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

fell before and after the crisis in the European Exchange Rate Mechanism. To meet its low-inflation target, the bank said it soaked up the heavy flow of foreign funds into the booming Malaysian economy. It diversified the inflow, mostly denominated in U.S. dollars, into other currencies in an attempt to protect the value of its external reserves, it said.[93]

The trouble with this explanation was that the dollar depreciated far less than some of the currencies of Malaysia's other trading partners. In fact, the ringgit appreciated against the currencies of all Malaysia's major trading partners, but only marginally against those of the United States, Japan and Singapore, the largest of its partners. This indicated that Bank Negara's foreign-exchange portfolio was heavily weighted in favour of currencies less relevant to Malaysia. Chief suspect: the pound, against which the ringgit appreciated 29.1 per cent during the year and as much as 33.6 per cent at its peak.[94]

Bank Negara advanced another reason for the charge against reserves. It said a portion of the amount could be attributed to a change in its customary accounting policy to value its gold and foreign reserves at prevailing market levels. In the past, the bank had valued its reserves at the lower of historical cost or market rates. The adjustment took the book value of Malaysia's reserves to a whopping RM46 billion at the end of 1992 from RM29.2 billion a year earlier.

The RM9.3 billion charge nearly wiped out all of the special reserves set up by Bank Negara. They comprised the Exchange Rate Fluctuation Reserve, the Investment Fluctuation Reserve, the Insurance Reserve and the Contingency Reserve. The bank said in its statement that "such reserve accounts were created precisely for this purpose, i.e., to act as cushion for undue and unpredictable changes, emanating in most part from international developments completely beyond the control of the bank, and to enable the bank to meet its objectives of policy without unleashing destabilizing effects on its normal operations".[95]

Although fighting inflation was bound to have cost Malaysia, few economists or money market professionals accepted that it could account for the entire loss, while the revaluation of the reserves seemed like no more than an attempt to dress up the balance sheet. The sensitivity of the matter was reflected in the caution of the local media, which did not report the bad news for two weeks after the 30 March release of Bank Negara's report. Even then it took the form of a comment by the new Minister of Finance, Anwar Ibrahim, that he had asked Bank Negara for additional information about its losses. Anwar said later he had issued "strong advice" to the central bank in March to cease speculating.[96] It emerged that the bank might lose considerably more on foreign-currency trades anyway. A figure of RM2.7 billion in contingent liabilities mentioned in the bank's report represented foreign-exchange contracts carried forward into the following year. Whether that sum translated into profit or loss would depend on exchange-rate fluctuations in 1993.

In Parliament, Lim Kit Siang called for a royal commission to inquire into the losses, which he attributed to Bank Negara pouring "tens of billions of ringgit" into the pound and hoping "to make a killing" by buying long, expecting the pound to recover with the support of the British government.[97] Although criticism was growing in the absence of a plausible explanation, Dr. Mahathir indicated that Bank Negara would not be blamed. He told reporters, "There were times in the past when we made profits. At that time, we kept quiet but now when there is a fall, we want to take action. That is not the way."[98]

In the closing days of 1993, Bank Negara took advantage of its ongoing battle with speculators to depress the value of the Malaysian currency, which improved the bank's year-end financial position by raising the value of its foreign currency and gold reserves in ringgit terms. For months, the bank used a variety of tactics, some of them unusual, to try and dissuade speculators from thinking that they could make quick profits on a rising ringgit. By dumping large amounts of ringgit into the market to buy dollars towards the end of December, the bank pushed the local currency down to a two-year low of around RM2.73 to the dollar from RM2.55 for most of the year.[99]

The government also rushed through the sale of Bank Negara's 42 per cent of Malaysian Airlines, effectively privatizing the carrier. A 32 per cent stake realized RM1.79 billion, at the time an inexplicable windfall for the central bank, as businessman Tajudin Ramli, a protégé of Daim Zainuddin, the former finance minister, agreed to pay RM8 a share when the market price was only RM3.50. Bank Negara sold its remaining shares to another government-controlled agency.[100] Driven by Dr. Mahathir, the deals were arranged hurriedly in the last two weeks of December 1993 to bolster the bank's bottom line.[101] In 2000, the government repurchased Tajudin's stake at RM8 a share, when it was trading at around RM3.60, provoking an outcry that Dr. Mahathir's administration was bailing out a crony. In 2006, Tajudin alleged in a lawsuit that he was forced to buy Malaysian Airlines in the first place as a "national service". He said he was directed to do so by Dr. Mahathir and Daim, who told him the acquisition was to save the central bank.[102]

Neither the accounting slight of hand nor the abrupt disposal of the airline could hide the ugly truth, however: more huge losses from foreign-currency transactions. The 1993 losses, artificially depressed to RM5.7 billion, nevertheless wiped out Bank Negara's remaining reserves and paid-up capital of nearly RM3.8 billion, and would have crippled the bank except for government help.[103] According to a note in the annual accounts, the RM5.7 billion represented the bank's "net deficiency", and the government had undertaken "to make good this deficiency as and when required to do so by the bank".[104]

Lim Kit Siang renewed his calls in Parliament for an investigation, but was ignored by