Malaysian Maverick: Mahathir Mohamad in Turbulent Times by Barry Wain (fantasy novels to read .TXT) 📕

the next eight years, each time being kept afloat by a government ever willing to reload the vaults by the back entrance as fast as the funds were handed out through the front door. The bank announced growing profits in the early 1990s boom times and often proclaimed that it was committed to purely commercial objectives, as the government prepared to list it on the stock exchange. Abdul Khalid Sahan, the latest executive chairman, declared in late 1996 that the "dark days" were over, with strong recent profits due largely to "more sound management and improving the quality of loans".[73] But with Bank Bumiputra answerable to only a single shareholder, the Minister of Finance Inc., and still not in the hands of independent professional managers, it continued to be afflicted by a civil-service mentality and addicted to bad habits.

The onset of the Asian economic crisis in 1997 revealed familiar weaknesses that belied the hype. Bank Negara said in March 1998 it had stress-tested Bank Bumiputra's loan portfolio, and that in a worst-case scenario the bank would need RM750 million to meet capital adequacy requirements.[74] Six months later, after the bank posted a loss of RM1.4 billion for the year ended 31 March 1998, the government pumped in RM1.1 billion — RM350 million beyond the imagined limit.[75]

Just six months after that, in what amounted to the fourth bail-out of Bank Bumiputra in 15 years, it was merged with Commerce Asset-Holding Bhd., Malaysia's sixth-largest banking group. They formed Bumiputra Commerce Bank, a new entity with RM65 billion in assets that was listed and would be punished by the market for poor future performance. At RM1.58 billion, Commerce Asset got a bargain: Bank Bumiputra's commercial-banking operations with a clean balance sheet. In a fit of generosity that matched previous decisions on the bank, the government agreed to take over all non-performing loans, estimated at RM7 billion, at face value. The government agency set up to buy bad loans and clean up a banking system damaged by the regional crisis paid as little as 60 per cent in the case of other banks. Also, the government pledged that the agency would accept at face value any Bank Bumiputra credits that turned sour during an 18-month period after the merger was finalized.[76] The only consolation for most Malaysians was the disappearance of Bank Bumiputra, a pet monster that gorged itself on RM10 billion or more of their money in a decade and a half.

The forex fiasco

On 16 September 1992, ever after known as Black Wednesday, George Soros made himself famous and US$1.1 billion richer when Britain devalued the pound. He bet London would be forced to withdraw from the European Exchange Rate Mechanism; which was designed to reduce exchange-rate volatility and achieve monetary stability in preparation for the introduction of a single European currency. His wager took the form of selling short more than US$10 billion in pounds. He won when Britain was reluctant to either raise its interest rates to the levels of other participating countries, or to float its currency. For his victory, he was dubbed "the man who broke the Bank of England".

Unbeknown to Soros, he also broke Bank Negara Malaysia, which had wagered a substantial proportion of its assets on Britain being able to hold the line on sterling. Faced with huge losses, Malaysia's central bank kept trading in the hope that the market would give back what it had snatched away. In two years the bank gambled away between RM16 billion and RM31 billion in the biggest Malaysian scandal of all.

Bank Negara's debacle introduced Dr. Mahathir, at a distance, to American Soros and the mysterious and largely invisible world of currency trading that was to grow exponentially with globalization. A Hungarian Jewish immigrant who made a fortune from financial investing and speculation, Soros became a high-profile philanthropist with his support of democratic causes worldwide. While Dr. Mahathir did not actually meet Soros then, he was familiar with his exploits from media accounts. Later in the decade, when Malaysia got pummeled in the Asian financial crisis, Dr. Mahathir blamed predatory currency traders and financial speculators for the regional devastation. Calling for the regulation of hedge funds and currency traders, he denounced a system in which greed rules and where the value of money ranks higher than the value of human lives and human welfare. Currency trading, he said, was "unnecessary, unproductive and immoral".[77] It had "severely impoverished countries and regions, causing millions to lose their jobs, riots and strikes, political and social instability".[78] He singled out Soros as the main villain in the piece.

Those sentiments, expressed so frequently and forcefully, represented a 180 degree turnaround for Dr. Mahathir, who was once happy enough to join the rush to make a buck from nervy currencies. His Bank Negara engaged in so much speculative activity in the second half of 1989 that the U.S. central bank, the Federal Reserve Board, privately asked the Malaysians to cool it.[79] The Bank of England offered similar unsolicited advice.[80] Bank Negara complied to a certain extent, but only temporarily. While denying it had been speculating, the bank explained that at a time of volatile exchange rates it was "actively" managing its external reserves to maintain their value. The main objective was "to be able to hedge, not to speculate", the bank said.[81]

In treasury departments of banks across Asia, however, Bank Negara's trading was the source of astonishment. On some days, it would trade anywhere from US$1 billion to US$5 billion. While that was a drop in the US$400 billion global bucket, it was an enormous amount for a single central bank, and a huge chunk of Malaysia's approximately US$6.5 billion in foreign reserves. The Bank of Japan, by contrast, would rarely reach US$1 billion when it intervened in the foreign-exchange market in an attempt to drive the yen up or down. The United States set a record for itself earlier in the year when it sold US$11.9 billion in dollars, but that was over a three-month period,