PETALING JAYA: It is unfair for PPBM chairman Dr Mahathir Mohamad to defend the RM31.5 billion Bank Negara forex scandal by claiming that Prime Minister Najib Razak had lost RM160 billion in forex reserves between 2013 and 2016.
BN strategic communications deputy director Eric See-To said there was a big difference between illegal gambling and the normal function of BNM in managing currency volatility.
He said Mahathir’s attempt to connect both was “utterly astounding”.
Mahathir had alleged that BNM lost US$39.6 billion in reserves between 2013 and 2015.
In a video, Mahathir said this was a much larger amount than the bank was said to have lost in forex trading when he was prime minister.
However, he said no royal commission of inquiry (RCI) was set up to probe the 2013-2015 losses, which took place under Najib’s leadership.
The RCI on BNM forex trading losses in the 1990s, in its findings, stated that Mahathir had helped in “deliberately concealing” the losses.
“For Tun Mahathir to try and defend his RM31.5 billion BNM forex scandal by claiming that PM Najib had lost RM160 billion in forex reserves between 2013 and 2016 is an utterly irresponsible and desperate attempt,” See-Too said in a statement today.
He said many people do not understand how central banks like BNM accumulates forex reserves.
“When the ringgit is under sustained buying and is moving too fast up, the BNM tries to moderate the movement by using ringgit to buy USD.
“This increases supply of ringgit and hence moderates the sharp upward movement of the ringgit’s rate against the USD. When BNM does this, they accumulate USD and our USD forex reserves grow.
“Correspondingly, when the ringgit is under sustained selling, investors want to move their money back out of Malaysia like what happened in late 2013 when the US signalled that they would start increasing their interest rates.
“BNM will then sell their previously accumulated USD reserves in order to stop the ringgit from falling too sharply.
“In fact, this spot buying or selling is BNM doing its job and this is the purpose of having forex reserves in the first place.”
See-To said when BNM sells US dollars for this purpose, no money is lost as BNM gets paid in ringgit for the sale of the US dollars.
“Yes, our forex reserves dropped during this period but we got it back in ringgit.
“That is why BNM reported substantial profits for the year 2014 (RM6.4 billion), 2015 (RM7.8 billion) and 2016 (RM6.5 billion).”
See-To said in the BNM forex scandal case during Mahathir’s era, the central bank went beyond what they were supposed to do.
“They gambled on forex futures using our reserves instead of spot buying or selling.
“They leveraged (like using share margin financing) to bet whether a certain currency would go up or down.
“The leverage was huge and exposed Malaysia to five times our reserves or three times our GDP — which meant that their illegal gambling could have bankrupted Malaysia three times over.
“When you gamble like this and lose, you lose the reserves outright and do not get back any ringgit.”
See-To said the losses were so great that BNM was made technically insolvent in 1994 and had to resort to selling off its shares in MAS, Telekom and Tenaga to partly cover the losses.
See-To said the RCI report stated these losses were also hidden using “unconventional accounting treatments”, such as booking losses to reserves in the balance sheet.
The remaining losses were absorbed by the transfer of shares from the government to BNM as well as the creation of a “Deferred Expenditure”, to be repaid in instalments over a decade.
“To make it worse, the RCI said that to allow this gambling in the first place is illegal and that after they had made losses, there was a deliberate attempt to cover up and mislead the cabinet and Parliament.
“Whether anyone benefited from these staggering (and illegal) losses is still under investigation. We shall leave it to the police to find out.”
See-To said Mahathir may not realise that during the same period between 2013 and 2016, China’s forex reserves also declined by US$800 billion for the very same reason Malaysia’s forex reserves reduced. -FMT
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