Bank Negara Malaysia Forex RCI – what it has, and has not, established


September 23, 2017

Bank Negara Malaysia Forex RCI – what it has, and has not, established

by P. Gunasegaram@www.malaysiakini.com

Image result for nor mohamed yakcop deputy chairman, khazanah nasional berhad

No Longer Deputy Chairman, Khazanah Nasional Berhad. Finally. He may end up carrying the can. But that is purely academic; the foreign exchange loss incurred by Bank Negara Malaysia is real–some RM30 billion

QUESTION TIME | Three people collectively knew of what exactly transpired in Malaysia’s RM31.5 billion foreign exchange losses, but the demise of one of them results in a missing piece of evidence which would have provided the link in the chain of accountability as to who was ultimately responsible.

Even as the first casualty of the Royal Commission of Inquiry (RCI) into Bank Negara Malaysia’s (BNM) foreign exchange losses occurs, it is clear that the commission has not established much going by the proceedings which ended two days ago.

If the political intention in the setting up of this inquiry, or inquisition as some have called it, is to ascribe blame to and imply benefit to some – especially the Prime Minister at the time, Dr Mahathir Mohamad – it has not been conclusive.

But the extent of the losses to the country is clear – RM31.5 billion between 1991 and 1994, given to the RCI by a BNM staff member. Even this piece of vital information was in the public realm for some time, although it is good to have clear confirmation now.

The difference between the situation at BNM (highly irregular and speculative trading by the central bank) and 1MDB (alleged theft) are quite different even if the amounts involved are of the same order of RM30 billion. No one except the counterparties to BNM’s trade, including currency trader George Soros, benefited from the massive positions taken by BNM.

It was also established that there were attempts to hide the extent of losses, widely reported at the time to be just RM5.7 billion, going by the deficiency in shareholders’ funds of BNM for 1993. In fact, the RCI was told by a BNM official that several papers involving the losses were classified under the Official Secrets Act. But it was not established who decided to classify the documents.

There were gaps in terms of the chain of command that led to the losses which the RCI was not able to fill. Former Bank Negara advisor Nor Mohamed Yakcop said he accepted his fair share of accountability over the foreign exchange (forex) losses incurred in the late 1980s and early 1990s.

But he said he never discussed the forex transactions in the years between 1986 and 1993 with both the then Finance Minister Anwar Ibrahim and Prime Minister Mahathir, which if true, absolves them of blame for the losses.

“The forex losses occurred, there is no denying it. There is also no denying my accountability for the forex losses. I accepted my fair share of the accountability and resigned from Bank Negara.”

Nor Mohamed became the first casualty of the RCI as he resigned his Deputy Chairman’s position at Khazanah Nasional Bhd, the government sovereign fund which he had helped nurture back into capability and trust starting in 2004 under previous Prime Minister Abdullah Ahmad Badawi.

He had been under political pressure to finger Mahathir over the forex scandal but he steadfastly refused to do so.

Lengthy document

He issued a document of nearly 4,000 words to the RCI, which makes compelling reading, outlining the events leading to BNM’s forex trading activities.

“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,” he said.

This was the exact same argument given by Mahathir as I explained in this article when he justified BNM’s interventions in the currency market.

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“If the political intention in the setting up of this inquiry, or inquisition as some have called it, is to ascribe blame to and imply benefit to some – especially the Prime Minister at the time, Dr Mahathir Mohamad – it has not been conclusive.”–P. Gunasegaram

Bernama reported on November 5, 1990: “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.’”

That’s clear indication he condoned currency trading by BNM. Of course, that does not necessarily mean Nor Mohamed would have taken instructions from Mahathir, although they were on the same page in their views.

The person who Nor Mohamed reported to was Jaffar Hussein, then BNM Governor. He quoted Jaffar’s speech which advocated active intervention in the forex markets to manage reserves, to indicate that Jaffar was the main architect of the policy. Mahathir too put the responsibility of the forex trades on Jaffar.

Said Nor Mohamed in his statement: “I need to elaborate on this point because Allahyarham Tan Sri Jaffar Hussein is no more with us, and it is important that we recognise 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’.

“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.”

And Nor Mohamed went on to enumerate how he used this “expertise” to help rescue the country from the ravages of 1997-98 Asian financial crisis and saving the country hundreds of billions of ringgit.

Missing link

However, former Finance Minister Anwar Ibrahim, now an ally of Mahathir under Pakatan Harapan, fingered Nor Mohamed as the person most responsible and had wanted him sacked.

Anwar said Nor Mohamed was found to have overstepped his boundaries following the forex losses.

“He did not report the true picture to him (Jaffar). I instructed that Nor Mohamed be sacked, if possible, by 4pm (on the day of the meeting). If he didn’t resign, I would have sacked him.”

Asked about Nor Mohamed’s comments about learning a lesson, he was scathing: “His assertions are absurd. You must be accountable. It doesn’t have to cost the country billions to learn a lesson. He should go back to business school (to learn a lesson),” said Anwar.

Mahathir similarly laid the blame on Jaffar. Citing a meeting with Jaffar, he said he was informed verbally by the then governor that BNM could strengthen the country’s reserves and currency through forex trading. Jaffar’s decision to go actively into forex trading, said Mahathir, was not made with his knowledge.

“As Prime Minister, I was never involved in Bank Negara’s administration and I believe that I was not permitted under the law to get involved in its policies and affairs.”

Mahathir, however, says this does not mean that the Governor, then, never talked about the central bank in general terms.

According to Nor Mohamed, in his written communication to the RCI, he was tasked with implementing the external reserves management policy as determined by the BNM’s board.

“…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.”

However, then deputy governor of BNM Lin See Yan has a different story to tell. Lin told the RCI he was first informed about the losses by the former bank Special assistant to the Governor, Lee Siew Kuan.

He also said he was then informed about the losses by “friends from the International Monetary Fund (IMF)”. “They told me ‘we know you have made open positions and you have made big losses, please stop it’.” Both Lin and Lee then went to see Jaffar whom Lin said had confirmed the losses.

“We asked how big the losses were, he said he was not sure.”

Jaffar, said Lin, had then agreed that Lee, with the help of former Bank Negara Assistant Governor Abdul Murad Khalid, were to then carry out preliminary investigations immediately. The investigations then had found that Bank Negara had large open forward positions in multiple currencies which meant that the bank would suffer more losses.

“As a central banker, (for me) the risk was not acceptable,” said Lin.

Circumstantial evidence

Meantime former Finance Minister Daim Zainuddin, during whose tenure from 1985 to 1991 BNM started engaging in active forex trading, denied any knowledge of forex dealings, raising the question as to who the instructions came from. Daim also said if he knew about the forex trading, he would have stopped it.

Mahathir, as explained, is likely to have known and sanctioned BNM’s orthodox foreign exchange activity. The three people who would have known for sure the chain of authority are Mahathir, Nor Mohamed and Jaffar. Mahathir and Nor Mohamed’s accounts to the RCI implicate Jaffar, who is not here to defend himself.

The RCI is expected to complete its probe within three months from the date of its setting up on July 15 and thereafter submit its report to the Agong.

But unfortunately, there are not many conclusions that it can make considering that the RCI comes 25 years too late. What is clear is RM31.5 billion in losses were made.

What is not clear is how they were made and why certain people were given so much authority to trade way beyond the normal acceptable limits for a central bank. No central bank has before or since lost more money on trading than BNM.

The answers will continue to be in the realm of conjecture and circumstantial evidence. There can be little doubt that Nor Mohamed was doing what he thought was best for the country. But it should have been very clear to him that he was taking a large risk because the losses would have been massive – and turned out to be so – if his bet was wrong.

Was he acting entirely on his own when he took that bet? Is it likely he consulted no one before he made his bets? Who gave him the go-ahead to make such unprecedentedly large bets? Did he exceed the limits set by BNM? Were there any limits?

Was Jaffar indeed the architect of BNM’s forex policy? Remember, his background was accountancy  – he was a partner at PwC. He was known to be conservative when he was CEO of Malayan Banking. Was he protecting someone when he took the rap?

This hastily convened RCI, which has a couple of months to complete its report and recommendations, is not going to answer all these questions satisfactorily.

 

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

Image result for nor mohamed yakcop deputy chairman, khazanah nasional berhad

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.

Source: THE MALAYSIAN INSIGHT

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

Introduction

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.

Conclusion

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.

Image result for nor mohamed yakcop deputy chairman, Khazanah Nasional Berhad

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.

TAN SRI NOR MOHAMED YAKCOP
Wednesday, September 6, 2017

http://www.theedgemarkets.com/article/tan-sri-nors-full-written-statement-rci-hearing-today

Najib Razak pays homage to Emperor Trump


September 6, 2017

Najib Razak pays homage to Emperor Trump

by Dato’ Dennis Ignatius

http://www.freemalaysiatoday

After months of speculation and, no doubt, frenzied behind-the-scenes lobbying by high-priced and well-connected Washington power-brokers, Prime Minister Najib Tun Razak finally received his long-awaited invitation to visit the White House later this month.

Image result for Najib, Xi and Trump

In the run-up to the meeting, General Zulkifeli Muhammad Zin, Director-General of Malaysia’s National Security Council, was given the unusual honour a few weeks ago of an oval office meeting with Trump himself, an extraordinary gesture outside of normal White House protocol.

Ostensibly it was to thank Malaysia for its assistance in search and rescue operations involving the USS John S. McCain which, at the time, were still on-going. Malaysia’s efforts were, however, limited; other countries (Singapore and Indonesia) that were involved did not merit similar attention. All this suggests that high level connections have been established between Putrajaya and the White House to pave the way for Najib’s visit.

News of the invitation immediately sparked off a frenzy of questions, speculations and denunciations in both Washington and Putrajaya, though for different reasons.

Image result for Najib, Xi and Trump

Angst in Washington

In Washington, the invitation to Najib at a time when the Department of Justice (DOJ) is investigating the 1MDB scandal immediately raised eyebrows. It also caused further dismay over the direction of US foreign policy under Trump who appears to have a particular affinity for dictators and authoritarian rulers.

The invitation to Najib, whose reputation in Washington as a moderate Islamic democrat has plunged in recent years, comes on the heels of similar invitations to men like President el-Sisi of Egypt, President Erdogan of Turkey, President Duterte of the Philippines and Thai junta leader, General Prayut and, of course, Trump’s open admiration for President Putin.

Trump seems to find it easier to deal with dictators who are ready to play to his ego in exchange for support than to deal with democratic leaders who have little in common with him politically.

Dismay in Kuala Lumpur

In Kuala Lumpur, the announcement of the visit was met with stunned disbelief, widespread anger and deep frustration. It is not hard to understand why.

Image result for Najib, Xi and Trump

With pliant officials dead-ending and obfuscating investigations at home, the DOJ investigation into the 1MDB scandal represented perhaps the last hope of bringing those involved in the theft of billions of ringgit of public money to justice.

The worry is now that Najib might somehow persuade Trump to either discontinue the investigations or delay it until after the next Malaysian elections. There is also concern that Najib might use a successful White House visit, together with previous meetings with President Xi Jiping of China and King Salman of Saudi Arabia to deflate opposition charges that Malaysia is isolated internationally.

UMNO  spin-doctors are already exploiting the invitation to the hilt suggesting that the US president would never have invited Najib to Washington if they suspected him of involvement in any wrongdoing.

Voices of despair and dismay

Dr Mahathir, who had been openly supportive of the DOJ investigations, immediately accused the US of interfering in local politics and taking sides in the upcoming elections.

Lim Guan Eng, the Chief Minister of Penang, went so far as to call Trump a “dungu” (idiot), undiplomatic language for a politician who has long courted American investments.

Lim Kit Siang, the DAP’s parliamentary leader, issued a rather absurd open letter urging Najib’s cabinet to veto the visit, while Rais Hussain of PPBM lamented that both Trump and Najib had been badly advised.

It would not be an exaggeration to say that no other foreign visit has generated as much resentment and criticism.

Clearly, the opposition, as well as many ordinary Malaysians, are flabbergasted that Najib might outfox them by pulling off yet another great escape.

Their fears are not entirely unfounded. US Attorney-General Jeff Sessions, who heads the DOJ, is already in Trump’s doghouse and may not want to stand up to him yet again, especially on a matter that is only of marginal importance domestically. Besides, there’s too much going on in Washington right now for them to worry about a scandal in a distant land.

Whatever one might say or think about Najib, he is certainly proving to be quite adroit at political manoeuvring. A small country like Malaysia, after all, does not easily gain access to arguably the most powerful office in the world; that he has been able to do so first with Obama and now with Trump must surely say something of his ability to manipulate the levers of power in some of the most important capitals of the world.

Quid pro quo

But what does Trump want from Najib?

Spin doctors on both sides are already dressing up the agenda to make it look respectable by suggesting that important international issues like North Korea and the fight against terrorism will figure significantly.

Malaysia has, however, zero influence or leverage with the regime in Pyongyang though it can do more to stop North Korea from using Malaysia to circumvent UN sanctions. On the terrorism file Malaysia is only a minor player that is struggling to cope with its own home-grown terrorist problems.

The real reason for the invitation might have more to do with Najib’s growing infatuation with China than anything else.

Both the US military and the US military-industrial complex are thought to be unhappy with Malaysia’s increasing tilt towards China and its purchase of Chinese military hardware.

The US navy is also uneasy over the prospect of Chinese-made rockets, radar and even intelligence facilities being installed in Johor right next to sensitive US naval installations in Singapore. It also worries about growing Chinese access to Malaysian naval bases and Malaysia’s weakening resolve to resist China’s maritime claims in the South China Sea.

Washington is, therefore, hoping to press Najib into at least a more balanced relationship between the US and China. Najib, however, is already too much in China’s debt to easily pull away; about the only thing he can do to appease Trump is to purchase US arms, possibly American fighter planes to replace the aging fleet of Russian fighter jets, (so Trump can boast about saving American jobs and promoting US exports), as well as offer the Americans greater accesses to our navy, air force and army facilities.

When small countries get caught up in big power rivalry, the outcome is usually diplomatic harlotry of sorts.

Between a rock and a hard place

Trump’s America is now an amoral place where issues like democracy, human rights and justice are not at all a priority. With Trump, it is not even about making America great again but making him look great. And he’ll take his applause and praise wherever he can get it, even from a controversial leader like Najib.

Malaysia’s beleaguered opposition and its civil society campaigners are now caught between a rock and a hard place – between Trump’s America and Xi Jiping’s China, neither of whom give a hoot about democracy and human rights.

For Malaysia’s long-suffering electorate, the invitation to Washington is an unpleasant reminder of the futility of looking to the so-called democracies for moral support; change will only come when the electorate decides that enough is enough.

Are we there yet? Only time will tell.

Dennis Ignatius is a former ambassador.

1MDB–The Middle East Bombshell


August 8, 2017

1MDB–The Middle East Bombshell

by The  Sarawak Report

Image result for jho low 1mdbThe Days are numbered for this pseudo-Arab Chinaman and his patron. 1MDB problems threaten to drag Malaysia’s reputation into the mud. Prime Minister Najib Razak continues to bury his head in the sand

 

Emails supplied to Sarawak Report and other news organisations by the group calling itself Global Leaks confirm that 1MDB’s fugitive fixer and the man behind the world’s record global kleptocracy theft was in “active discussions” with the United States Department of Justice as of mid-May of this year.

In an email dated May 16th 2017, a lawyer acting on behalf of Sheikh Yousef Otaiba, the Abu Dhabi Ambassador to the United States, revealed that a representative of the Mubadala fund had confirmed to him that Jho Low is in active negotiations with the DOJ:

“Marty stated that he knew that Jho Low was in active discusssions with the US Department of Justice, but was not comfortable with sharing with me …what the status of those discussions were… I was surprised that Marty had not previously shared that Jho Low was in active discussions with the DOJ as that is a very important fact from our perspective….”

The news is likely to strike horror and dismay into the heart of the Najib Administration in Malaysia, since it indicates that the key link-man and proxy for the Prime Minister, at the heart of this major scandal, is seeking to come to terms with investigators. US law enforcers have been doggedly unraveling his activities over the past two years and frozen hundreds of millions of dollars worth of assets and accounts.

There is little doubt that Low is in a position to confirm every last detail of 1MDB’s criminal activities and is in a position to point the finger at his “Big Boss” – the name he gave to Najib Razak. Sarawak Report has heard that Low has been negotiating to protect the rest of his extended family (father, brother and sister) who have all been caught up in the web of money laundering.

Worst possible timing for Najib?

The deadly news comes on the very day the beleaguered Finance Minister failed to meet the final five day grace period for the payment of USD628 million, due under a court ruling on July 31st to Abu Dhabi’s sovereign wealth fund IPIC.

Image result for Najib Razak

Your problems are of your own making. You need to come clean and solve them. Doa won’t help. Return all the money you took to the Treasury. Follow  Super-Model Miranda Kerr and Super-Star Leo DiCaprio.–Din Merican

The money was supposed to be paid by 1MDB or failing that, its guarantor the Malaysian Government. However, after numerous strategies to raise the money appear to have failed over recent weeks it appears that the Minister of Finance cum PM has simply found himself unable to raise the cash.

A hurried attempt to raise an almost identical sum through a bond issue by the Bank of Malaysia was initiated last week after 1MDB missed the July 31st deadline, leaving Malaysia with just five working days ‘cure period’ under the terms of the ruling. However, it appears that plans to force Malaysia’s so-called GLCs (Government Linked Companies) to invest in the letters have failed, owing to the fact that none of these former cash cows have liquidity remaining.

The deadline expired today, pushing Malaysia into sovereign default and dependent on an apparent plea to Abu Dhabi to extend the grace period, in order to rescue the economy from the inevitable consequences of such a devastating development.  Najib has asked for the Gulf rulers to be lenient till the end of August, however insiders have told Sarawak Report that there is little chance of him being able to find the money by then either nor the further USD602 million that must be paid on December 31st.

The money is owed from the billion dollar bail-out that Abu Dhabi’s Aabar fund extended to 1MDB in a so-called Term Sheet back in June 2015, which Malaysia had promised would be re-paid.

On-going discussions have continued for many months

Jho Low was at the centre of the 1MDB mega-heists and orchestrated, together with his father and family members, the movement of billions of dollars around the global financial system, abusing off-shore companies and trusts and exploiting lax and criminal banking institutions.  A number of bankers have been jailed in Singapore, others are still being investigated in Switzerland and the United States.

Till now, it was formally understood however, that Jho was denying all charges and was continuing to defend Najib, for whom he has continued to work, attempting to strike deals to raise futher money to keep up the Malaysian Government facade that there had been “no wrong-doing” at 1MDB.

However, as 1MDB related and politically sensitive accounts linked to Malaysia started to become frozen throughout the global banking system, Jho’s and Najib’s options have become ever more limited, along with their access to cash.

Jho Low had turned to China, where he is now largely hiding out, and sought to create the big time deals for Najib that they hoped would provide the cash to solve this liquidity crisis and help pay 1MDB’s now unavoidable debt repayments.

But China, having agreed to a number of controversial mega-projects, which were criticised for threatening Malaysia’s independence vis a vis the neighbouring super-power, appears to have pulled back from funnelling in the much needed cash into an uncertain and unstable situation in advance of an election where the Prime Minister faces an unprecedented unpopularity crisis.

Chinese investors were said to be discomforted by the off-shore routes proposed for channeling cash to disguise that the origins were not 1MDB.  Last year, a contract for the East Coast Railway Project with China’s CCCC construction giant was leaked to Sarawak Report, which showed that the contract had been inflated by a 100% in an attempt to disguise the debt repayments owed by the beleagured fund.

Sheikh Yousef Al Otaiba

The release of the emails between Jho Low and Sheikh Otaiba follow upon recent disclosures that the FBI have been questioning the Abu Dhabi Ambassador about his ties to Najib’s secret 1MDB fixer.  Dating back to 2007 they show that Low had a longstanding business understanding with Otaiba and his colleague Shaher Awartani, partner of the company Silver Coast Construction & Boring.

Jho Low is reported to have channelled $66 million in payments to Otaiba out of money taken from 1MDB, in return for favours that included introductions and assistance in getting lenders such as Mubadala to invest in projects spearheaded by Low.  Sarawak Report has been informed that the money was invested amongst other things into a Malibu Mansion owned by Otaiba, worth more that $50 million.

$50 million Malibu mansion - Otaiba's perk thanks to 1MDB?

The Sheikh is now in discussion with the US authorities and it remains to be seen whether he, like other high profile figures, will be required to hand back the asset or other items acquired through money laundered from 1MDB.  Both super-model Miranda Kerr and super-star Leo DiCaprio have already returned assets acquired from Jho Low.

As part of this process Otaiba and Shaher have hired legal advisors to help protect their position and meet the problem. They have also discussed making arrangements to speak to Jho Low to discover the full extent of their exposure.  As part of the released correspondence Shaher explains in an email on May 23rd that he would prefer his lawyers to reach out and speak to Jho Low:

“I have pushed for this as I feel that sitting completely blind and paralyzed at this point should not be our option”

The exercise achieved one huge piece of information from lawyers in contact with “TJL” [Taek Jho Low], according to the data.  An email sent by Otaiba’s lawyers on May 16th had disclosed that they had heard from the legal team at the US law firm Paul Hastings, which represents the Abu Dhabi fund Mubadala that they were aware that Jho Low has indeed been negotiation with the DOJ. Otaiba’s lawyer writes:

“I told Marty [Marty Edelman, Mubadala’s legal advisor] it would be helpful to my representation of you and Yousef if I knew whether Jho Low was in discussions with DOJ and what the status of those discussions were.  Marty stated that he knew that Jho Low was in active discussions with the US Department of Justice, but was not comfortable with sharing with me …what the status of those discussions were… I was surprised that Marty had not previously shared that Jho Low was in active discussions with the DOJ as that is a very important fact from our perspective….”

VERY important from our perspective.... and Najib's

It is probably a very important fact from Najib Razak’s perspective also, since his options are closing in.

 

 

Amazing Malaysia keeps its most corrupt Prime Minister in power


August 4, 2017

Amazing Malaysia keeps its most corrupt Prime Minister in power

– http://www.channelnewsasia.com/

Image result for Malaysia's Scorpene Submarines

Malaysian Prime Minister Najib Razak faced renewed questions Thursday (Aug 3) over a 2002 sale of submarines to his country after a close associate was charged in France over alleged kickbacks.

Najib, then Defence Minister, oversaw the deal worth nearly €1 billion (US$1.18 billion) to buy two Scorpene-class submarines and one Agosta-class submarine from French naval dockyards unit DCN, which is linked to French defence group Thales.

Abdul Razak Baginda advised Najib at the time. An investigation into the deal was launched in 2010 in response to a complaint from Malaysian rights group Suaram, and investigators allege Abdul Razak received kickbacks.

He was charged in July in France with “active and passive complicity in corruption” and “misappropriation of corporate assets”, a French judicial source told AFP this week.

He denies wrongdoing, saying in a statement after the news broke that he had “not committed any crime of corruption or breached any laws in the matter”.

Image result for Malaysia's Scorpene SubmarinesSUARAM’s call for accountability for this serious crime of corruption has fallen on deaf ears despite its continuous effort to demand answers from the Government of Malaysia. The insistence of our government leaders that French law cannot reach them, speaks volumes of the ignorance coupled with a lack of political will to perform its obligations under the UNCAC (UN Convention Against Corruption)

 

On Thursday Suaram, in a joint statement with NGO The Center to Combat Corruption and Cronyism, urged Malaysian authorities to take action.

“It is no longer tenable for the Malaysian authorities to dismiss the Scorpene deal as above board and keep silent on the damning developments in France,” the statement said.

 

“Najib was the Defence Minister that signed on the contract then – we urge for him to answer for what happened then, and what would be the steps taken by Malaysian institutions.”

NAJIB UNDER INTENSE SCRUTINY: AS TWIN DEBACLES 1MDB & SCORPENES COLLIDE, WORLD RECOILS AT HOW MALAYSIA CAN HAVE SUCH A CORRUPT PM

Malaysia’s Most Corrupt Prime Minister Najib Razak remains in power,despite scandals. He is the country’s Houdini

A spokesman in Najib’s office did not immediately respond to requests for comment. Najib has previously denied any link to the graft allegations, rejecting them as a politically motivated smear by the opposition.

As part of the deal DCN agreed to pay €30 million to Thales’ Asian unit, Thales International Asia (Thint Asia).

The investigation revealed that another company, Terasasi, whose main shareholder was Abdul Razak, received an equivalent sum for what was billed as consultancy work, but which investigators believe was really a front for kickbacks.

Under the French legal system, a suspect is charged if there is “serious” proof of wrongdoing. The case is examined by an investigating magistrate, who has the power to decide either that there is no case to answer, or to send the matter for trial in court.

The person who has been charged will almost certainly be interviewed by the magistrate investigating the case.

The affair emerged spectacularly in 2006, when Abdul Razak’s Mongolian mistress – who was said to have demanded a payoff for working as a language translator in the deal – was shot dead and her body blown up with plastic explosives near Kuala Lumpur. He was later cleared of abetting the murder.