PUTRAJAYA should take measures to increase domestic production and reduce imports, especially food products, to improve local trade that would eventually strengthen the ringgit, politicians from both sides of the divide said.

They told The Malaysian Insight that pegging the ringgit will not solve the current problem and would only lead to more trouble for the country’s economy.

They said Putrajaya must look for other alternatives such as getting more foreign investors into the country and not allow white elephant projects to go ahead or spending on wasteful buildings.

Parti Sosialis Malaysia secretary-general A. Sivarajan said Malaysia should double its efforts to export more products since the value of the ringgit is low to increase the nation’s external trade.

He is against the pegging of the ringgit saying that with the increase in local consumption, demand for local products will eventually strengthen the ringgit.

“The drop in ringgit this time is due to the strengthening of the US dollar when the US Federal Bank increased interest rates, reducing the amount of USD in circulation and increasing its value,” Sivarajan said.

“For Malaysia, (post pandemic) the business environment is improving as people start travelling and spending. The domestic economy is getting better, maybe not as high as pre-pandemic levels, but certainly better than the two-year lockdown period. With an increase in local consumption, demand for local products will strengthen the ringgit.”

“With a lower ringgit our exports are cheaper and we should capitalise on that to increase external trade. At the same time, with higher import cost, it should compel the government to reduce imports, especially of food products.”

“Government spending will also assist in strengthening the ringgit, when it announces its fiscal policy in Budget 2023. More spending on key sectors (not on wasteful buildings and white elephant projects) will have a trickle-down effect to boost the domestic economy,” said Sivarajan.

Sivarajan who is a well known grassroots activist said the RM1,500 minimum wage is important so that the people will have more money to spend domestically.

“If people have more money they will spend more but since our ringgit is weak, we would spend it domestically and not travel abroad. That is why the implementation of the minimum wage is very important so that the majority of working class people have money to spend on necessities,” he added.

It was reported yesterday that the ringgit continued its downtrend against the US dollar in Monday’s closing as reduced investors’ risk appetite pushed the ringgit to a new 24-year low.

At 6pm, the local currency depreciated to 4.609 against the greenback from 4.6030 from Monday’s closing.

UOB Kay Hian Wealth Advisors Sdn Bhd head of wealth research and adviser Mohd Sedek Jantan said the ringgit is expected to continue its decline going forward as the greenback continues to strengthen on the back of interest rate hikes.

Throughout this week, the ringgit is anticipated to trade between 4.580 and 4.630 to the US dollar.

Get more foreign tourists to come to Malaysia

Meanwhile Bersatu’s Muhammad Faiz Na’aman urged the Tourism Ministry to play its part in promoting Malaysia as a world destination.

He said the ministry should use the low ringgit value to attract more tourists to spend in Malaysia, especially from the Middle East.

“I agree that we need to reduce our spending on imports. If we can use our own products, we might as well use it as a measure until we recover.”

“We must also be aggressive in our approach in terms of tourism. We must promote Malaysia as a destination. We must bring in as many foreign tourists as we can to get them to spend here. We must also remind our own people to travel domestically. It would not be good for our economy if we spend our money outside the country,” Faiz said.

He urged the government to come up with a formula to help increase the value of the ringgit.

“We can get experts from Bank Negara, the Finance Ministry and our own financial experts to advise on ways to fix the situation. The people have the right to know the plan, whether it is controversial or not but something has to be done,” he added.

Faiz, however, said if there are drastic measures to take, the government should consider taking risks if the benefits are greater.

“In 1997, Dr Mahathir Mohamad pegged the ringgit and it was controversial, almost every country did the same thing.”

“We need to know why this move cannot be repeated. The prime minister should have a formula, I hope he puts 100% focus on the economy,” said Faiz.

On August 11, Finance Minister Tengku Zafrul Abdul Aziz said the government has no plans to peg the ringgit to the US dollar, as such a move is fraught with risk and a large trade-off.

He said a peg would not be the best move for the economy as it would require Malaysia to follow the monetary policy of the country to which the ringgit is pegged.

“For example, if the ringgit is pegged to the US dollar, Malaysia’s overnight policy rate would have to follow that of the US Fed, which will raise its interest rate by 325 basis points, or 3.25% overall in 2022, although Malaysia’s economic recovery and inflation levels are different than that of the US.”

“Malaysia would face constraints in setting a monetary policy and Malaysians would have to bear the high financing cost although the economic situation here is different from that of the United States,” the finance minister told the Dewan Negara.

Our situation not as bad as others

On the other hand, Umno youth exco member Bastien Onn played down the issue of the ringgit saying other currencies are doing much worse that Malaysia.

He, however, added that the country needs to increase its productivity and open up its borders to tourism.

“With lower ringgit it opens up the market. The problem is not with the ringgit but the United States has strengthened its overnight policy rate (OPR) and so with our weaker value, the government must export more.”

“To say that we are doing bad is shallow. It is not just us but it is the entire world. The European Union (EU) is far worse now. In comparing the ringgit with the Yen or Rupee, we are much better.”

“We have to focus on increasing our productivity. The government must push for those who are in the import-export sector with the US to get them to import more from us. They will buy more due to our weaker currency,” he said.

Bastien mirrored Sivarajan’s view that there is no need for Malaysia to peg the ringgit.

“This is actually our opportunity to sell our products. Trade domestically so that money does not go out. Those who do not travel abroad will save more and usually those who make noise about our currency are those who love to travel overseas.”

“There is no need to peg the ringgit. We are doing okay compared to our neighbours except for Singapore,” he said.

Bank Negara must explain Malaysia’s OPR

For Hassan Karim, a PKR lawmaker for Pasir Gudang in Johor, Bank Negara’s (BNM) decision to raise its OPR for three consecutive times must be addressed in parliament.

On September 8, BNM raised the OPR by 25 basis points (bps) to 2.50%. This is the central bank’s third consecutive rate hike.

BNM said that despite easing in global supply chain conditions, inflationary pressures have remained high due to elevated commodity prices and tight labour markets.

“Consequently, central banks are expected to continue adjusting their monetary policy settings, some at a faster pace, to reduce inflationary pressures,” it said.

In May, the central bank raised the OPR to 2% from 1.75%, reportedly the lowest on record, following a 25 bps cut in July 2020. In July, it raised the OPR by another 25 bps to 2.25%.

To this Hassan said that banks are making a profit out of this measure while ordinary people bear the burden of the high cost of living.

“The drop of the ringgit has been an ongoing problem and this is a serious matter. We have a huge debt plus we have the 1Malaysia Development Berhad (1MDB) debt that is paid in dollars.”

“How do we fix the problem, this is BNM’s responsibility. We have raised the OPR three times and the government gave an excuse that it was done to strengthen the ringgit. However, we have yet to see any improvement.”

“People continue to owe the banks while banks are making money out of this mess. What has happened now. It shows our economic structure is ruined.”

“Therefore, the Finance Ministry and BNM must explain in parliament. This is their responsibility,” said Hassan. – September 28, 2022.