A prominent Malaysian economist has countered claims that the ringgit's value is continuing to decline because of external factors such as global oil prices, pointing to a confidence deficit due to the 1MDB scandal.
“What is of concern is that over the last one-and-a-half years or so, the ringgit has been steadily declining.
"This cannot be simply attributed to the collapse in the price of crude oil.
“There are many other factors behind it, including a loss of confidence in the government as more and more revelations are made about 1MDB,” The Edge today reported Jomo Kwame Sundaram as saying.
This confidence crisis, Jomo said, is very serious and has huge implications on Malaysia.
The highly respected economist was speaking to reporters on the sidelines of the National Economic Outlook Conference 2017-2018 at Putra World Trade Centre in Kuala Lumpur yesterday.
Yesterday, Reuters reported that the ringgit has slid nearly five percent since Nov 9, and the country's foreign reserves fell by nearly US$2 billion in the last two weeks.
The Star reported the ringgit hit an eight-month low against the US dollar in October.
Two weeks ago it slid to 4.458 to the US dollar.
During this time, the 1MDB scandal escalated worldwide, with investigations going on in Switzerland and Singapore, among others, and the US launching civil suits to recover funds in its country that it claims had been laundered from 1MDB.
Solutions government can take
Jomo said the government must face up to the fact that world economies are heading for uncertain times and should be "realistic".
“We are entering a very different world and, especially for a country with an open economy like Malaysia, it is extremely important that we have a realistic understanding of what is going on and the options we have, going forward,” Jomo is quoted as saying.
Asked about the solutions the government can take, the economist pointed to the examples of the resignation offer by South Korean President Park Geun-hye over a corruption scandal and Italian Prime Minister Matteo Renzi's resignation as praiseworthy.
“The South Korean president has offered to resign, and that is one way of restoring confidence.
"The prime minister of Italy has also just resigned. These are extraordinary times. We have to think out of the box,” Jomo said.
“What she [Park] has done was very responsible.
"She asked the ruling party and the opposition party to work together to manage the transition process," Jomo, the former United Nations assistant secretary-general for economic development, is reported saying.
On the other hand, he said, the resignation of Renzi has caused some uncertainty and should Malaysia follow suit, bipartisan efforts should be made to ensure a smooth power transition.
“[The transition] should be in the interests of the Malaysian people.
"It should not be something just in the interest of the parties - whether it is BN or the opposition parties,” he The Edge quoted him as saying.
The government's claims that the ringgit's slide is not the cause for long-term concern is contradicted by the International Monetary Fund's (IMF) measure of the buffer between foreign reserves and the country's external debts.
Bloomberg last month reported that Malaysia ranks the lowest in this gauge, which means it is vulnerable to market attacks and will have little resources to defend its currency.