'I accept my fair share of accountability for forex losses' - Nor Mohamed

Former Bank Negara Malaysia (BNM) adviser Tan Sri Nor Mohamed Yakcop today conceded that the central bank suffered foreign exchange (forex) losses in 1986 to 1993.

He said it was a mistake that provided a bitter lesson for BNM.

The lesson proved crucial in helping formulate policies to defend the country against the currency attacks during the 1997/1998 Asian Financial Crisis, saving the nation hundreds of billions of Ringgit that would otherwise have been lost, he said.

Nor Mohamed, 70, who joined BNM in September 1968 and promoted to the post of Manager, Banking Department, two years later, said that he did not, at any time between 1986 and 1993, discuss with the Finance Minister and the Prime Minister about the central bank's forex transactions.

However, he could not remember the losses and profits in the forex transactions by BNM during that period.

"There is no denying it. There is also no denying my accountability for the forex losess. I accepted my fair share of the accountability for the forex losses and resigned from Bank Negara Malaysia.

"At that time, it appeared to be a sad end to my 25 years of service to the nation through Bank Negara Malaysia," he said in his witness statement on the fifth day of the Royal Commission of Inquiry (RCI) to investigate BNM's foreign exchange losses in the early 1990s.

READ: Forex: BNM's way of interpreting the law not fully accepted by AGC - Witness

Nor Mohamed, who is the 17th witness, said the important point was that the experience in the forex unit those years proved extremely useful later in saving Malaysia from the devastating effects of the financial crisis in 1997/1998, which otherwise would have caused losses worth of billions of Ringgit Malaysia.

He said it could have also resulted in many Malaysian companies becoming bankrupt, with large scale unemployment and poverty spreading throughout the country, and the country's political stability and socio-economic framework 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 in Bank Negara Malaysia," he said.

Nor Mohamed, who resigned from BNM in April 1994 as an adviser, but joined the central bank again for the same post in September 1998, explained that prior to 1985, BNM was not active in external reserves management, including forex trading, given the relative stability in the international foreign exchange market.

He said the situation changed in 1985 when on Sept 22, five OECD countries met in private at the Plaza Hotel in New York and decided among themselves, without consulting other countries, that the Yen and German Deutsche Mark should be strengthened significantly against the US Dollar by way of market intervention.

"This is known as the Plaza Accord. The Plaza Accord was historic because it was the first time central bankers agreed to intervene in the currency market in such a big way and the first time in history when governments set target foreign exchange rates to be achieved through active intervention," he said.

Nor Mohamed, who was appointed as the Second Finance Minister in January 2004, said that Malaysia's borrowings in Yen during the early 1980's were mainly for infrastructure building, as at that time, the Malaysian bond and sukuk markets were yet to develop to enable large amounts of borrowings for long periods to be obtained domestically in Ringgit.

He said given that infrastructure projects required long gestation period, the government and its agencies chose to borrow in Yen, since at that time, long term Yen loans were available with low interest rates.

"The borrowings also coincided with the building of major infrastructure projects in the country," he said, adding that since the Plaza Accord of September 1985, the international forex market also became more volatile, with sharp and sometimes erratic movements in the daily forex rates.

He said this was the background that led to the decision by BNM to begin active external reserves management.

Nor Mohamed said he was tasked with implementing the external reserves management policy as determined by the BNM's Board and reported both to the Governor and the External Reserves Committee (ERC).

He said he was not involved in deciding on the accounting treatment of the losses and had no knowledge whatsoever of the accounting treatment.

He said that in forex trading in 1986 to 1993, there were specific limits for the Chief Dealer and Dealer handling the transactions, but he could not remember what the limit was and who fixed it.

"Actually, all forex trading were carried out by the Chief Dealer and Dealers. What they did on my instruction were measures taken to diversify reserves from US Dollar to foreign currencies," he said.

However, he could not remember the amount of the highest forex transactions carried out in a day or month during the seven-year period, neither could he remember the person he discussed with that made him to state in a BNM letter, dated Feb 9, 1990 and signed by him, that was sent to the Attorney-General's Chambers , that the forex trading carried out by the central bank then did not breach the role and functions of BNM and Section 31(a) of the Central Bank Ordinance 1958.

The hearing, chaired by Tan Sri Mohd Sidek Hassan, who is Petronas chairman, continues tomorrow.

The other members of the commission are High Court judge Datuk Wira Kamaludin Md Said, Chief Executive Officer Bursa Malaysia Datuk Seri Tajuddin Atan, Co-Chairman Special Task Force to facilitate Business (Pemudah) Tan Sri Saw Choo Boon and Malaysian Institute of Accountants member K. Puspanathan. -- BERNAMA