Malaysia reels from double whammy of weak ringgit, inflation

MALAYSIA’S exports are composed of up to 20% of the country’s GDP. It may seem healthy and large. But it is not when compared to the likes of South Korea and Japan. Both countries’ GDP export exposure to China alone is up to 25-30% each year, and the intra regional trade of China, Japan and South Korea on most occasions can and have exceeded 80% for the last twenty years.

All Malaysian foreign direct investment (FDI) from abroad tends to enter via Singapore first. In fact, up to 50% of the FDI into Asean is parked in Singapore before it is farmed out to the rest of the region. Has anyone seen the Singapore dollar weaken since August 1965, the year that it was expelled from the Federation of Malaysia? 

The answer is a clear no. That is because since the 1980s, under the leadership of the late, then prime minister Lee Kuan Yew, who grew up as a Peranakan, who turned Singapore into an international trading outpost of the region.

Singapore has pivoted itself away from being what the late Yoshihara Kunio at Kyoto University, called “Ersatz Capitalism,” which is a capitalist model of production without any added value and production. Singapore, be it under Lee senior, his successor Goh Chok Tong or Prime Minister Lee Hsien Loong, has through three generations of leaders, decided to move itself away from being a manufacturing centre and become a service economy that is focused on regional banking, finance and the centre of international intellectual property.

This has allowed the Singapore dollar to remain just as competitive as the Australian, Canadian, European, and Japanese currencies, not excluding the renminbi.

Whether the renminbi can or cannot displace the US dollar as the preferred international currency of trade is up for debate, as the renminbi is now used in 4% of global trade, although this figure could rise to 7% by 2023 or 2024 if China does not suffer from a serious recession that is derivative from a strict protocol of the Dynamic Zero Policy. However, Singapore is well placed to handle the global fluctuation in the world economy. 

The threat of contracting by up to 15% of its GDP as was the projection of Singapore Monetary Authority in 2020 and 2021, due to Covid-19, is no longer serious, especially granted the fact that Singapore’s US$320 billion (RM1.4 trillion) GDP is exposed to international trade by more than 350%.

The Malaysian economy has the size of GDP almost similar to Singapore, and the same degree of exposure to global trade. But Malaysia does not have any systematic plan to transform its ringgit into a pillar of strength. This is both unfortunate and a strategically flawed approach.

Without a strong ringgit, coupled with food imports that go up to 60%, Malaysia is most vulnerable to importing the inflation of the world. More importantly, some 7 million foreign immigrants are estimated to work in the formal and informal economy of Malaysia.

With a national economic template that is geared towards an affirmative action policy focusing on one majority race, the other races in the country may be left behind, creating pockets of under development all over the country. 

Sabah is a resource rich state. Yet, it is the poorest of the 13 states. Ipoh used to be the second richest state in Malaysia during the heydays of tin and rubber, when Malaysia was the key exporter to the world.

Perak is now the second poorest state in Malaysia. Obviously the political economy and market based policies of Malaysia have gone drastically wrong over the last two decades. 

The very fact that the people are constantly urging for all but Umno is a sign that even with the handouts of the 1MDB theft, the Malaysian economy cannot make do with its old trajectory. Indeed, despite claiming that Umno is back, in three state elections in the last two years, the percentage of Umno and Barisan voters has not gone up at all.

In a one-to-one contest between Pakatan Harapan and Barisan Nasional, the latter would be defeated.

With Prime Minister Ismail Sabri Yaakob likely to drag the general election to the middle of next year, when the global economy will likely be at its worst, especially with the ongoing Russia-Ukraine war, the Malaysian economy looks likely to be in a serious pickle. In this sense, no one should count Pakatan Harapan out, let alone Anwar Ibrahim. History has shown that when all odds are down, he is the kind of leader who has the political savvy to hit back, with the proviso that other coalition leaders know how to follow his lead by entering the ego free zone. 

As things are, the economic picture of Malaysia today or in the future does not look pretty to say the least. At 60% of import, the food import cost is a whopping RM60 billion. 

A price war between the B40 and B60 groups is a race to the bottom. Indeed, as of May 19, the ringgit weakened further to open lower at RM4.4 against the US dollar, the lowest since March 2020 following a hawkish stance by the US Federal Reserve (Fed) to tighten its monetary policy.  

To be sure, there is every sign that the Federal Reserve will continue to increase their interest rate to fight back the inflation in the U.S, which stands at 8.3%, the worst in 40 years. As Anwar Ibrahim correctly thundered, “What is Putrajaya’s plan in going forward?”  Silence is not the answer when a serious economic maelstrom is facing the country. Even Indonesia has banned their palm oil in order to reduce the price of their edible vegetarian oil, at a time when palm oil is priced at more than US$6,653 per tonne. The cost to the Indonesian government’s state coffers? US$3 billion a month. 

If Jakarta dares to take such a courageous move, Putrajaya too must learn from it otherwise the value of the ringgit will continue to shrink while the labour put in by Malaysians and migrant workers will not be proportionate to the hard work they put in day in night out. This is a recipe for collective restiness and unruly behaviour at micro and macro level, as witnessed in Sri Lanka. – May 23, 2022.

Dr Rais Hussin reads The Malaysian Insight

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.

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  • When Mahathir took over as PM in 1981, SGD 1 = MYR 1. Due to his racist and discriminatory policies, and those of subsequent PMs, MYR been in decline ever since.

    Other countries choose their best citizens to be leaders (in all fields), whereas we chose those who shout "demi bangsa dan agama" the loudest. Thus Malaysia ended up with crooks, scoundrels, idiots, bigots, racists, fraudsters, losers, etc.

    Posted 2 months ago by Malaysian First · Reply