I am of the opinion that it is now time for the authorities to review our ringgit peg. I would argue that a prolonged period of undervaluation could lead to a serious misallocation of resources, as the price mechanism would be giving distorted signals.

This would result in less than optimal utilisation of resources. It would misdirect the structural transformation of national resources and defeat some of our efforts to reposition the economy to meet the challenges of a globalised economy.

I would also argue that it would discourage manufacturers and exporters from improving their efficiency as the cost of acquiring new machineries and technologies would be more expensive than it would have otherwise have been.

At the same time, it would create a false sense of strength for exporters by giving them the unearned advantage in terms of their export proceeds. This punishes the man on the street, as the cost of imported consumer goods would be more expensive.

It makes the low interest rate regimes more sustainable as the expansionary effects of the low interest rate is buffered by the contractionary effects of an undervalued currency. All this again means that the man on the street is again punished by being offered a lower return for his savings placed with financial institutions. Again, investors and businesses would be benefitting from the low interest rate on their bank borrowings.

The authorities have maintained that the present foreign exchange regime is still serving its purpose as the misalignment has been minimal and the business community is still feeling happy with it.

Some parameters were given to comfort us such as that the misalignment of ringgit from its natural value is less than seven percent after taking the value of major trading partners into account.

It was further pointed out that it was unlikely that any review would be undertaken as long as the US$/euro exchange rate did not break the 140-level or if Chinese yuan was not being unpegged. And, of course by implication, if the misalignment of the ringgit from its natural value is less than 15 percent.

These are very broad parameters to breach indeed!

None of my arguments above have been refuted and this gives me the impression that the authorities are more interested in championing the cause of the business community rather than that of the country and the people at large.

In furtherance of this policy, some three weeks ago, Bank Negara announced a few monetary measures that would liberalise the movements of the ringgit by allowing fund managers to invest in foreign currency denominated investment papers and also allow some flexibility to individuals for foreign currency transactions.

The intention is to release some buildup of the pressure for the re-valuation of the ringgit at a time when our foreign exchange reserves continues to build up in excess of a seven month import value level.

Malaysia is not the only country to have done this. China, and to some extent India, have also liberalised their foreign exchange regulations in order to release some of the upside pressures on their currencies.

The move towards liberalisation of the ringgit is to be welcomed as fund managers such as the Employees Provident Fund (EPF), Permodalan Nasional Berhad (PNB) and others have long requested for new avenues of investments to diversify their investment risks.

However, this does not in any way invalidate our argument for the ringgit peg to be reviewed nor does it significantly mitigate its adverse effects on the economy.

The recent announcement by Singapore to allow the value of its currency to appreciate is another reason why the ringgit peg should be reviewed. The island state with its 3.5 million population knows too well that unless it protects its position as a regional business hub firmly, it will soon be in serious trouble.

At the same time it needs to build up its top-line by acquiring assets in the region in order to build scale and scope to boost and sustain its revenues. An expensive Sing dollar will mean that assets in the region would be cheap for the taking by their national investment arm, Temasek, as well as by other Singapore investors

A strong currency regime coupled with a low tax regime as adopted by Singapore is a very lethal weapon against the economy of its neighbours. Not only are Singaporeans being encouraged to buy and invest in the region more aggressively, additional motivation is also given to downstream the profits they make in these countries back home in order to enjoy the much lower Singapore tax .

The difference between Malaysian and Singapore corporate tax is six percent (28 percent against 22 percent). To reap this discount, what Singapore businesses normally do is create a marketing office in Singapore and funnel the profits from the foreign manufacturing facility into through transfer pricing mechanisms. This is being done all the time.

Johor is a haven for Singapore investors because of this. Firstly, there is the cheap labour and land and it is just close by. All you need to do is just show that the manufacturing arm in Johor is making a minimal profit (if at all) and funnel the rest it to the marketing subsidiary in Singapore.

The adoption of a strong Sing dollar regime would therefore, further enhance the position of Singapore as a regional economic hub.

The people in Singapore would also be able to enjoy a cheaper price of imports. As a country that imports 80 percent of its household requirements, this means a lot to the man on the street. It is envisaged that with this expansionary effect, Singapore interest rates would be allowed to appreciate slightly, giving arbitrage opportunities to financial institutions and fund managers there. This in turn, stimulating further inflow of foreign funds into Singapore.

Indeed, the monetary and fiscal policies of Singapore have been strategically crafted with consummate skill.

It is sad to see that our Malaysian authorities are very much stuck in a monetary policy that is not helping the nation to further improve its competitiveness and one that continues to punish the man on the street.

Firstly, this policy pays the public a low interest on their savings and artificially reduces their purchasing power by making the cost of imports expensive.

At the at the same time, it does not help prepare the country for a more aggressive economic forays into the region as is being done by the Singapore government.

What is clear is that the powers-that-be are continuing to listen to tycoon friends and investors at swanky cocktail parties that they (these friends and investors) are still comfortable with the current foreign exchange mechanism.

This 'club' continues to be a pampered and protected lot. What is good for the nation and the man on the street will not be forthcoming from these people as they care only for their own narrow selfish short-term gain.

What is required is a realistic and sustainable exchange rate for our ringgit against the currencies of its major trading partners. Not one that is stable for the sake of being stable. Not one that is to the advantage of investors alone and to the detriment of the country's immediate future. Not one that penalises the man on the street.

We therefore fully support the call made by Malaysian Institute of Economic Research (MIER) to review our present foreign exchange mechanism.