KUALA LUMPUR: Bank Negara Malaysia was involved in voluminous foreign exchange trading, with monthly maturing buy and sell of such transactions amounted to a staggering RM750 billion in 1993 from an average RM140 billion in 1992, Second Finance Minister Datuk Seri Johari Abdul Ghani said.
The substantial portion of such transactions was very speculative in nature and did not reflect Bank Negara’s mandate to maintain “orderly condition of the foreign exchange market”, Johari added.
The transactions were highlighted in an internal audit report prepared by Bank Negara’s Internal Auditors dated January 21 1994, Johari said in a statement today (Tuesday).
He was clarifying the difference between speculative foreign exchange activities and orderly management of foreign exchange market.
This was in response to former prime minister Tun Dr Mahathir Mohamad’s allegation that the government was trying to confuse the public over why US$39.6 billion or RM160 billion had flowed out of the country from 2013 to 2015.
Last week, Johari had clarified that losses worth US$39.6 billion from 2013 to 2015 were due to outflows of foreign funds and not caused by speculative foreign exchange trading.
In his blog post, Dr Mahathir said the outflow of US$39.6 billion from 2013 to 2015 could only be caused by Bank Negara selling US dollars from its reserves in order to prop up a weak ringgit.
Johari said Bank Negara’s forex losses amounting to RM31.5 billion from 1992 to 1993 were caused by speculative foreign exchange trading and not due to outflows of foreign funds.
He explained that the foreign exchange operation division of Bank Negara’s banking department was involved in voluminous foreign exchange trading activities during the period under review, thus the speculative foreign exchange activities.
“The monthly maturing buy and sell foreign exchange transactions which amounted to an average of RM140 billion in 1992 had increased to a staggering RM750 billion in 1993.
“The substantial portion of such transactions was very speculative in nature and did not reflect Bank Negara’s mandate to maintain orderly condition of the foreign exchange market as per Section 4 of the Central Bank of Malaysia Ordinance 1958,” he said.
The internal audit report also highlighted that the magnitude of such foreign exchange speculative transactions was considered very excessive given that Bank Negara’s shareholders fund was only RM4.4 billion and the country’s international reserves were merely RM43.98 billion at that material time.
Because of the scale of foreign exchange speculative activities losses from 1992 to 1993, Johari said the government was forced to transfer its shares in Telekom and Tenaga Nasional Bhd to Bank Negara at the nominal value of RM1 per share.
These shares were immediately revalued by the central bank at RM22.10 per share and RM19.30 per share for Telekom and TNB respectively.
In addition, Bank Negara had to dispose of its Malaysia Airlines shares to a third party at RM8 per share and MISC shares at RM10 per share to Kumpulan Wang Amanah Pencen in order to realise the gain.
“If these speculative foreign exchange losses were not real, the government would not have taken these drastic actions in order to cover the Bank Negara losses at that material time,” Johari said.