Forex probe puts spotlight on Mahathir-era scandals

Analysts say KL's move to investigate central bank's losses diverts focus from 1MDB woes

After weathering prolonged attacks over the scandal at state-owned 1Malaysia Development Berhad (1MDB), Prime Minister Najib Razak is now turning the tables on his chief political nemesis, former premier Mahathir Mohamad.

Datuk Seri Najib's government declared last week that it would set up a task force to probe allegations of a cover-up surrounding billions of ringgit in foreign-exchange trading losses suffered by Malaysia's central bank during the 1990s.

Yesterday, Mr Najib's ruling party Umno said it would embark on a nationwide roadshow with its coalition partners on Saturday to explain the forex losses probe and why a similar task force was not set up to look into the 1MDB debacle.

Political analysts say this move is designed to turn the spotlight on a clutch of Mahathir-era financial scandals and divert attention from Mr Najib and his alleged links to misappropriated funds at 1MDB.

  • RM44b Alleged amount of forex losses suffered by Malaysia's central bank when Dr Mahathir was PM

  • Bank Negara's trading scandal

  • The Malaysian central bank's controversial strategy to speculate in foreign exchange markets began in the late 1980s with the backing of former premier Mahathir Mohamad.

    That plan ended in disaster and, by the end of 1993, Bank Negara Malaysia's (BNM) capital base was wiped out with accumulated losses estimated then at RM9 billion (S$2.9 billion at current rates).

    But a former assistant governor at the central bank, Datuk Abdul Murad Khalid, claimed last month that the losses were actually US$10 billion, or RM44 billion (S$14.2 billion).

    The central bank's forex losses in 1991 made international headlines, forcing the resignation of BNM's governor, Tan Sri Jaffar Hussein.

    Stepping down too was Tan Sri Nor Mohamed Yakcop, then a deputy governor and chief architect of its international forex trading campaign.

The task force will investigate the extent of the forex losses when Tun Dr Mahathir was prime minister - alleged to be a whopping RM44 billion, not RM9 billion as was previously disclosed by the central bank - and if the scandal was covered up, say politicians associated withMr Najib's camp.

In comparison, 1MDB's debt burden currently stands at around RM35 billion (S$11 billion). Mr Najib has been linked to the alleged misappropriation of US$3.5 billion (S$5 billion) from 1MDB, although he denies any wrongdoing and has not been charged with a criminal offence.

Political analysts are divided over the government's latest strategy in dealing with the political assault from Dr Mahathir's camp.

"Diversion is one of the goals, and the other is to dilute the 1MDB issue into something about executive inaction on a financial scandal," said Mr Tawfik Ismail, a former senior Umno official.

Other financial scandals that occurred under Dr Mahathir's watch and could be dug up again, Mr Najib's camp say, include the multibillion-ringgit bailout of national carrier Malaysia Airlines (MAS).

Some observers note that revisiting past debacles could boomerang on the Najib administration.

"Several people implicated in the Bank Negara forex scandal and MAS are still in government. It could be a high price to pay for the very limited returns over diverting focus from 1MDB," said the chief executive of a government-owned entity.

He was referring to the likes of former central bank deputy governor Nor Mohamed Yakcop, who was the chief architect of the doomed forex trading campaign in the 1990s and later played a key role in the restructuring at MAS.

Tan Sri Nor Mohamed is currently deputy chairman of Malaysia's sovereign wealth fund Khazanah Nasional, which owns MAS.

Reviving the past, however, could prove to be a timely political manoeuvre for the ruling administration, with Malaysia's next general election due by August next year.

Dr Mahathir has been busy forging new ties with his former foes in the opposition, notably the Democratic Action Party (DAP), which in 1993 called for a Royal Commission of Inquiry into the central bank's forex losses.

Minister in the Prime Minister's Department Azalina Othman said last week that DAP veteran Lim Kit Siang "should be the first man to support the task force".

Mr Lim had said all Cabinet ministers were guilty of colossal negligence when they could set up a special task force for the forex losses but dared not breathe a word on the 1MDB scandal.

Dr Mahathir has declared that he is not opposed to a Royal Commission of Inquiry as long as the government establishes a similar public probe for the 1MDB scandal.

Mr Najib's administration said the special task force will carry out a detailed review and provide recommendations to the government, "including the establishment of a Royal Commission of Inquiry, if necessary ...".

"Mahathir used the past to defend himself when he came under attack from his predecessors," said Mr Tawfik, referring to former premiers Tunku Abdul Rahman and Hussein Onn. "Najib is simply doing the same," he added.

A version of this article appeared in the print edition of The Straits Times on February 20, 2017, with the headline 'Forex probe puts spotlight on Mahathir-era scandals'. Subscribe