Nor Mohamed Yackop– Not Sacked but elevated under Mahathir, Badawi and Najib Razak

September 9, 2017

Nor Mohamed Yackop– Not Sacked but elevated under Mahathir, Badawi and Najib Razak

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Khazanah Nasional Berhad’s Deputy Chairman–The Currency Trader  Rogue who broke Bank Negara Malaysia–Nor Mohamed Yakcop. He was never made to account for his excesses. Instead, under Mahathir, Badawi and Najib Razak was elevated. That is the genius of Malaysia

ANWAR Ibrahim wanted to sack Bank Negara Malaysia’s (BNM) Assistant Governor Nor Mohamed Yakcop for exceeding his boundaries in forex trading, the Royal Commission of Inquiry (RCI) into the forex losses, heard today.

Anwar, who was then Finance Minister, told the RCI that Nor Mohamed had not only exceeded his boundaries, he had also failed to provide an accurate report on the losses suffered by BNM through forex trading.

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“The final explanation (by Jaffar) was accurate because (it) verified that Nor Mohamed exceeded the mandate given to him. “(Nor Mohamed) did not give an accurate report to him (Jaffar).

“I instructed that Nor Mohamed be sacked, if possible at 4.00pm (during their meeting),” said Anwar in reference to a conversation he had with the then Bank Negara Governor Jaffar Hussein in 1994.

Anwar added he would have initiated the sacking if Nor Mohamed refused to resign. Nor Mohamed resigned from his position in April 1994.

Anwar, the de facto leader of PKR and Pakatan Harapan, also criticised Nor Mohamed for the latter’s testimony at the RCI yesterday where he had said he deemed the forex losses as a lesson that helped the country in facing the Asian financial crisis.

“His assertions are absurd. You must be accountable (for what has happened),” said Anwar when the matter was prompted by RCI panel member Saw Choo Boon today.


In his testimony yesterday, Nor Mohamed took accountability over the forex losses and admitted he was responsible for BNM’s forex trading from 1986 until 1993, before his resignation. He said that he accepted his fair share of accountability over the forex losses incurred in the late 1980s and early 1990s.

Nor Mohamed also told the RCI panel that he never discussed the forex transactions in the years between 1986 and 1993 with both Anwar and then prime minister Dr Mahathir Mohamad.


A Rogue Currency Trader’s Confession–Bursting Bank Negara Malaysia

September 7, 2017

A Rogue Currency Trader’s Confession–Bursting Bank Negara Malaysia


Text of Statement by Khazanah Nasional Berhad’s Deputy Chairman Tan Sri Nor Mohamed Yakcop before Royal Commission on Bank Negara Forex Fiasco

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The Rogue Currency Trader–No Excuses for Recklessness

The forex losses happened. There is no denying it. There is also no denying my accountability for the forex losses. I accepted my fair share of the accountability for the forex losses and resigned from BNM. At that time, it appeared to me to be a sad end to my 25 years of service to the nation, through Bank Negara Malaysia.–Nor Mohamed Yakcop


I joined Bank Negara Malaysia (BNM) in September 1968. I was promoted to the post of Manager, Banking Department in 1986.

The Banking Department was responsible for external reserves management, regulation of the domestic money market, including the discount houses, development of Islamic banking, approval of domestic bond issues, managing the Export Credit Refinance Facility (ECR), development of new financial institutions and promoting trade by way of Bilateral Payment Arrangement (BPA) with other central banks in developing countries. When I resigned from BNM in April 1994, I held the post of Advisor. I re-joined BNM again, as an Advisor, in September 1998, after the implementation of the Unorthodox Measures, which I will describe later in my statement. I served in BNM in that capacity until April 2000. In May 2000, I was appointed as the Economic Advisor to the Prime Minister, and subsequently, in January 2004, I was appointed as the Minister of Finance II. In April 2009, I was appointed as Minister in the Prime Minister’s Department responsible for the Economic Planning Unit (EPU). I retired in May 2013, and joined Khazanah Nasional Berhad as Deputy Chairman in June 2013.

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Policy imperatives of active external reserves management by BNM

Prior to 1985, BNM was not active in external reserves management, including forex trading, given the relative stability in the international foreign exchange market.

The situation changed in 1985. On 22 September 1985, five OECD countries, met in private at the Plaza Hotel in New York and decided among themselves, without consulting other countries, that the Yen and the German Deutsche Mark should be strengthened significantly against the US dollar by way of market intervention. This is known as the Plaza Accord. The Plaza Accord was historic because it was the first time central bankers agreed to intervene in the currency market in such a big way and the first time in history when governments set target foreign exchange rates to be achieved through active intervention.

One important outcome of the Plaza Accord was that the exchange rate of the Yen versus the US dollar strengthened sharply. (The Yen strengthened from 240 Yen to the dollar in 1985 to 120 Yen to the dollar by early 1988).

The strengthening of the Yen resulted in many developing countries suffering huge losses, since a significant portion of their external borrowings was denominated in Yen. The Malaysian Government, Government agencies, including GLCs, as well as the Malaysian private sector suffered significant forex losses on repayment of Yen loans and foreign exchange revaluation of Yen loans, following the sharp appreciation in the value of Yen arising from the Plaza Accord.

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Malaysia’s borrowings in Yen during the early 1980s were mainly for infrastructure building. At that time, the Malaysian bond and sukuk markets were not yet developed to enable large amounts of borrowings for long periods to be obtained domestically in Ringgit. Given that infrastructure projects required long gestation period, the Malaysian government and its agencies chose to borrow in Yen, since, at that time, long term yen loans were available with low interest rates. The borrowings also coincided with the building of major infrastructure projects in the country.

Since the Plaza Accord of September 1985, the international forex market also became much more volatile, with sharp and sometimes erratic movements in the daily forex rates. While the Plaza Accord of September 1985 was intended to strengthen the Yen and the Deutsche Mark, another agreement, the Louvre Accord was signed on 22 February 1987 in Paris by six OECD countries, again without consulting other countries, to halt the over-appreciation of the Yen and the Deutsche Mark, and this created another round of turmoil in the foreign exchange market.

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Dr. Lin See Yan–Deputy Governor, Bank Negara Malaysia

This was the background that led to the decision by BNM to begin active external reserves management. I understand that the Commissions attention has been drawn to Allahyarham Tan Sri Jaffar Hussein address in New Delhi, India on 5 December 1988. In that speech the Governor had publicly set out BNM’s rationale for the active external reserves management policy. Let me quote, extracts from that speech by Allahyarham Tan Sri Jaffar Hussein:

“Why are we so active in the market now, compared to before? There are a number of reasons. First, until recently, our external reserves were not large, being only US$4 billion at the end of 1984. This has now increased to US$7.8 billion, thus justifying a more active management of reserves.

Secondly, the exchange rate volatility since the Plaza Agreement of September 1985, had changed the stakes of the game. Whereas in the past an active management of reserves might have made a difference on yield of twenty basis points; it now makes a difference of maybe 500 basis points. So it is worth the trouble. Thirdly, forex trading is today a 24-hour business and there are opportunities throughout the day to deal…

I recall one occasion when some bankers made an attempt to speculate against the ringgit in off-shore centres on one of our national holidays, when they thought we would be closed for the day. To their surprise and cost, we opened up our dealing room during that national holiday and intervened in the off-shore centres to stabilize the ringgit and in the process taught those bear speculators a lesson they are not likely to forget…

…When I joined the Central Bank in 1985 from the private sector, I was informed that the main thrust of reserves management in Bank Negara was to preserve the value of what we have and the main considerations were safety and liquidity. To that, I have added a third and fourth dimension: profit optimization and market expertise.

I basically took the stance that risk-taking in reserves management included not only the risk of losses, but also the risk of falling behind inflation, of not earning as much with our scarce resources as we could. The primary motivation is still to preserve and conserve the value of what we have…

To me, in the last analysis, an active reserves management policy goes beyond the additional return and risks. A key advantage is that the active involvement has given us a greater feel of what is really going on in the foreign exchange and capital markets…

Central banking by decree and fiat can no longer budge markets, but market skills and influence of market psychology can do the trick…

I might also add that in a developing country, where foreign exchange trading skills are scarce, it is the duty of the Central Bank to be the provider of skilled manpower in the market, to be an educator of such technical skills and to be in the forefront of banking and computer technology…….I notice even the Bank of England is now actively adopting this policy”

The Governor’s main point was that the primary motive for the active external reserves management was the mitigation of the downside impact of major changes in foreign exchange rates on Malaysia’s foreign currency assets and liabilities. Let me repeat what the Governor said in New Delhi: “the primary motivation is still to preserve and conserve the value of what we have.” We sought to acquire the skills to manage the external reserves better and also, in a broader context, to assist the nation when required. The larger deals, beyond the limits given to the forex traders, were to protect the external reserves and the value of the Ringgit, by way of diversification. At that time, BNM had no specific limit for such diversification deals.

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To understand further the role of external reserves management in achieving the objectives of a central bank, please allow me to elaborate on the link between the stability of the Ringgit exchange rate, monetary policy and external reserves management.

Maintaining a stable Ringgit in the late 1980s to early 1990s

In the Malaysian domestic market, since the late 1980s, there was a continuous large inflow of US dollars by investors, including some short-term inflows or “hot money”. If BNM did nothing, the inflows would have resulted in the Ringgit strengthening significantly from the BNM policy range of between 2.50 and 2.80 against the US dollar. That would have created major implications for the economy, particularly since it would have reduced the competitiveness of Malaysian export sector.

This was an important consideration for a country which is one of the largest trading nations in the world.

14. In order to maintain the stability of the Ringgit, BNM had to buy the excess US dollars from the banks in Malaysia, in its role as the buyer of last resort for foreign currencies in the domestic market. This activity is termed as BNM’s foreign exchange intervention operations. The US dollars were then used by BNM mainly to purchase US Treasury Notes. The yield on the US Treasury Notes in the early 1990s was on average about 4.5 per cent p.a.

If BNM did nothing after mopping up the US dollars, there would be the issue of a large overhang of excess Ringgit in the system, since BNM would have paid Ringgit for its purchase of the US dollars. This large overhang of excess Ringgit in the system would adversely affect BNM’s monetary policy. It would cause the Ringgit interest rates to fall sharply (based on supply and demand), and create inflationary pressures. Therefore, BNM had to borrow back the Ringgit funds that it had provided to the banking system in its intervention operations. The purpose of BNM borrowing back the Ringgit funds from the banks is to neutralize the effect of the original forex intervention in the domestic money market. This is known as the sterilization operation. The borrowing rate that BNM had to incur (during the early 1990s) for the sterilization operation was about 7.5 % p.a.

Therefore, the combination of the BNM intervention and sterilization operations would cost about 3 % p.a. This is because the cost of borrowing back the Ringgit was higher than the yield of US Treasury Notes. This negative margin would be recorded as a loss in BNM’s books. In BNM’s active external reserves management, one consideration was to mitigate this loss.

The issue of moving into an active mode of external reserves management must also be seen in the context of Allahyarham Tan Sri Jaffar Hussein’s philosophy regarding Bank Negara’s role in national development. I need to elaborate on this point because Allahyarham Tan Sri Jaffar Hussein is no more with us, and it is important that we recognize the wisdom of this great man. The Governor believed that by active management of the external reserves, we will be able to acquire the skills, knowledge and experience required to serve the nation, when required, both in developmental activities as well as to overcome any financial crisis that the nation may face in the future. He termed this as “market expertise”.

Lessons for the 1997/1998 Asian Financial Crisis

Indeed, Allahyarham Tan Sri Jaffar Hussein’s foresight regarding market expertise saved the nation during the 1997/1998 financial crisis. In a strange twist of history, the skills, knowledge and experience acquired in BNM enabled the nation to implement the Unorthodox Measures of September 1998. It provided the nation with the ability to frustrate the foreign currency manipulators, whose intention was to destabilize Malaysia and cause chaos in the socio-economic fabric of the nation.

Unlike Thailand, Indonesia and South Korea, Malaysia was able to overcome the financial crisis of 1997/1998, without borrowing a single cent from the IMF or the World Bank or anyone else. We reset the Nation back on the growth trajectory without outside help. The Unorthodox Measures of September 1998 saved Malaysia from dire consequences, following the worst financial crisis in our history, and restored the sovereignty and dignity of our beloved nation.

In economic terms, the result of the Unorthodox Measures of September 1998 is substantial. Just to illustrate using one of many measures of economic gain, the Unorthodox Measures resulted in the market capitalization of the Malaysian stock market recovering from a low of RM 181.5 billion on September 1, 1998 to RM 579.2 billion on March 24, 1999, a gain of RM397.7 billion. The Stock Market Index jumped from 262.7 (September 1, 1998) to 851.7 (March 24, 1999), a multiple of 3.24 times.

Let me briefly illustrate how the skills, knowledge and experience that we acquired from the forex activities in Bank Negara became critical in formulating the Unorthodox Measures of September 1998:

(i) There was great deal of confusion, during the early days of financial crisis of 1997/1998, on the concept of “Offshore Ringgit”. The initial view was that bags full of cash in Ringgit were taken out to Singapore and Malaysian customs officials at the border were instructed to check thoroughly the bags of Malaysians departing to Singapore. Obviously no big amount of cash was found.

I explained to the Prime Minister in 1997 and 1998 that the term “Offshore Ringgit” does not refer to Ringgit physically located outside Malaysia. The bulk of Ringgit will always remain in Malaysia. The term “Offshore Ringgit” refers to Ringgit (in Malaysia) which is owned by foreigners. The currency manipulators borrow the Ringgit, both local Ringgit owned by Malaysians or “Offshore Ringgit” owned by foreigners, to sell the Ringgit for US dollars. This is called short-selling. We knew from our forex trading days that on Black Wednesday (16 September 1992) when Pound Sterling crashed, Soros had borrowed £ 10 billion to short-sell the pound sterling. Therefore, an important aspect of Malaysia’s Unorthodox Measures of September 1998 was to disallow foreigners from borrowing Ringgit to speculate. The concept of “Offshore Ringgit” is very complicated and it took me a few attempts to ensure that the Prime Minister fully understood the term, as you can read from the book.

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Notes to the Prime Minister by Wong Sulong published in 2011. I wrote 5 notes on this subject, namely Note 2 (October 13, 1997), Note 13 (December 12, 1997), Note 25 (May 19, 1998), Note 31 and Note 32 (both on June 29, 1998). Without the knowledge acquired at BNM’s forex desk, we would not have fully understood the concept of “Offshore Ringgit”, which was key to the implementation of the Unorthodox Measures;

(ii). Malaysia initial response during the financial crisis was to increase the interest rate level to stabilize the Ringgit. This created chaos for the many business entities, pushing them to the verge of bankruptcy. We knew from experience that this does not work. During the Black Wednesday incident in United Kingdom, the British Government increased the interest rate from 10% p.a to 12 % p.a. in its desperate attempt to stabilize the pound. But this move was completely ineffective.

Therefore, our Unorthodox Measures involved, among others, bringing the interest rate down, rather than increasing the interest rates, after fixing the exchange rate at RM 3.80 to the dollar, and disallowing foreigners from borrowing the Ringgit for speculative purposes. This significant lowering of the interest rates, as well as our measures of implementing an expansionary monetary and fiscal policy, as part of the Unorthodox Measures, saved many corporations from becoming bankrupt and some banks from becoming insolvent; and

(iii). When we pegged the Ringgit on 2 September 1998, we pegged it at RM 3.80 to the US dollar.

The 3.80 rate was on the weaker side since, based on fundamentals, we could have fixed the rate at 3.50. But we knew that it was better to fix the Ringgit at a slightly weaker rate, anticipating that the market players would feel that, at 3.80, the Ringgit was undervalued and they would therefore buy the Ringgit. We expected that this move would result in large inflow of funds into the country. This is exactly what happened. There were substantial inflows following the peg.

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There were no outflows, as the market players expected the Ringgit to subsequently strengthen, not weaken. This was something we learned at the forex desk in Bank Negara Malaysia.

In fact, the 45 notes that I wrote to the Prime Minister between October 1997 and August 1998 analysing in detail the 1997/1998 financial crisis and proposing the solution would not have been possible without the market expertise acquired at Bank Negara’s forex desk, thanks to Allahyarham Tan Sri Jaafar Hussein.

I should add that even after Allahyarham Tan Sri Jaafar Hussein and I left BNM, we kept closely in touch meeting regularly for long chats. The last time I met him was in July 1998, a month before he died. We spent two hours discussing about the financial crisis of 1997/1998. I informed Allahyarham that I was working with the Prime Minister to find a solution to the financial crisis, based on the knowledge the he made possible for me to acquire in Bank Negara. He was happy that he had made the right decision on the importance of market expertise and he was confident that we can overcome the crisis. I wrote about this meeting with Allahyarham on 21 August 1998 and it appears as Note 43 in the book “Notes to the Prime Minister” by Wong Sulong. Allahyarham Tan Sri Jaafar Hussein’s contribution to the nation is undoubtedly significant.

My role at BNM in external reserves management in the late 1980s and early 1990s

I was tasked with implementing the external reserves management policy as determined by the BNM’s Board having regard to the considerations I have mentioned above. In so doing, I reported both to the Governor and the External Reserves Committee (ERC). I spoke to the Governor on external reserves management regularly, and certainly whenever there was a large movement in the exchange rates. I also reported to the ERC whenever it met. The membership of the ERC comprised, amongst others, the Governor, Deputy Governor, and the Advisors. Further, there were weekly Senior Officers Meeting, where the external reserves matters were sometimes discussed.

These Senior Officers Meetings were chaired by the Governor, and were also attended by the Deputy Governor, Advisors and all Managers. I did not report to either the Finance Minister or the Prime Minister on any issues regarding external reserves management, as that was not my reporting line.

I was not involved in deciding on the accounting treatment of the losses. In fact, I have no knowledge whatsoever of the accounting treatment.

I was also very careful not to execute any trade by myself, although I had the authority to do so. It was always, without any exception, done by the staff. I did this for the purpose of transparency, so that there would always be more than one person aware of every trade.

BNM made significant gains from its trading activities in the 1980s. The loss does not include the gains made in the 1980s. Based on the period of 1985 to 1993, I believe that the total forex losses will be lower. The significant losses that were incurred in 1992 arose from two unexpected events:

(i) The unexpected rejection in the Danish Referendum of 1992 of the Maastricht Treaty; and

(ii). “Black Wednesday” on 16 September 1992, when the pound sterling was forced out of the European Exchange Rate Mechanism.

In the early 1990s, the European currencies started to gather strength on the basis of the then conventional wisdom that, given the potential for European integration, Europe was going to overtake the United States as the strongest economic power in the World. We subscribed to this view and bought the European currencies and the Pound Sterling.

Unfortunately, following the non-ratification of the Maastricht Treaty by Denmark in February 1992, the value of the European currencies crashed. This was compounded in September 1992 when both the Pound Sterling (and Italian Lira which we did not trade) were forced out of the European Exchange Rate Mechanism despite the best efforts of the far more powerful and wealthy European central banks.

As we were ‘long’ in the European currencies, including the Pound Sterling, we suffered significant losses. We were not the only central bank to have suffered significant forex losses as a result of these events.

Whenever we received information of large inflows of US Dollars from investors, both long-term and short-term, we would decide on whether or not to diversify these inflows into other currencies, depending on the anticipated exchange rate movements. If we expected the US Dollar to weaken, we would purchase European currencies forward based on the expected US Dollar inflows. The size of the purchases would correspond to the anticipated size of the US Dollar inflows.

All the external reserves activities, including forex activities, were based on strategic considerations. Admittedly we misread the turn of the market. As staff of a central bank we naturally believed that the Bank of England would win in its fight against Soros. We had confidence in our fellow central banker and bought Pound Sterling. Unfortunately, the Bank of England lost.

Similarly, our best intelligence was that the Maastricht Treaty would be ratified in the referendum in Denmark in 1992, but unfortunately it was rejected.

We learnt a bitter lesson from these incidents. That lesson proved crucial in helping us formulate policies to defend the country against the currency attacks in the 1997/1998 Asian Financial Crisis, saving the nation hundreds of billions of Ringgit that would otherwise have been lost.


The forex losses happened. There is no denying it. There is also no denying my accountability for the forex losses. I accepted my fair share of the accountability for the forex losses and resigned from BNM. At that time, it appeared to me to be a sad end to my 25 years of service to the nation, through Bank Negara Malaysia.

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Nor Mohamed Yakcop, Deputy Chairman, Khazanah Nasional Berhad: Rewarded by a grateful national leadership (from Mahathir Mohamad, Abdullah Badawi, and Najib Razak) for distinguished services rendered to Malaysia

However, with the Grace of Allah SWT, I was given the opportunity in 1997/1998 to contribute to King and Country during the financial crisis of 1997/1998. The important point is that the experience in the forex unit during those years proved extremely useful later in saving Malaysia from the devastating effects of the financial crisis of 1997/1998, which otherwise would have caused losses worth hundreds of billions of Ringgit for Malaysia and could have resulted in many Malaysian companies becoming bankrupt, with large scale unemployment and poverty spreading throughout the country. The political stability and the socio-economic framework of the nation would have been destroyed. It was an accident waiting to happen. It did not happen because of the Unorthodox Measures of September 1998, which in turn was conceived and implemented based on the knowledge, skills and experience acquired at the forex desk in Bank Negara Malaysia.

I also contributed to the nation during my second tour of duty in Bank Negara (September 1998 to April 2000) as well in my role as the Economic adviser to the Prime Minister (May 2000 to December 2003) and as a Federal Minister (January 2004 to May 2013). The record speaks for itself.

Wednesday, September 6, 2017

Bank Negara Malaysia Forex Loss RCI–Najib Razak’s Political Vendetta

August 24, 2017

Bank Negara Malaysia Forex Loss RCI–Najib Razak’s Political Vendetta

by Alyaa

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Bank Negara’s Forex Genius now Deputy Chairman, Khazanah Nasional Berhad. It will be interesting to find out what RCI thinks of his role in this forex fiasco. The late Governor Tan Sri Jaffar Hussein took the hit while the genius got off mildly and was rehabilitated by Prime  Minsister Abdullah Badawi and prospered  under Najib Razak. He claimed to be the man who taught Tun Dr. Mahathir Mohamad about foreign exchange.

A former foreign exchange (forex) dealer with Bank Negara claimed to have handled up to US$800 million a day in trading under the instruction of then Bank Negara Assistant Governor Nor Mohamed Yakcop.

Fizaman Noor Mohammed Nasir, however, said the dealing was done under a management position. Fizaman worked as a forex dealer with Bank Negara’s Banking Department between 1989 and 1998.

At the Royal Commission of Inquiry (RCI) hearing into Bank Negara’s forex losses this afternoon, conducting officer Suhaimi Ibrahim asked Fizaman how he could exceed the forex trading limit.

“The US$30 million limit is for the dealer position. The US$800 million deal was for the management position, under Nor Mohamed’s instructions.

“Without instructions, we, dealers, would play by our own rules,” Fizaman explained. He revealed that under a management position, dealers have no right to refuse to engage in a particular deal.

Suhaimi, meanwhile, pointed out how Fizaman admitted that losses were incurred during the dealings.

“If you knew there were many losses, why were there no discussions (to overcome the problem)?” he asked.

Fizaman replied that a dealer could merely provide his or her views.

“We try to advise through economic sense and on how things can improve.(But) what’s decided after that is not our task. Even if the market view is negative, the ultimate decision is made by Nor Mohamed,” he said.

In his witness statement, Fizaman explained that transactions for the dealer position are recorded on a blotter before they are given to the chief dealer to be signed.

For the management position, transactions are similarly recorded in a blotter and filed under management.

“The blotter is the final report, it is always kept in the dealing room. I don’t know any other reports beyond that,” said Fizaman who was the sixth witness in the proceedings.

Forgetful witness

Earlier, the RCI’s fifth witness, Essah Yusoff, who was a Bank Negara Fund Manager and Secretary of the external reserves committee (ERC), said that she was responsible for preparing the limit for dealers.

Most of the time, however, Essah mainly said she “she could not remember” to the various questions posed by the RCI panel.

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Tan Sri Mohd Sidek Hassan (Chairman) and Members of Bank Negara Malaysia Forex Royal Commission

RCI chairperson Mohd Sidek Hassan even took a dig at Essah, noting how she “somehow cannot remember”.

Meanwhile, commenting on the matter, former Prime Minister Dr Mahathir Mohamad’s lawyer Mohamed Haniff Khatri Abdulla said this was understandable as it was an event which had occurred almost 30 years ago.

“Do you remember what actually happened three days ago, five years ago?

“They (the witnesses) tried to recall what they could. They couldn’t remember the minor details, even with the report in front. (As such), there couldn’t be a conclusion that there was excessive losses more than what was declared,” Haniff told reporters after today’s proceedings ended.

The RCI is expected to complete its probe within three months from the date of its establishment on August 21 and thereafter submit its report to the Yang di-Pertuan Agong.

It has been tasked with determining the veracity of allegations surrounding the forex losses incurred by Bank Negara and its implications on the national economy, among others.

Mahathir and the opposition have accused Prime Minister Najib Abdul Razak of attempting to exact political revenge against the former premier and deflect attention from 1MDB by dredging up old issues.


Getting to the Bottom of Bank Negara’s Forex Losses in 1994

July 27, 2017

Getting to the Bottom of Bank Negara’s Forex Losses in 1994

by P Gunasegaram

QUESTION TIME | The Royal Commission of Inquiry (RCI) if it competently, fairly and independently investigates Bank Negara Malaysia’s foreign exchange losses of an estimated RM31 billion in the early 90s, will unearth many interesting facets of the episode and put a stop to speculation over them, even if it is 25 years too late.

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Dr. Mahathir and his Forex Teacher, Noh Mohamed Yakcop (now Deputy Chairman, Khazaanah Nasional Berhad)

Ironically, DAP’s Lim Kit Siang had called for an RCI on the forex losses way back in 1994 when the scandal came to light, only to see it happen now, when the then Prime Minister Dr Mahathir Mohamad, his bitter political foe before, became an ally under Pakatan Harapan.

No doubt that was partly why the RCI came into being – to tarnish Mahathir’s image, and Lim’s and Anwar Ibrahim who was Finance Minister from 1991 to 1998, which covered the period during which the forex trading took place. It will also deflect attention from 1MDB for a while.

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Mahathir (and Anwar) subsequently took great pains to conceal the details of the forex losses–P. Gunasegaram

The RCI report will likely be damaging to Mahathir the most, followed by Anwar with some collateral damage on Lim, now allied to Mahathir. Lim, to his credit, was the fiercest critic then against the forex losses and spoke up in Parliament repeatedly, blaming both Mahathir and Anwar.

But what would have been right is to have had an RCI simultaneously on 1MDB as well, where a similar amount of US$7 billion (currently RM30.1 billion) is unaccounted for, according to press reports quoting the auditor-general’s report, which remains hidden under the Official Secrets Act.

These are, after all, the largest losses made to date by Malaysian state-owned institutions and it will be very informative and instructive to find out how these losses happened, and from where the final instruction came which resulted in these institutions losing a combined sum of more than RM60 billion.

In fact, an RCI for 1MDB is even more urgent, considering that this is an ongoing event and a quick investigation can help recover much money, about which evidence very strongly indicates has already been stolen. Establishing early where the money is increases chances of recovery substantially. But that RCI won’t happen now but might in future, at least one hopes so.

Still, the RCI forex investigation is an opportunity to put the facts right. Some key questions: How much was lost? Who was responsible? Who gave the order to engage in forex trading? Is there any written order or was it by word of mouth? The answers to these will finally exorcise the ghosts of the forex losses.

Unfortunately, one of the persons who has all the answers – then Bank Negara Governor Jaffar Hussein – passed on in 1998. The other is then Bank Negara Adviser (now referred to as Assistant Governor) Nor Mohamed Yakcop, currently Deputy Chairperson of Khazanah Nasional Bhd and before that a cabinet minister and special economic adviser to Dr Mahathir Mohamad after the 1998 Asian financial crisis.

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Tan Sri Jaffar Hussien–I never figured out how an otherwise careful and meticulous person could have been so careless.– P.Gunasegaram

I interviewed Jaffar several times during my days as a financial reporter in the 80s, both at Bank Negara and at Malayan Banking where he was CEO. His obvious integrity and knowledge impressed me and if not for that forex loss, the only blight on a distinguished career, he would have retired in glory instead of ignominy. I never figured out how an otherwise careful and meticulous person could have been so careless.

Both of them resigned in 1994 after Bank Negara’s press conference in March to release its annual report for 1993, where the full extent of the central bank’s forex trading losses became clearly apparent for the first time. Even then, the exact figure for the losses was not immediately obvious and is still not certain, although most reliable estimates and sources put it at around RM30-32 billion.

Did Mahathir know?

Others in the know could include then Bank Negara Deputy Governor Dr Lin See Yan and officials who worked in the foreign exchange department of Bank Negara at the time. They, plus records of the central bank, should help the RCI piece the necessary information together quite easily.

The first question that the RCI will probably consider is how much Bank Negara lost from forex trading. This is quite straightforward – just look at the full accounts for the period 1989-94, when the trading and losses were incurred.

Most put the figure at around RM30-32 billion, a figure in line with my own sources. Former Finance Minister Anwar, in an interview with Malaysiakini over a decade ago in 2007, put the figure at RM31.3 billion, after netting off profits.

Bank Negara’s “active management” (read: taking leveraged positions on currencies) of its reserves started in 1989/90 and is unlikely to have taken place without the tacit support and approval of then Prime Minister Mahathir, who frequently hit out at developed countries for influencing currency values.

This is exemplified in a Bernama report (see image below) on November 5, 1990, which is reproduced in verbatim below:

“Kuala Lumpur, Nov 5, (Bernama) – Bank Negara’s currency dealings in the foreign exchange market were aimed at protecting and stabilising the ringgit, Prime Minister Datuk Seri Dr Mahathir Mohamad said today.

“The dealings were not meant to make profits, he added, pointing out that the revaluation and devaluation of foreign currencies had caused Malaysia to suffer huge losses previously.

“Datuk Seri Dr Mahathir Mohamad was commenting on a news report that Bank Negara’s aggressive dealing in pound sterling could cause a diplomatic row between Britain and Malaysia.

“According to the report, Bank Negara was the main spur to London banks setting up an effective cartel in the foreign exchange market which is now under investigation by the Office of Fair Trading.

“It said the central bank had built up a huge position in pound sterling as it appreciated in anticipation of Britain’s entry into the Exchange Rate Mechanism (ERM).

“After the ERM entry, Bank Negara calculated sterling had peaked against the dollar and, on Sept 21, it liquidated its position and a number of banks holding pound sterling, including British clearing banks, got stuck with big losses, it added.

“Speaking to reporters after delivering a keynote address at the 17th Asian Advertising Congress here, Datuk Seri Dr Mahathir said, ‘We are stabilising our own currency.

“‘When they do something it is always alright. We are trying to protect our currency.We have lost a lot of money before, when they revalued their currency like the yen. We lost a lot of money because we borrowed yen, when they devalued their currency we also lost money. ‘So what is wrong with our protecting our own interest, why is it when they can protect their interest and we cannot. I cannot understand this.’”

Sins of the past

This is vintage Mahathir. First, he does not deny the report but the way he responds he indicates he knew about Bank Negara’s actions. And then he says the actions were justified because of forex losses made by Malaysia on its foreign loans, never mind that Malaysia did nothing to hedge the currency exposure.

He was referring to the Plaza Accord of 1985, an agreement between the governments of France, West Germany, Japan, the United States and the United Kingdom, to depreciate the US dollar in relation to the Japanese yen and German deutsche mark by intervening in currency markets.

To him, it did not matter that it was unprecedented and extremely foolhardy for a central bank to act in that manner, putting its reserves under serious risk. Two years later, in 1992, Bank Negara was left holding the wrong end of the stick when it bet for the pound and lost, eventually losing more than RM30 billion as it unwound the positions it had taken.

Anwar in his 2007 interview put the loss at RM33.8 billion in forex speculation from 1989 to 1993. Offset against RM2.5 billion in profit in 1990, the loss eventually worked out to RM31.3 billion, he said, adding that it was based on figures audited by the auditor-general.

While he was Finance Minister from 1991 to 1998, Anwar denied that he was aware of the forex speculation at the time, although Bank Negara comes under the Finance Ministry.

As far as Mahathir is concerned, it is clear from that Bernama report that he condoned and was aware of the Bank Negara actions. The fact that both Jaffar and Nor Mohamed faced no other punishment, beyond resignation, is indication that they did not act on their own accord.

Mahathir (and Anwar) subsequently took great pains to conceal the details of the forex losses, with Lim constantly hounding them in Parliament and elsewhere. Lim even wrote a book titled “The Bank Negara RM30 Billion Forex Losses Scandal” in 1994.

In 2004, when Nor Mohamed was appointed Finance Minister II, Lim had this to say: “Nor Mohamed’s first job as Finance Minister II should be to issue a White Paper to ‘exorcise the ghost’ of the RM30 billion Bank Negara foreign exchange (forex) losses a decade ago, (in) which he had played such a pivotal role, to establish his suitability as the Second Finance Minister – that apart from professionalism, he is fully committed to the principles of accountability, transparency and good  democratic governance.

“Up to now, the government has failed to come clean on the colossal Bank Negara forex losses as a result of speculation in the international currency markets from 1992-1994, with the losses cited as ranging from RM10 billion to RM30 billion.

“In Parliament in 1994, I had given reasons as to why Bank Negara’s forex losses, as a result of its forex speculation operations, could have amounted to as high as RM30 billion, which had not been seriously rebutted by any top government leader or Bank Negara official.”

The full statement is here.

A quarter of a century later, he has his wish, but he is finding out that his and Pakatan’s association and alliance with Mahathir has great risks – almost as great as the one Bank Negara took.

And there may well be more in store for that forex loss, as we all well know, is only one of Mahathir’s great sins. Anwar and Lim, who suffered perhaps more than anybody else under Mahathir, should have known better than to bring this upon themselves.

One last thing. This RCI is a reminder to Malaysian Prime Ministers that if they have been remiss in the past, it is always possible that the future leadership will allow an RCI to dig up the details. Hopefully, future Prime Ministers will be more careful about what they do.

Reactions to DOJ Lawsuits reflect Ignorance of Malaysian Officialdom

June 27, 2017

Reactions to DOJ Lawsuits reflect Ignorance of Malaysian Officialdom

by Dr. M. Bakri Musa, Morgan-Hill, California

Image result for Najib Razak, Riza Aziz and Rosmah Mansor

Najib Razak, Rosmah Mansor and Riza Aziz (inset): Their Day will come,only a matter of time

America is a Rorschach Test to most foreigners. What they view as America reveals more of themselves than of America; likewise, how they react to events in America.

One visitor to Washington, DC, would see only the homeless under the bridges, potholes on the streets, and “adult” stores at very corner; others, The Smithsonian, Georgetown University, and the National Institutes of Health. The contrasting observations reflect volumes on the observers.

Consider the Malaysian responses to the US Department of Justice (DOJ) lawsuits relating to alleged illicit siphoning of funds from 1MDB. I am not referring to the kopi-o babbling in the echo chamber of UMNO-paid “cyber-troopers” that pollutes the social media. They are pet parrots; babbling whatever is coached to them. With a different master offering more leftovers they could be made to change their tune.

Image result for 1mdb

Where is Mr. Lodin Wok Kamaruddin now?

What interests me instead are the responses of ministers and commentators. Their utterances expose their appalling ignorance of the American justice system. They also reveal much of themselves, as per Rorschach’s insight.

One Minister, eager to be seen as his master’s favorite lapdog, asserted that DOJ is being influenced by the Malaysian opposition. On cue, the other hounds and bitches piled on. A hitherto severe critic of the establishment pontificated that a former champion college debater together with Mahathir and Daim Zainuddin were involved.

Heady stuff for a young man! Though flattered, Syed Saddiq went ahead and filed a police report against that blogger! Mahathir described best those who believed such canards: “Bodoh luar biasa!” (Extraordinarily stupid!)

Those characters must also believe that the American judicial system is like Malaysia’s, where prosecutors could be influenced or paid off a la one Shafee Abdullah. Sarawak Report alleged that he was paid RM9.5 million from Najib’s slush fund before being appointed special prosecutor in Anwar Ibrahim’s case. Shafee has not denied that.

Image result for The RM9.5 million Shafee Abdullah

The RM9.5 million Shafee Abdullah–who else are the beneficiaries of the bounty?

Another Minister declared DOJ’s charges ‘mere’ allegations. Sorry, no marks for stating the obvious. A former journalist-turn-blogger echoed that, and proceeded, for emphasis, to reprint in bold the DOJ’s caution.

Of course DOJ’s accusations, like all court complaints, are “alleged” until adjudicated by the court. DOJ must have credible evidence to not waste taxpayers’ money on frivolous lawsuits. The jury would not buy it. DOJ does not allege any Joe on the street of corruption.

Those who believe otherwise must think that DOJ and American courts are like Malaysia’s where prosecutors could be bought to bring on cases with the flimsiest of evidences and still find judges to convict, as with Anwar’s case.

That is not a far stretch. A few years ago, a defense lawyer V.K. Lingam known for his amazing ‘skills’ in getting his clients acquitted was caught on videotape assuring his listener that he had the judge in his pocket. The lawyer’s utterance, “Correct! Correct! Correct!” would forever be embedded in the annals of shame in the Malaysian Judiciary.

Then there was the character who insinuated that the ‘inactivity’ of DOJ since its first filing a year earlier reveals its sinister political motive. Had he followed the court’s calendar he would have noted the flurry of activities. Among them, the successful challenge by the new trustee of some of the seized properties to be represented.

This character went on to opine that since her initial filing in July 2016, US Attorney-General Loretta Lynch had been “fired,” implying that the lawsuit was without merit. Such willful ignorance reveals a deliberate attempt to mislead. Lynch was a political appointee, and with President Trump’s election all such appointees were replaced. Further, the second filing was by her successor.

Deputy Prime Minister Ahmad Zahid, a local PhD, implied that all the furor over 1MDB were fake news, the concoctions of hostile foreign media! It is instructive that this character did his dissertation on the local media. To him, the likes of The Wall Street Journal are like Utusan Melayu. His response reveals as much about him as the institution that awarded him his doctorate.

A junior minister accused the Americans of trying to topple Najib, in cahoots with the opposition. Not too long ago he and others were lapping at pictures of Najib golfing with President Obama. That minister however, did not see fit to lead a demonstration at the embassy in defense of Malaysia.

It is unfortunate that this non-too bright character’s remarks resonated with simple villagers. A senior Minister, a little brighter being that he was a London-trained lawyer, dismissed the whole DOJ affair. Malaysia had other far more important issues to attend to, he sniffed. If the staggering sums of the loot did not impress him, what about the charges of corruption levelled at the highest government official, cryptically referred to as “Malaysian Official 1.” That should be his and all Malaysians’ top priority.

Yet another minister advised everyone not to panic. The lady doth protest too much, methinks. Nobody was panicking except her crowd.

Attorney-General Apandi was miffed that DOJ did not consult him. DOJ’s lawsuits were prompted to protect American financial institutions from the corrupting influences of dirty foreign funds. It does not need Malaysia’s ‘help,’ more so considering that Apandi had declared no wrongdoing.

Apandi was also upset at the criminal insinuations against the Prime Minister. His comment unwittingly revealed what he thinks of his job, less as chief prosecutor, more as Najib’s private attorney. No wonder his “investigations” exonerated Najib! Apandi also unwittingly confirmed that MO1 is, in fact, Najib and that the activities he was alleged to have been engaged in were criminal in nature.

If the responses were revealing, the non-response or silence was even more so. The lawsuits allege that billions were illicitly siphoned from the company, and it is mentioned umpteen times in the complaints. Yet 1MDB did not seek to be represented as a party of interest. This reflects its management’s inability to separate the company’s interests from those of its officers’. Najib is 1MDB’s chairman. The management confuses Najib with the company. Management is not looking after the company’s interest in not seeking representation, which was how the mess started in the first place.

Malaysian officials’ responses to DOJ’s lawsuits did not reflect well on them or Malaysia. I can hardly wait for their reactions or “spin” when this DOJ investigation goes on to its next inevitable phase, the filing of criminal charges and or when one of the defendants becomes a prosecution witness.

Meanwhile, fake news or not and collusion or not, MO1, his spouse, or stepson will not be stepping foot in America any time soon, if ever. That is revealing.

Stop the Spin: 1MDB actually capitulated to Abu Dhabi

May 4, 2017

Stop the Spin: 1MDB actually capitulated to all IPIC (Abu Dhabi) demands

by P.

Image result for 1MDB and Abu Dhabi

A Replay of Ali Baba al Najib and his 1MDB forty thieves–Malaysia Boleh

Desperation causes stupidity to rise to the fore.Take 1MDB and the way it spins its so-called settlement with Abu Dhabi’s International Petroleum Investment Company (IPIC), the parent company of Aabar Investments PJS. There was a dispute and it was settled, but there was no renegotiation. 1MDB capitulated to all IPIC demands.

But this has been spun to give the false impression that all matters have been settled between the two. Ministers rushed to make statements about how the eventual settlement will be in favour of 1MDB and how it indicates that no money went into Najib Abdul Razak’s accounts.

Singapore’s The Straits Times, which broke the news on the settlement, even preposterously reported that the settlement will make it more difficult for the US Department of Justice or DOJ to continue with its actions relating to 1MDB. It is difficult to see how because it caused no change in money flows.

The Straits Times reported that the “successful implementation of the proposed settlement could impact legal action being considered against 1MDB by foreign governments, including the DOJ.

“Bankers and legal executives (unnamed) familiar with the situation believe the deal could significantly dilute the international legal challenges confronting Prime Minister Najib Abdul Razak’s administration over the fallout from the 1MDB saga.”

The report continues: “…Here is why. The disputed monies in the Malaysia-Abu Dhabi row are central to legal suits brought by the US Department of Justice over the alleged misappropriation of funds from 1MDB. The Department of Justice claims that the funds siphoned from 1MDB went to fund purchases of real estate and other assets by associates of PM Najib.

Image result for 1MDB and Goldman Sachs

“The settlement agreement between Malaysia and Abu Dhabi would achieve what is known in legal parlance as ‘no predicate offence’, the financial executives said.

“A predicate offence is a crime that is a component of a more serious crime and it is frequently applied in the US to actions involving the provision of funds for money-laundering and the financing of terrorism.

“Proponents of the settlement between Malaysia and Abu Dhabi argue that a successful completion of the deal would weaken the impact of any legal action taken by foreign governments over alleged money-laundering at 1MDB because of the lack of evidence,” The Straits Times said.

However, as it stands, US$3.5 billion is still missing and in dispute and IPIC says it never received the money. In this case, clearly the main offence is allegedly stealing money from 1MDB and the predicate offence is the laundering of part of this money in the US.

Everything that the DOJ has reported remains unaltered despite the settlement. Its case remains as strong as ever. The DOJ report says that US$3.657 billion was stolen from 1MDB (the main offence) and part of it was laundered in the US (the predicate offence).

Paying twice for same bonds

Under the settlement, despite outstanding issues, 1MDB agreed to pay RM1.2 billion to IPIC and the US$3.5 billion in two bonds are now guaranteed by 1MDB and Malaysia’s Minister of Finance Inc, instead of jointly with IPIC/Aabar before.

That’s a cost of at least US$1.75 billion (half of the value of the bonds) to 1MDB and leaves 1MDB with no more bargaining power at all. And the US$3.5 billion that 1MDB paid to the wrong Aabar – the one suspiciously incorporated in the British Virgin Islands – is still a matter of dispute.

This will be part of ongoing negotiations. “The parties have also agreed to enter into good faith discussions in relation to payments made by 1MDB Group to certain entities,” IPIC’s filing to the London Stock Exchange states.

Clearly this has not been settled, and as MP Tony Pua, one of the most knowledgeable people about 1MDB, had correctly pointed out, by taking over the guarantee that was previously jointly provided with IPIC, 1MDB is effectively paying twice for the same bonds – some US$7 billion in all! That US$3.5 billion, or over RM15 billion, at current exchange rates still remain missing.

Image result for Malaysia's Second Finance Minister JohariNajib got this former Second Minister by the Bees–Gone Missing

This is where Finance Minister II Johari Abdul Ghani comes in to disclose the existence of a letter confirming that Aabar Investments PJS Ltd (BVI) – the one incorporated in British Virgin Islands, is a subsidiary of IPIC even though the Abu Dhabi firm denies this.

“As far as I am concerned, based on records provided by 1MDB to the Public Accounts Committee (PAC) prior to the settlement agreement, Aabar Investments PJS Ltd (BVI) is a subsidiary of IPIC. A fact which was confirmed by the Registrar of Corporate Affairs of the British Virgin Islands by its letter dated Aug 11, 2016,” Johari told Malaysiakini.

But as far as IPIC is concerned, it’s not and that’s what matters. If 1MDB and Malaysia thought otherwise, why would they let IPIC off the hook by assuming the guarantee in full? And there’s no chance IPIC is going to say different in future. The question to ask is, why did 1MDB make a payment to a so-called subsidiary instead of directly to Aabar or IPIC? Was it to deliberately siphon funds out of 1MDB?

And then Minister in the Prime Minister’s Department Abdul Rahman Dahlan said that the settlement shows no money went into the Prime Minister’s account. He is saying that the money is in the form of unit trusts, presumably because 1MDB, in its own scant statement, said that the US$1.2 billion will be monetised from the unit trusts.

But really, that’s not true at all. The DOJ report clearly shows that during different phases of money moving out of 1MDB and into various accounts, a total of US$731 million came into Najib’s accounts between 2009 and 2013. Subsequently, US$620 million moved back into accounts controlled by Jho Low, leaving a net of US$111 million in Najib’s accounts still (see chart).

In the face of desperation, reason has been flung out the window and the increasing ridiculousness of 1MDB’s assertions, those of some ministers and even foreign news reports which appear to have been taken up by 1MDB’s propaganda machine, is a sign – if that was needed – that 1MDB is still very much in dire straits. And that much is being done deliberately to hide the extent of the problems. Still, it will continue to haunt Najib and his administration for a long time more.

P GUNASEGARAM says that truth eventually resurfaces despite all attempts to hold it underwater. Email: