KUALA LUMPUR - Malaysia's central bank governor during the 1990s was initially unaware that massive losses were incurred in a foreign exchange trading scandal, the Royal Commission of Inquiry (RCI) heard on Wednesday.
Witnesses at the proceeding said former governor Jaffar Hussein did not realise the magnitude of the losses until much later.
"I informed the governor about the huge losses suffered by Bank Negara Malaysia (BNM) but the governor did not believe me and said the losses could not be that much," said Lim Swee Kuan, a former special assistant to the governor.
Former BNM deputy governor Lin See Yan also told the commission that the late Tan Sri Jaffar was initially unsure of the amount lost caused by speculative positions taken by the bank's forex trading department.
According to Tan Sri Lin, an investigation was carried out to determine the losses and subsequently he recommended to Mr Jaffar that the central bank cease all future commitments.
Mr Lim, who was with Mr Lin at the meeting with Mr Jaffar said the ex-governor had "looked worried and shocked" at the loss amounting to RM8 billion to RM9 billion.
They were testifying at the Royal Commission of Inquiry (RCI) into billions of ringgit in forex trading losses suffered by Bank Negara Malaysia in the 1990s. Critics say the inquiry was formed by the administration of Prime Minister Najib Razak to smear the name of his chief critic, ex-premier Tun Mahathir Mohamad who led the country at the time of the huge BNM losses.
The losses were also reported by BNM officials to then finance minister, Anwar Ibrahim who is now an opposition leader.
Malaysia's former deputy secretary-general of the Treasury said he had, together with Anwar, briefed Dr Mahathir on the losses in late 1993.
Clifford Francis Herbert, in his testimony, said that Dr Mahathir's response was, "sometimes you make profits, sometimes we make losses".
Dr Mahathir's lawyer who was present, Haniff Khatri Abdulla, pointed out that market talk over BNM's possible forex losses had surfaced since 1992.
According to Tan Sri Herbert, he had made his own calculations based on figures obtained from BNM and reported to Anwar and Dr Mahathir the forex losses were about RM30 billion.
The inquiry heard on Wednesday that the chief dealer of the forex trading team at the cental bank then, Nor Mohamed Yakcop, did report directly to the governor, but witnesses were unable to say if Mr Jaffar was accurately briefed on the profits and losses incurred. Tan Sri Nor Mohamed later became a minister in the prime minister's department in charge of economic planning.
"Jaffar is an honorable man. He's well-intentioned," said Mr Lin, adding: "I think he was too trusting of his forex officer".
Mr Jaffar later resigned from BNM over the forex scandal.
"At any point in time, I was not asked to discuss the forex losses incurred by Bank Negara with the prime minister," Mr Lin said, referring to Dr Mahathir.
The former deputy governor said he is not aware if Dr Mahathir was brief by others on the matter. Based on his conversation with Anwar, an opposition leader currently in prison, Mr Lin said the former minister was "unhappy" with the losses and wanted existing open positions to be closed as soon as possible.
Despite billions lost from forex trading, Mr Lin said Malaysia's strong economy at that time would've weathered the loss if the sum was reported in the profit or loss margins instead of the other reserve accounts.
The treasury's former secretary-general Mohd Sheriff Mohd Kassim said BNM's decision to conduct "accounting adjustments" by moving sums to "other reserves" was upon agreement with the Auditor General. Tan Sri Sheriff said the move was not a cover-up and done to "protect" BNM and the country from "dangerous implications to the economy and the Malaysian ringgit".
The commission ruled last week that the actual losses were RM31.5 billion, higher than the initial sum of RM9 billion reported by the government in the 1990s.
When queried by the commission over the central bank's position to embark on forex trading, Mr Lin remarked: "There was nothing wrong with the policy, it was the implementation that went sour".
The RCI hearing will resume on Sept 6.