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Whither Malaysia? The fall of the ringgit

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COMMENT | Malaysia is trapped - literally and strategically. The signs of this are reflected in the sharp increase in the cost of living. The Malaysian economy is stagnant while the cost of goods and services keeps going up.

This is why the attempt to unseat the government of Prime Minister Najib Razak is never more timely and vital. But what are the structural weaknesses of Malaysia? There are plenty, but let us focus on the ringgit for now.

The ringgit is the most important indicator of the strength of the Malaysia economy. Yet, it has gone nowhere but down.

Since July 1997, when the ringgit was badly affected by the Asian Financial Crisis, the national currency has been wobbling, leaving it vulnerable to future depreciation.

However, the ringgit is weak precisely because there is no strong demand for it. The lack of such demand is due to the absence of any clean and creative leadership.

Malaysia is often seen as the country where genuine reforms cannot take place. Why is this the case? After 13 general elections, the ruling government is still the main fixture in the Malaysian political scene. Nor are there any efforts to respect the opposition as a government-in-waiting, a process that would stimulate the competitive spirit of reform.

Invariably, this stunted political development shows. For instance, instead of reducing the operational expenditure of the government, the 2018 Budget has the country spending RM286 billion, when its real revenue is only RM283 billion.

With a shortfall of RM3 billion, Malaysia's fiscal indebtedness will only increase, not decrease. Reforms cannot be undertaken in the economy when the government keeps spending like a drunk sailor. Thus, the process of self-strengthening is displaced or supplanted completely.

This is why, as we approach the end of 2017, a full 20 years after the Asian Financial Crisis, the value of the ringgit is still hovering at 20 percent less than what it was two years ago.

Renminbi rules

The government will, of course, claim that Malaysia and China are improving their trade ties.  However, with China insisting that more bilateral trade is done in renminbi (RMB), the importance of the ringgit is again ignored.

Thus, the stronger China and Malaysia trade relationship becomes in the future, the more RMB would be privileged over ringgit.

Since, for the moment, Malaysia cannot increase its exports to the United States through a Malaysia-US Free Trade Agreement or the Trans-Pacific Partnership Agreement (TPPA), the predominance of Malaysian trade will be with China rather than the US.

More trade with China is good, but such an increase should also lead to a general appreciation in the value of the ringgit. If not, what is the point of international trade?

Indeed, by not reforming the Malaysian economy in 2009 through the New Economic Model (NEM), the Malaysian economy is trapped.

Furthermore, by not addressing the problems of 1MDB head on, Malaysia has also lost the chance to make the ringgit strong again.

A more robust ringgit would make the world and consumers alike more confident in the future of the country. But clearly, under Najib, this is not the case.

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Part 2. The growing threat of IS in Malaysia


MOHAMAD SABU is president of Amanah.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

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