A shot in the arm for ringgit

Rais Hussin

Modified 12 Aug 2018, 10:12 am

COMMENT | The first priority of the new Pakatan Harapan government must be to support the ringgit - not by intervention, mind you - but by increasing foreign investor confidence in us while concurrently reducing our debt load.

There are good reasons for investors to take heart from the political transition. The process has been smooth, free of the threat of turmoil, and the scourge of corruption which plagued the previous regime is beginning to lift.

Indeed, these were the two biggest concerns cited by foreign investors in the immediate aftermath of the landmark election that finally shook Umno off its pedestal of power.

The international reserves of Bank Negara stand at over US$100 billion, sufficient to finance 7.5 months of retained imports and 1.1 times the short-term external debt. The coverage over imports is favourably comparable but coverage over debt is relatively low against our peers - Thailand and Indonesia. Hence the new administration’s focus on reducing the debt load quickly.

It’s clear that both the loss of confidence and the ballooning of debt was a direct result of the widespread and endemic kleptocracy of the previous administration which is now being vigorously prosecuted. A classic case, if ever, of the emperor having no clothes.

The good news is that there is a consensus amongst economists that the ringgit, at its current range above four US dollar, is undervalued and it should revert to its range of around 3.90 in the near term, and below the 3.80 levels seen up to mid-2015 before the 1MDB scandal was widely reported on.

The bad news is that this reversion will take time, and anyway, volatility is always the enemy of the investor.

The quick fix

While there is never a quick fix, there is an initiative that may catalyse the strengthening of the ringgit which will also serve the long-term benefit of the open economy, vis-a-vis an active program to promote institutional capital inflows, which have been negative for the bulk of the previous five years under BN but now picking up momentum - the last reported figure for the first half of 2018 was a net inflow of US$15 billion.

Global fund managers have been gradually reducing their allocations to Malaysian equity and debt markets since the Asian crisis of 1997/8, a trend of outflows which peaked again after the global financial crisis of 2008 but was recovering nicely in the three years following it until news of the 1MDB scandal broke.

We need to present a fresh face to the financial community heralding a New Malaysia.

After the 14th general election which was seen across the world as a popular revolt against the corrupt government, Malaysia was lauded - rightly so - as the poster child of democracy in the developing world.

A similar narrative must now be spun by Malaysia’s top bankers and businesspersons about the revival of the robustness of our economy and the banks, companies and institutions that underpin it.

This process will happen of its own accord, no doubt, but the administration can speed it along by calling upon the leading voices in the financial sector to make the case to the institutional asset management communities in Tokyo, Hong Kong, Singapore, Dubai, London, Boston and New York, with the Finance Ministry appointing a team to coordinate roadshows to take our message to them.

Incidentally, in case you haven’t noticed, there is a 106-storey skyscraper arising from the 70 acre site of the Tun Razak Exchange in the centre of Kuala Lumpur which threatens to become a glaring monument to the excesses of corruption if we cannot find useful enterprises in next-gen finance - including cryptocurrencies - to fill up its 2.8 million sq ft rising half a kilometre into the sky.

RAIS HUSSIN is a supreme council member of Bersatu and the head of its policy and strategy bureau.

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

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