FOREX RCI | Former Bank Negara governor Zeti Akhtar Aziz believes that her predecessor, Jaffar Hussein, had to take accountability for anything that had taken place during his tenure as the central bank governor.

Testifying before the Royal Commission of Inquiry (RCI) tasked to investigate the foreign exchange losses incurred by the central bank in the late 1980s and early 1990s, Zeti noted that Jaffar had indeed done just that.

She was questioned by RCI member Tajuddin Atan, who pointed out that Jaffar, as Bank Negara governor, had "ultimate authority" in managing the central bank and the management of its reserves.

Therefore, Tajuddin asked Zeti, what could have been the reason behind the former governor allowing forex trading to move to such a high level of losses.

Zeti replied: "I would say that the impression of the governor accords too much power to the governor.

"The governor has to take full accountability for anything that happens, just like in a commercial bank. If something happens, whether (one) knew it or not, one has to be accountable."

Apart from this, the role of both the board and management are also very important in banking and financial institutions, she added.

"The (Bank Negara) board says the management never escalated information up to the board and the board didn't know what the management and risk management were going through.

"I do not want to venture to make that assessment; as to what extent he (Jaffar) knew or whether he was part of it.

"But he took accountability for it in a very honourable way and he resigned," Zeti noted.

Jaffar had served as the central bank's governor from 1985 until his resignation in April 1994.

Former Bank Negara senior officer Abdul Aziz Abdul Manaf on the first day of the RCI proceedings said he was tasked by Zeti in 2007 to come up with reports on the losses and gains made in forex trading between 1988 and 1994.

Aziz had told the RCI that the central bank lost RM31.516 billion between 1991 to 1994 in forex transactions.

From 1994 onwards, all realised profits and losses were reflected in Bank Negara's profit and loss account, said Zeti.

Zeti today said she had instructed Aziz to prepare the report on accounting treatment on reserve management between 1988 to 1994 as the central bank was preparing a new act to replace the Central Bank of Malaysia Act, among others.

She also cited a meeting held in June 1992 in which former Bank Negara assistant governor Abdul Murad Khalid had told Jaffar about the forex transactions.

Also present was former ambassador to the United States Awang Adek Hussin.

'Murad didn't provide details'

Murad, Zeti said, had told Jaffar regarding massive exposures to Bank Negara as a result of forex transactions.

"As far as I could remember, Murad didn't provide details regarding forex transactions suffered by Bank Negara.

"Jaffar responded by saying that this was probably gross positions that were known by counter parties that Bank Negara traded with.

"Counter parties wouldn't be aware of the net position of the bank and he was therefore of the view that the net position was very much less," she said.

Zeti, herself, had come to know about the forex losses a few years later in January 1994 when there was news about "serious concerns about reserve management in Bank Negara".

Still working at the London representative office, Zeti said she contacted a Bank Negara senior official to know what had happened.

"I was told Bank Negara had experienced losses through reserve management," she said.

Meanwhile, when asked by RCI member Saw Choo Boon on whether there was a possibility that the situation Bank Negara had faced between 1992 and 1994 could recur, Zeti pointed to the checks and balances set in place since then.

"Twenty-five years have gone by since that occurrence. During those years it has not occurred because of the practices of checks and balances that have been instituted.

"This is despite experiencing massive and severe financial crisis in the Southeast Asian region between 1997 and 1998. The banks didn't collapse, reserves didn't deplete and the central bank rose to the occasion to manage the crisis," she said.

Zeti had served as the central bank's governor since 2000 before retiring in April last year.

Earlier this morning, former attorney-general Ainum Mohd Saaid said could not recall whether she had told a former auditor with the Auditor-General's Office about "the higher-ups telling him not to interfere in relation to the legality of Bank Negara's forex activities".

She was responding to P Kanason who said that he was told by Ainum who was then head of the Attorney-General's Chambers' advisory division that "orang atasan cakap jangan campur tangan" when he enquired further on the matter.

"From what I can recall, I did tell him that we would give a written advice.

"I cannot remember ever saying 'orang atasan cakap jangan campur tangan'. I think it is a non-issue as I had then written a letter to the auditor-general," she said.

Although the AGC did not give any specific answer on whether Bank Negara's forex trading was legal or otherwise, Ainum today said the bank's ordinance did not allow for forex trading.