alternatively. five North-South Highways and four Kuala Lumpur International Airports like the one being built in Sepang! . Finance Companies & Merchant Banks Federal Government Others Bank NegaraMalaysia BondsIBills '~llocation Special Drawing Rights of Other Liabilities Assets Gold & Foreign Exchange International Monetary Fund Reserve Position Holdings of Special Drawing Rights Malaysian Government Papers Bills Discounted Depositswith Financial Institutions Loans & Advances Deferred Expenditure Other Assets Profit & Loss Appropriation Account for the Year Ended Dee 31 1993 1993 RM 1992 Transfer to General Reserve Fund Amount Payable to Federal Government - RM 897.APPENDIX BANK NEGARA MALAYSIA Balance Sheet as at Dee 31 1993 Liabilities Authorised Capital RM200.000.879.000 Paid-up Capital General Reserve Fund Other Reserves Currency in Circulation Deposits: Commercial Banks.941 Net Operating hofit/(Lm) Transfer fiom Other Reserves . 63 1. The Government has undertaken to make good this deficiency as and when required to do so by the Bank. These comprise:- . Transactions in foreign currencies during the year have been translated into ringgit at rates of exchange ruling on value dates. Deferred Expenditure This represents the net deficiency arising from foreign exchange transactions. 3. This policy is now consistently applied to all quoted investments.Important Notes to the Accounts December 31 1993 - 1. 2. Securities and Investments Gold and securitiesare valued at a mark-to-mar~er basis as at December 3 1 1993. Net Operating Loss The Net operating loss of the Bank was arrived at after charging the cost of absorbing the very substantial pool ofexcess liquidity in the financial system to combat inflation. (b) Foreign Currency Translation Assets and liabilities in foreign currencies have been revalued at rates of exchange ruling on the balance sheet date.381. Contingent Liabilities Total contingent liabilities as at December 3 1 1993was RM3.499. Accounting Policies (a) Gold. 4. 625.(a) an amount of RM2.664. which represents the obligation of the Bank to pay in full. .207. being the net liability on forward foreign exchange transactions.411. (b) an amount of RM1.244. in SDR or other convertible currencies. being liability arising from various transaction on bilateral payments arrangements. and (c) an amount of RM10. the amount of Malaysia's quota in the International Monetary Fund (IMF) under the Articles of Agreement.413.209.726. Politics And Morality (1984) Human Rights In Malaysia (1 985) BMF The Scandal Of Scandals (1 986) Malaysia .OTHER TITLES BY THE AUTHOR Time Bombs In Malaysia (1 978) Malaysia In The Dangerous Eighties (1982) This Day In The Last 18 Months (1983) Constitutional Crisis In Malaysia (1 983) The BMF scandal (1 983) Harris Salleh .Volume I1 (1 992) Battle For Democracy (1 992) Vijandran Pornographic Videotape Scandal I1 (1 992) .Crisis Of Identity (1986) The North-South Highway Scandal (1987) Prelude To Operation Lalang (1 990) The Dirtiest General Elections In The History Of Malaysia (199 1) Selected Speeches & Press Statements .Volume I - (1 992) Selected Speeches & Press Statements.