Forex/BNM losses (early 1990s)

what happened

In the late 1980s and early 1990s Bank Negara Malaysia, the country's central bank, became an unusually large participant in international currency markets. Its stated objectives had been broadened to include profit optimisation and market expertise alongside the traditional job of managing reserves, and later reporting described trading volumes well above what central banks normally run. The bank's 1992 accounts showed its Other Reserves falling from RM10.1 billion to RM743 million, and its 1993 accounts recorded RM5.7 billion as deferred expenditure from foreign-exchange dealings. That RM5.7 billion figure was audited and tabled in Parliament by the Finance Minister of the day, Anwar Ibrahim.

The immediate fallout came in 1994. Governor Jaffar Hussein, who had run the bank since 1985, resigned; Nor Mohamed Yakcop, the officer in charge of the dealing operations, also left. Ahmad Don took over as governor in May 1994 and told the later inquiry that he wrote to Deputy Prime Minister Anwar Ibrahim setting out that there would be no purely speculative trading and that reserves would be managed on an investment basis. Former governor Zeti Akhtar Aziz testified that from 1994 onwards realised profits and losses were reflected in the bank's profit and loss account. Nor Mohamed Yakcop returned to government later, as special economic adviser to Prime Minister Mahathir Mohamad from 2000 and as Minister of Finance II from 2004 to 2009.

The episode returned to national politics in 2017. After former assistant governor Abdul Murad Khalid claimed in January that the losses were far larger than disclosed, the Cabinet formed a task force in February. The RCI took effect on 15 July, chaired by Mohd Sidek Hassan. It held nine days of hearings across August and September, heard 25 witnesses, submitted its report to the Yang di-Pertuan Agong on 13 October 2017, and had it tabled in Parliament on 30 November. The report set out losses of RM12.35 billion in 1992, RM15.29 billion in 1993 and RM3.86 billion in 1994, and said the losses had a significant negative effect on the economy and impaired the central bank's ability to do its job.

The RCI recommended that police investigate whether the facts disclosed possible criminal breach of trust, and its report attributed principal liability to Nor Mohamed Yakcop and shared liability to several other former officials. An RCI enquires and reports; its findings and recommendations are not criminal convictions or court judgments.

The numbers themselves are the central dispute, and they should be read side by side rather than merged. The audited contemporaneous figure was RM5.7 billion; the 1992 accounts implied a roughly RM9.3 billion fall in reserves; Lim Kit Siang alleged around RM30 billion in Parliament in 1993; Abdul Murad Khalid alleged about US$10 billion; the Commission gave RM31.5 billion for 1992-1994; and Zeti Akhtar Aziz testified to RM32.07 billion across 1988-1994, a period that included a profit year. Why the losses happened is disputed too. Nor Mohamed Yakcop told the Commission he had hedged 100% instead of 60% or less, while witness evidence in the report traced a shift towards trading for profit to Jaffar Hussein's tenure. Whether Bank Negara lost money on the wrong side of the September 1992 sterling crisis is reported but never officially confirmed.

No criminal charge followed the RCI’s recommendations. Mahathir Mohamad denied knowledge of the leveraged dealings and blamed the two central bank officials; the Commission considered his account questionable and recommended investigation. Anwar Ibrahim has denied withholding the full extent of the losses from Cabinet and has said he was bound by the audited 1993 accounts. Opposition politicians at the time argued the inquiry was aimed at Mahathir, who by 2017 was leading opposition efforts against the government, and Mahathir pointed out that the Cabinet he led had decided against an inquiry in 1993. He also failed in an attempt to have the chairman removed for alleged bias. After the 2018 change of government, de facto law minister Liew Vui Keong said on 1 July 2019 that the police report had been classified as no further action, citing missing documents from more than 25 years earlier and the complainant's retraction.