Mahathir’s Disastrous Financial Speculation

By Our Correspondent | Monday, 05 March 2012
Asia Sentinel

A murky and embarrassing case is closed, hiding top government officials’ involvement

Sometime over the next few days, a court in Kuala Lumpur will put the finishing touches to an agreement that allows Tajudin Ramli, the former head of Malaysian Airline System, not only to walk away from charges that he had allegedly looted the airline of tens of millions of US dollars but with an RM580 million (US$293.2 million) out-of-court settlement from the government.

It appears to be a settlement that the government would rather keep to itself. At the heart of the agreement with Tajudin is a convoluted story that began as long ago as the 1980s when Malaysia’s central bank, Bank Negara Malaysia, at the urging of then-Prime Minister Mahathir Mohamad, began speculating aggressively in global foreign exchange markets, at one time running up exposure rumored to be in the region of RM270 billion — three times the country’s gross domestic product and more than five times its foreign reserves at the time.

Eventually, playing with the big boys came home to roost. In 1992 and 1993, Mahathir became convinced he could make billions of ringgit by taking advantage of a British recession, rising unemployment and a decision by the British government to float the pound sterling free of the European Exchange Rate Mechanism.

Mahathir ordered Bank Negara to buy vast amounts of pounds sterling on the theory that the British currency would appreciate once it floated. However, in what has been described as the greatest currency trade ever made, the financier and currency wizard George Soros’s Quantum hedge fund established short positions borrowing in pounds and investing in Deutschemark-denominated assets as well as using options and futures positions.

In all, Soros’s positions alone accounted for a gargantuan US$10 billion. Many other investors, sensing Quantum was in for the kill, soon followed, putting strenuous downward pressure on the pound. The collapse was inevitable. Quantum walked away with US$1 billion in a single day, earning Mahathir’s eternal enmity and earning Soros the title “the man who broke the Bank of England.”

Mahathir and Bank Negara, on the other hand, walked away with a US$4 billion loss, followed by another US$2.2 billion loss in 1993, the total equivalent of RM15.5 billion. Although the disastrous trades destroyed the entire capital base of Bank Negara, after first denying it had taken place, the then-Finance Minister Anwar Ibrahim repeatedly reassured parliament that the losses were only “paper losses” and, now that he is Opposition Leader and head of the Pakatan Rakyat opposition coalition, has managed to skate free of the controversy.

Eventually, the Finance Ministry had to recapitalize the central bank, almost unheard of for any government anywhere. It is reliably estimated that Bank Negara lost as much as US$30 billion in this and other disastrous currency trades, costing the head of the central bank and his currency trader deputy their jobs.

It was at one with Mahathir’s unfortunate penchant for believing he could beat the global financial system in other ways. In the early 1980s, at his behest the Malaysian government attempted to corner the tin market through Maminco Sdn Bhd, a dummy company set up to buy tin futures and physical tin to push up prices on the London Tin Market. Malaysia at that point was producing 31 percent of the world’s tin.

However, the rising prices as a result of Malaysia’s action caused miners to increase production in the other 69 percent of the tin world. At the same time the US government released its tin stockpile. The price collapsed, costing Malaysia RM1.6 billon with the subsequent low prices wrecking Malaysia’s tin industry. Mahathir has repeatedly railed against western governments for rigging the rules against him.

The attempt to corner the tin market and the subsequent loss established an interesting precedent in terms of what would take place with the speculation in the pound sterling. Rather than acknowledge the losses in the tin speculation, the government set up another dummy company called Makuwasa Sdn Bhd, creating new shares supposedly reserved for ethnic Malays which were allocated to the Employee Provident Fund, the country’s retirement fund for private and public workers. The plan was to sell these cheaply acquired shares at market price for a profit to cover Maminco’s losses. Finally, in 1986, Mahathir was forced to admit that Makuwasa was created to recoup the government’s losses from the Maminco debacle and to repay loans to Bank Bumiputra.

Fast forward to today and the out-of-court settlement between several government-linked companies and Tajudin Ramli, in which the government quietly cancelled Tajudin’s debt of RM840 million. It is believed to be the biggest such sum awarded in Malaysian history.

In 1994, according to affidavits that Tajudin filed in court he bought 32 percent of the shares of the government-controlled Malaysian Airline System at a price of RM8.00 at Mahathir’s behest – while the shares were trading at RM3.30 – and became executive chairman using funds from government-linked companies. According his allegations, the idea was to use the “profit” off the share sale to cover as much as possible of the forex losses by Bank Negara from Mahathir’s currency speculation.

When Tajudin took control of MAS in 1994 through his company, Naluri Bhd, MAS had a cash reserve in excess of RM600 million. Seven years later, in 2001, when the government bought back MAS for RM8 a share, the state-owned airline had accumulated losses in excess of RM8 billion. The government bought back an almost bankrupt airline for the same price that it sold to Tajudin.

In the welter of lawsuits and countersuits that eventually followed, including a RM13.46 billion statement of claim that Tajudini brought against a government-linked company involved in the mess, he alleged in his affidavit that it was Mahathir who had instructed him to acquire the stake to bail out Bank Negara.

Like Mahathir, the then 49-year-old Tajudin was a native of Alor Setar in Kedah state. He was regarded as a shining example of the bumi businessman that Mahathir wanted to foster to run the country and take the commanding heights of the economy back from the ethnic Chinese.

Unfortunately, according to a long list of whistle-blowers within the airline, he was also involved in looting it of tens of millions of dollars and very nearly putting it into bankruptcy before the government buyback. When officials not connected to the United Malays National Organization recommended prosecution, they came under fire that nearly ruined their careers and almost put them in jail.

According to allegations in documents made public in August of 2010, Tajudin colluded with three other MAS officers and directors through two nominee companies, one in Singapore and the other in Hong Kong, to establish a company called Advanced Cargo Logistics GmbH Germany, at Hahn Airport in Frankfurt, Germany, to provide ground-handling services for MAS.

According to a report filed in March 2007 to then-Prime Minister Abdullah Ahmad Badawi by Ramli Yusuff, the director of Malaysia’s Commercial Crime Investigation Department and an official who seems to have been singularly incorruptible, “Tan Sri Tajudin Ramli was in control of MAS from 1994 to 2001. When he left MAS in 2001, MAS had accumulated losses in excess of RM8 billion (US$2.54 billion). Many projects were made under very suspicious circumstances.”

Ramli Yusuff’s report indicated a wide range of abuses that indicated Tajudin’s family was deeply involved in setting up shell companies to siphon off money from MAS ancillary operations. But instead of preferring charges against Tajudin, the Malaysian Anti-Corruption Commission (MACC) went after the inspecting officer, Ramli Yusuff instead for allegedly not declaring his assets, for misusing a police airplane, and abusing his power as a police officer, all of which were convincingly refuted.

Ramli, however, wasn’t the only one to go before the courts. His lawyer, Rosli Dahlan, who was also the lawyer for the airline itself, prepared Ramli’s defense against the criminal charges only to be arrested on charges of collaborating with Ramli. At one point, on a pretext that Rosli had mishandled a letter from the MACC, police officers invaded Rosli’s office, arrested and handcuffed him, then kept him in a cell overnight, refusing him medical treatment for injuries to his wrists from the handcuffs. They also refused his request to file a report against the arresting officers.

Rosli went to a court especially created to handle MACC cases, only to have the case fizzle out when a prosecutor announced that neither Rosli nor Ramli had been charged for corruption, having been summarily acquitted without having to put on a defense.

For his part, Rosli has charged that the MACC, Bank Negara, the government of Malaysia and the three major newspapers owned by the political parties had conspired with those in power to damage him for his attempts to defend Ramli.

And for his part, Tan Sri Tajudin Ramli remains uninvestigated and uncharged, and a continuing example of bumiputera power at the top of Malaysia’s political and social structure, apparently RM580 million richer.

It also brings into question Prime Minister Najib Tun Razak’s March 30, 2010, statement that the government “can no longer tolerate practices that support the behavior of rent-seeking and patronage, which have long tarnished the altruistic aims of the New Economic Policy. Inclusiveness, where all Malaysians contribute and benefit from economic growth – must be a fundamental element of any new economic approach.”

  1. #1 by k1980 on Tuesday, 6 March 2012 - 12:43 pm

    //Tan Sri Tajudin Ramli remains uninvestigated and uncharged, and a continuing example of bumiputera power at the top of Malaysia’s political and social structure, apparently RM580 million richer.//

    Another example– Shahreecat and her RM350 million

  2. #2 by dagen wanna "ABU" on Tuesday, 6 March 2012 - 1:12 pm

    Hmmmmm …. oddd. How very odd indeed. Since a few days ago – particularly after jib had apologised, I dont seem able to recall any of those incidents recounted by the author in the article above. Did those events he mentioned really happen? Are they real? or are they fiction? And and what is this piece of paper, errrr no it’s a letter. Well actually, a letter by me to huh wot? the JPJ? Oh, it says:

    PER: Saman Trafik. Minta maaf.
    Sila dimaklumkan bahawa seperti umno saya juga telah melakukan banyak kesalahan selama ini. Akan tetapi kesalahan saya tidak serius sangat seperti kesalahan umno – cuma kesalahan lalulintas seperti parking dan sebagainya. Saya disini minta maaf tuan. Dan disini saya lampirkan semua saman trafik saya untuk dibatalkan oleh tuan. Sekian. Terima kasih.”

    Oh, so do I pay the saman? Hoi, cintanegara, what the heck is going on? What do I do now?

  3. #3 by yhsiew on Tuesday, 6 March 2012 - 1:25 pm

    PR, when voted into power, must bring an end to the vile nexus between industry and politics.

  4. #4 by monsterball on Tuesday, 6 March 2012 - 1:26 pm

    Tis good everyone must know the real Mahathir..especially the young voters.
    Such news you can never get from papers and TVs. news.
    A vote for UMNO b in 13th GE..means young voters support corruptions..not support UMNO b.
    Get that very clear.

  5. #5 by SENGLANG on Tuesday, 6 March 2012 - 1:37 pm

    Now you see the whole story. Now you understand why he bought the shares at RM8.00 while you can get it at 3.30, now you can also see why 7 year later the share was bought back at same price of 8.00. The full circle complete.

    But mean while the guy who has been trough into the MAS rice bowl eat almost all of it and leave a skeleton. That was the beauty of this guy.

    Today he was further rewarded with closed to billion just to shut his mouth out.

    Now they say sorry and ask for forgiveness and forget-ness

    They not only eat you they suck your blood dry.. now they want you bone too..

  6. #6 by monsterball on Tuesday, 6 March 2012 - 1:45 pm

    And young voters read the details carefully…and go and think why Mahathir has never been charged for corruptions.
    Ah yes…UMNO b ministers teaches all these are all rumors…not true….no proofs.
    Now think harder…why are all those exposing corruptions.. not charged by the Govt. for telling lies.
    Think why Lee Kuan Yew never allows anyone to spread rumors about him…all are sued and challenged in court….so much so…he is world respected and revered political figure.
    I understand 70% young voters will vote for change.
    This is for the 30%.
    Presuming … these 30% are children of UMNO b robbers and thieves and are enjoying lives with silver spoon feeding them.
    You all are supporting you parents as thieves and robbers…and therefore…you are not a true Muslim nor a dignified human being..
    Is this how you are brought up..feeling so proud…betraying your country and people…all because your parents are millionaires that way? …traditions must continue..or are you afraid without UMNO b…you cannot survive?
    Think hard and know your parents have sold their souls to the devils…and your are trained to be a robot.
    This can easily be changed with will power and strong mind control.
    Live with dignity and principles in life..not like beggars.

  7. #7 by monsterball on Tuesday, 6 March 2012 - 1:53 pm

    Tom make sure young voters understand why Mahathir never dare to charge anyone for spreading false rumors is because he knows they are all true…and these people spreading them…including the murder of Atlantuya…are just waiting to be charged to prove in court with facts legally.
    Leaving all uncharged….is the only weapon Mahathir can keep fooling you 30% young voters…or maybe you all know…and your parents benefited from this loots stolen….and it’s OK?
    hhhhhmmmm….then pray to money as your God.

  8. #8 by k1980 on Tuesday, 6 March 2012 - 2:25 pm

    This general manager of Yayasan Selangor has still not been sacked? Then goodbye to PKR in Selangor.

  9. #9 by Jeffrey on Tuesday, 6 March 2012 - 4:16 pm

    This is, to borrow, Martin Jalleh’s term “Horrific Hubris”. TDM dared at that time to say that BNM had capabilities to dabble in forex (FX) speculation because of know how, strong economy & large reserves! If so smart & got know how, how come BNM betted wrongly on the British Govt’s decision to maintain European Exchange Rate Mechanism which it did otherwise by floating the pound sterling? If got so much reserves how come BNM needed Tajudin to buy its 32% MAS stake way at RM8 way above market price (RM3.30) and give back to back guarantee to take Tajudin out at same price which today the tax payers’ monies have to underwrite by settlement??? There are questions unsettled: not just actual extent of the colossal FX losses, how incurred and whether any law esp vis-à-vis Central Bank Act whether BNM could indulge in such speculative activities (not to stabilise the RM as part of its normal function) but to make profit, and also how after incurring the losses any law was infringed by creative accounting if there’s attempt to hide the losses by pushing them off as an asset item under Deferred Expediture (if this happened).

  10. #10 by sotong on Tuesday, 6 March 2012 - 4:44 pm

    These people are prepared to take huge risk at all cost for vested and narrow interest….nothing is safe anymore!

  11. #11 by sheriff singh on Tuesday, 6 March 2012 - 5:16 pm

    Twenty years down the line in 2012 we are still haunted by the ghosts of that massive loss of RM30 billion. No amount of poojas or whatever will make the ghosts go away.

    Only an effective RCI doing a proper investigation can purge the ghosts. Else the ghosts will remain in limbo and constantly come and haunt us. The ghosts will remain restless. Give them peace.

  12. #12 by Jeffrey on Tuesday, 6 March 2012 - 6:19 pm

    ///Only an effective RCI doing a proper investigation can purge the ghosts.///

    Its hard for Pakatan Rakyat to push for such RCI’s investigation into BNM’s ‘financial speculation’ then because of the uncertainty of what such an investigation may disclose as regards the role then played by its present defacto head (Anwar) as UMNO’s Finance Minister then (in 1992/3) overseeing and responsible for the control of the Central Bank.

  13. #13 by sheriff singh on Tuesday, 6 March 2012 - 8:15 pm

    Does Anwar have an objection for a thorough investigation into the RM 30 billion plus loss? Let him speak now. Does he have a problem with it?

    Nor Mohammed Yakcop, who led the speculation fiasco is still around looking after economic matters. Perhaps he is very eager to shed a lot of light into his team’s evening and nightly forays. He is now a Tan Sri, Dato Seri, Dato etc etc etc.

  14. #14 by on cheng on Tuesday, 6 March 2012 - 10:01 pm

    No wonder, RM 100 is worth less than SGD 46 now, is it becos of this old man folly?

  15. #15 by Jeffrey on Wednesday, 7 March 2012 - 1:16 am

    ///Does Anwar have an objection for a thorough investigation into the RM 30 billion plus loss? Let him speak now. Does he have a problem with it?///

    Well he ought to. Even if Anwar had no objection, his role then as UMNO Finance Minister on that matter will likely be shown by such an RCI as not edifying, to say the least. Anwar was reported to have told malaysiakini in an exclusive interview in 2006 that he had no inkling of the forex speculations until he went overseas (Switzerland) when friends told him about Bank Negara being top 3 FX players in the world and had US$10 billion losses! He also disingenuously pleaded ignorance in his Wawancara interview over TV2 that BNM ever speculated in FX. However if that were so, he must be the most ignorant Finance Minister as from 1989 onwards to 1993/4 BNM’s forays into FX markets were well reported by Reuters Asia Wall Street Journal & S’pore Press. And as RPK in MT lately said the DAP were on record in 1992/3 (including Kit’s speech in parliament on 27th April 1993) refuting explicitly then Anwar’s claims as Finance Minister of ignorance of BNM’s forays and giving clear examples and reasons why that was so.

  16. #16 by Loh on Friday, 9 March 2012 - 5:33 pm

    ///In 1994, according to affidavits that Tajudin filed in court he bought 32 percent of the shares of the government-controlled Malaysian Airline System at a price of RM8.00 at Mahathir’s behest – while the shares were trading at RM3.30 – and became executive chairman using funds from government-linked companies. According his allegations, the idea was to use the “profit” off the share sale to cover as much as possible of the forex losses by Bank Negara from Mahathir’s currency speculation.///–the author

    It must be a joke that Mamakthir would think about the sale of MAS to cover up on the loss in foreign exchange. To Mamakthir, he was not accountable to anybody and so he would not even consider that there was a need to cover up on the loss. If there ever was a question for him, he would have said that in betting one either wins or loses, and nobody would be able to do anything about his decision.

    The sale of MAS was intended for anything but the cover-up. It was a chance for the persons concerned to play with a big corporation and to do what they liked, without having to account to anti corruption agency. When the company loses money, the government would once again bail it out. After all, there was a guarantee buy-back at whatever price said to have been paid. The high value put on MAS was intended to show that MAS was a money making concern, and small time shareholders gained confidence to remain holding MAS shares. Meanwhile the selected owner of MAS just stole as he liked.

    The story that the sale of MAS was to cover up the foreign exchange losses gave the impression that Mamakthir felt that he was accountable. It was simply not true.

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