So the Prime Minister/Finance Minister/Chairman of the Board of Advisors of 1MDB has done it!. The ringgit has sunk beyond the psychological mark of 4.00 against the US dollar, a slump to levels not seen since the Asian Financial Crisis in 1997-98.
It is light years away from the exchange rate of RM2.10 to US$1.00 in October 1978 during Honest Hussein Onn’s tenure, three years before Mahathir came to power. A time when financial scandals were few and far between.
The prospects look grim with numerous factors needing resolution:
- questions surrounding the 1MDB and RM2.6bn probe remain hanging in the air
- US rates set to rise
- the China economy rapidly slowing after the huge bubbles there (What will happen to the property market here now?)
- a slump in commodity prices, which will hurt smallholders and workers
- corruption in Malaysia bleeding the economy
- high household debt is burdening the rakyat and have led to slack demand in the retail economic sector.
- neoliberal policies (especially privatisation and now GST) have led to wide income inequalities. One Khazanah Research Institute economist demonstrated the extent of this inequality: ““Car sales in Malaysia are down but for Porsche it is up by 180%. Proton is down 22% and Naza down by 100%, but for Mercedes it is up 44%. The high end cars are selling like hot cakes and the lower end is dropping. The rich are ok. The low (income) have a problem.”
- confidence in the Najib administration’s stewardship of the economy is at a low ebb resulting in many turning to foreign currencies
- the poor education system has resulted in tens of thousands of unemployed/unemployable graduates and diploma holders.
- the brain drain has been aggravated by discriminatory policies
- local wages are being suppressed by an overreliance on cheap – and easily exploited – migrant labour.
The Najib adminstration has even “surpassed” the expectations of the bullish economists at RAM.TheSun reported just a week ago, on 5 August, when the ringgit was trading at 3.85 to the dollar:
RAM: Ringgit won’t hit 4.00 against US$
RAM Rating Services Bhd economist and head of research Kristina Fong is of the view that the ringgit to continue experiencing volatility in the next few months in anticipation of the first US rate hike, but the currency is not expected to hit the 4.0 mark against the US dollar.
Speaking to reporters after a talk titled “Economic Outlook and The Impact of Exchange Rate Volatility” organised by the Malaysia External Trade Development Corp (Matrade), she said RAM is projecting the ringgit to be in the range of 3.8 to 3.9 in the next few months.
“We don’t expect the ringgit to touch 4.0, 3.9 will be the lowest,” she opined, adding that the full-year average forecast for the ringgit is 3.7 to 3.8.
The weakening ringgit is going to lead to imported inflation. It will hurt those who buy foreign goods (or goods with imported components) and services (eg an overseas education).
This crisis appears to be beyond the present administration’s ability to overcome. In fact, it is being aggravated by the administration’s various scandals and a distinct lack of trust and confidence in its stewardship.
Don’t you think it is about time Najib goes on leave pending the outcome of the 1MDB probe and we ensure we never again have the same person as both prime minister and finance minister.