The proposal to internationalise the ringgit could attract short–term hot money and speculative inflows or outflows, a scenario which was evident during the 1997/98 Asian financial crisis.

In a statement today, the Federation of Malaysian Manufacturers (FMM) said internationalising the ringgit, hot money and speculative activities to "talk up the ringgit" could affect the level of international reserves and hurt the real economy.

"For serious investors, it is more critical for the foreign exchange (forex) regime to be stable and to reflect true economic fundamentals. The freedom to repatriate profits and to receive payments is equally important," it said.

FMM was responding to reports strongly supporting a strong ringgit and the internationalisation of the national currency.

The federation said stability in the forex regime was important for all investors and the economy in the long run.

"The stability of the ringgit and freedom to remit dividends and capital that attracts long–term investments, including foreign direct investments, are important.

"We need to remind ourselves of the debilitating experience of the 1997 financial crisis which taught the nation that unbridled speculation and inflows of hot money impacted not only directly on financial markets but also on activities in the real economy," said FMM.

The federation said there was a need to adopt a more balanced view as a stronger ringgit could buy cheaper imported components but would make the final product less competitive when it was exported.

"Resource–based, export–oriented industries, in particular, will be most adversely affected by a strong ringgit.

"In addition, a strong ringgit will raise domestic demand for imports instead of locally-manufactured goods and services, leading to deficits in the current account of the balance of payments," it said.

The non–tradable sectors, including property, may benefit from an appreciating ringgit, but concerns had already been registered about an impending price bubble in the property market, it said.

It said while Malaysia’s international reserves remained strong, the country should be reminded that these reserves had grown significantly under the regime of a stable ringgit.

"Companies should take advantage of stronger ringgit by upgrading and moving up to higher value–added activities by investing in new capital assets and technologies as well as to acquire talents," it said.

FMM said to attract more investments, government policies should be focused instead on addressing structural constraints to resolve longstanding issues in critical areas like education, human capital development, de–politicising of the economy, meritocracy and transparency and the fight against corruption to support economic transformation.

- Bernama