KL 'funded' BNM after 1990s huge forex losses

Deputy Finance Minister Johari Abdul Ghani was responding to a blog post by former premier Mahathir Mohamad.
Deputy Finance Minister Johari Abdul Ghani was responding to a blog post by former premier Mahathir Mohamad.

KUALA LUMPUR • Malaysia's central bank was forced in the 1990s to sell its shares in Malaysia Airlines (MAS) and national shipper MISC to make up for the huge foreign exchange losses caused by speculative trading, Second Finance Minister Johari Abdul Ghani said yesterday.

The government also had to transfer shares in the utilities Telekom and Tenaga Nasional to the central bank, Bank Negara Malaysia (BNM), to cover up for the losses which occurred during the prime ministership of Tun Dr Mahathir Mohamad, Datuk Seri Johari said.

These behind-the-scenes moves at the central bank were revealed by Mr Johari in an open letter to Dr Mahathir. The revelations involving the four national companies are the first time the government has said what it did to inject funds into BNM after the 1990s deep forex losses.

Mr Johari's letter was written in response to a blog post by Dr Mahathir on Sunday, asking why BNM's forex reserve drop of US$39.6 billion (S$53 billion) between 2013 and 2015 under Prime Minister Najib Razak was not probed, but the 1990s forex losses put under the microscope.

Dr Mahathir was prime minister between 1981 and 2003.

A royal commission of inquiry (RCI) backed by Datuk Seri Najib's government last month found that BNM lost RM31.5 billion between 1991 and 1994. The commission recommended that Dr Mahathir and jailed opposition leader Anwar Ibrahim, who was then finance minister, be investigated for criminal breach of trust offences.

At the heart of the issue is whether voters would believe that PM Najib was being fair when he investigated the 1990s BNM financial losses but did not probe what happened under his watch.

The opposition has claimed that the RCI probe was done to paint Dr Mahathir and Anwar - both opposition leaders today - in a bad light, 25 years after the BNM losses occurred.

The letter by Deputy Finance Minister Johari was part of an ongoing tit-for-tat between Dr Mahathir and himself over the RCI and the 2013-2015 sharp drawdown in BNM foreign reserves.

Dr Mahathir had claimed in his blog: "The outflow of USD39.6 billion can only be caused by Bank Negara selling US dollars from the national reserves, causing the reserve to lose money during the period between 2013 to 2015."

Mr Johari on Tuesday repeated what he had said previously, that the drop in forex reserves two years ago was caused by "orderly management of foreign exchange market" and not the alleged "speculative foreign exchange activities" embarked on during the Mahathir era.

Mr Johari said: "It is very important for the public at large to understand the difference between speculative foreign exchange activities and orderly management of foreign exchange market. The speculative foreign exchange activity, to put it in simpler words, is a kind of 'gambling' activity with the hope of quick returns."

The Deputy Finance Minister said that due to the 1990s losses, BNM had to sell off MAS shares at RM8 each to a third party, and Malaysian International Shipping Corporation (MISC) shares at RM10 per share to Retirement Fund Inc. The government also transferred its shares in national telco Telekom and power utility Tenaga Nasional (TNB) to BNM at the nominal value of RM1 per share.

"These shares were then revalued by BNM at RM22.10 and RM19.30 per share for Telekom and TNB respectively," Mr Johari added.

A version of this article appeared in the print edition of The Straits Times on December 27, 2017, with the headline 'KL 'funded' BNM after 1990s huge forex losses'. Print Edition | Subscribe