Malaysia's central bank admits huge forex losses
Malaysia's central bank admits huge forex losses
KUALA LUMPUR (Reuter): Malaysian central bank governor Jaffar
Hussein said on Thursday the bank will give up forward foreign
exchange trading after losing 15 billion ringgit (US$5.6 billion)
over the last two years.
He told a news conference releasing Bank Negara's annual
report that the bank lost 5.7 billion ringgit ($2.13 billion) in
foreign exchange trading in 1993, after losing 9.3 billion
ringgit ($3.48 billion) in 1992.
Asked if he was resigning from the bank, which has a global
reputation for being adventurous in foreign exchange trading,
Jaffar said he would do "whatever it takes".
"I suppose that is the most reasonable thing to do but if
there is any development in that direction, you will soon know,"
he said.
Money dealers and financial analysts said Finance Minister
Anwar Ibrahim was expected to announce Jaffar's resignation on
Friday.
Attributing the losses to bad judgment, Jaffar said several
people in the bank's treasury department had resigned.
He said the bank had wound down all its forward positions and
would confine itself in the future to spot trading to manage its
international reserves.
"An unfortunate chapter in the bank's history is now closed,"
he said in a preface to the annual report.
Insolvent
Speaking to reporters later, Deputy Governor Lin See Yan
acknowledged the bank could be considered technically insolvent
due to its forex losses, if not for its backing from the
government.
"If you are a commercial bank you are in trouble if the
shareholders don't back you," he said.
The bank's 1992 losses were largely a result of the collapse
in sterling when Britain withdrew from the European Exchange Rate
Mechanism. The report attributed the losses in 1993 to unwinding
forward positions taken the year before.
Jaffar said the losses would be written off against future
profits.
The bank reported an operating loss of 712 million ringgit
($263 million) in 1993 -- its first ever.
Jaffar said in the report the bank had to take forward foreign
exchange positions to protect itself from "unilateral G-7 (Group
of Seven industrialized nations) decisions" and "speculative
gyrations" in the foreign exchange markets.
"At times the bank's actions have been regarded as
unconventional, but these are unusual times where the
conventional wisdom is often found wanting in providing the lead
to meet the unusual challenges."
The bank's task of managing the country's reserves has become
increasingly complex, due to the size of Malaysia's international
reserves and gyrations in world foreign exchange markets.
Despite the huge losses Malaysia's international reserves
actually surged over the past year, thanks to a huge inflow of
foreign funds drawn by a buoyant stock market, high interest
rates on deposits and a strong ringgit.
International reserves rose to 76.4 billion ($23.3 billion) at
the end of 1993 from 47.19 billion ($18.4 billion) the year
before, the report said.
Jaffar said the bank took an aggressive posture toward
managing reserves. "In the absence of perfect foresight, mistakes
will be made; indeed, mistakes were made."
He said the bank had installed new measures to make its
trading activities more transparent to avoid costly errors in the
future.