DR Mahathir Mohamad was never told about Bank Negara Malaysia’s (BNM) forex dealings when it suffered heavy losses, said former second finance minister Nor Mohamed Yakcop.

“I did not at any time, from the years 1986 to 1993, discuss with the Prime Minister of Malaysia (Dr Mahathir) regarding the forex dealings by Bank Negara Malaysia,” he said in his 42-page statement today. 

Nor Mohamed, 70, also told the Royal Commission of Inquiry that Anwar Ibrahim, who was finance minister from 1991 to 1998, was not informed of the dealings either. 

Nor Mohamed said he was tasked with implementing the external reserves management policy, as determined by the central bank’s board and reported both to the late BNM governor Jaffar Hussein and the external reserves committee (ERC) regarding the bank’s forex dealings. 

The membership of the ERC comprised, among others, the governor, deputy governor and the advisers. There were weekly senior officers meetings, where external reserves matters were sometimes discussed.

“I did not report to either the finance minister or prime minister on any issues regarding external reserves management, as that was not my reporting line,” he said, adding that he was not involved in deciding on the accounting treatment of the losses.

“In fact, I have no knowledge whatsoever of the accounting treatment,” he said. 

Suhaimi Ibrahim, the RCI’s conducting officer, pointed out that the central bank’s forex dealings turned aggressive in the late 1980s, which represented a policy shift. 

Suhaimi asked, “shouldn’t the prime minister be informed” of such policy changes.

Nor Mohamed said he did not “know whatsoever” what was told by Jaffar to Dr Mahathir during the period regarding the policy shift.

Suhaimi then referred to an internal report by Bank Negara Internal Audit Department manager Wong Yew Sen, who said there was excessive speculation in the foreign exchange market.

“If I didn’t take speculative positions, (the currencies could move against the ringgit) and then I would have been accused of not hedging in advance,” Nor Mohamed said. 

Asked why did he allow speculative trades, Nor Mohamed replied: “Because it was my job. Why? It’s for my country. 

“We should learn from mistakes. Bank Negara learnt from my mistakes.”

Nor Mohamed said the central bank was caught offguard by the market during that period.

“Admittedly we misread the turn of the market. As staff of a central bank, we naturally believed that the Bank of England would win its fight against (George) Soros. We had confidence in our fellow central banker and bought the pound sterling.

“Unfortunately, the Bank of England lost. Similarly, our best intelligence was that the Maastricht Treaty would be ratified in the referendum in Denmark in 1992, but unfortunately it was rejected. 

“We learnt a bitter lesson from these incidents. The lesson proved crucial in helping us formulate policies to defend the country against the currency attacks in the 1997/98 Asian financial crisis, saving the nation hundreds of billions of ringgit that would otherwise have been lost.

“The forex losses happened. There is no denying it. There is also no denying my responsibility for the forex losses. I accepted my fair share of the accountability for the forex losses and resigned from Bank Negara Malaysia. At that time, it appeared to me to be a sad end to my 25 years of service to the nation, through Bank Negara Malaysia,” he said.

Nor Mohamed pointed out that he was given the opportunity to serve the country again, and the lessons learnt from the past proved useful in saving the country during the financial crisis of 1997/1998, which otherwise would have caused losses in the hundreds of billions of ringgit and could have resulted in many Malaysian companies going bankrupt, with large scale unemployment and poverty.

“The political stability and the socio-economic framework of the nation would have been destroyed. It was an accident waiting to happen.

“It did not happen because of the unorthodox measures of September 1998, which in turn was conceived and implemented based on the knowledge, skills and experience acquired at the forex desk at Bank Negara,” he said. 

Dr Mahathir’s lawyer, Mohamed Haniff Kathri Abdulla, then asked Nor Mohamed to confirm that the former prime minister was not informed of the forex dealings.

“Yes, yes, yes, I agree with that. I confirm that,” Nor Mohamed said.

He also told Suhaimi that he was not handpicked by Dr Mahathir to head BNM’s forex trading arm. 

Questioned by Haniff whether he would have met Dr Mahathir had he been handpicked, Nor Mohamed replied: “If he (Dr Mahathir) had handpicked me, I would have seen him… It’s hypothetical… But he didn’t pick me and I never spoke to him (regarding the forex exposure and losses).”

Nor Mohamed told the RCI that had he been questioned in 1995, he would have been in a better position to answer the questions.

“Most probably at that time (1995), I would have been in a better position to provide information on the conversations (that took place), but now I can’t recall.”

Asked by RCI panellist Tajuddin Atan why BNM had engaged in speculative trading in the first place, Nor Mohamed replied, “It was due to over-enthusiasm. We’ve taken steps (since) to prevent it from happening again. But these things happen.” – September 6, 2017.