The last duty of a central banker is to tell the public the truth
– Alan Blinder, vice chairman of the US Federal Reserve from 1994 until 1996.
JUST a couple of days ago, I attended a regular meeting in a stuffy room at the headquarters of a big bank near KL Sentral. We were all scratching our heads over a problem that has been causing many late nights – the plunging ringgit. Yes, that’s right, the currency we use to pay for our delicious mee kolok has been taking a beating against many currencies. This is exactly what is on the plate of the new Bank Negara Malaysia (BNM) governor, Datuk Shaik Abdul Rasheed Abdul Ghaffour. Talk about a baptism by fire!
One excuse being passed around as freely was the delay in converting export proceeds back into ringgit. You might be wondering what that’s all about. It’s pretty straightforward. Imagine you’re a businessman selling goods overseas and getting paid in foreign currency. You have to bring that money back home within six months. You decide whether to convert it back to ringgit or not. No one’s holding a gun to your head. From what I recall, about 70% of these foreign earnings used to be converted back to ringgit. As for the current stats, well, it’s anyone’s guess.
If I’m to believe the numbers my former BNM colleagues are tossing around, it seems like more and more companies have been choosing to sit on their foreign cash. The reason is simple. They’re betting that the ringgit will keep falling.
The government has been quite relaxed about this. It has not imposed any hard rules or limitations on these corporations. That’s good because businesses should be allowed to manage their own risks. Each time they play this money conversion game, they have to cough up conversion fees. And no one likes to part with their hard-earned money.
Here’s where things get a little dicey. Prime Minister Datuk Seri Anwar Ibrahim has been talking about de-dollarisation. In simple terms, he wants us to rely less on US dollars. However, companies are finding more value in keeping their funds in foreign currency, which throws a wrench in Anwar’s plans.
Then, there’s the difference between our interest rates and the rates abroad, particularly in Uncle Sam’s backyard. The bigger the gap, the more our ringgit gets the short end of the stick. Before you bring up Thailand with its two per cent overnight policy rate and a strong baht, just remember they’ve been attracting foreign funds like honey attracts bees.
So when you hear people talk about the ringgit’s troubled path, remember that it’s not as simple as looking at interest rates and export proceeds. The exchange rate is influenced by a bunch of factors, and our ringgit’s decline can be traced back to some blunders we made in the past. Policy mistakes in the 70s and 80s have come back to haunt us.
Once, in the midst of a serious discussion right in the middle of a government budget consultation, I said, “If anyone knows what’s causing our ringgit’s nasty, it should be Tun Dr Mahathir.”
Sure, the old man did a smart move back in 1998 by taking the ringgit off the offshore markets, which squashed speculation. He also pegged the ringgit to the US dollar at 3.80, which offered a lifeline to the currency. But that was where his good work ended.
He didn’t reform the public-sector finances, even when it was clear that our economy needed a reset. Instead, he was quite happy with budget deficits and didn’t have the guts to slash subsidies. We’ve had a succession of prime ministers since then, but did any of them demonstrate any financial discipline? Nah! They were more interested in being popular and maintaining a firm grip on power.
To make matters worse, off-budget liabilities bloated like a helium balloon. The most notorious of them all was 1Malaysia Development Bhd (1MDB), the brainchild of now-jailed Datuk Seri Najib Razak.
The ringgit’s depreciation really hits you when you set foot overseas. You feel poorer, especially in Singapore. Back home, things are a bit better because essential goods are subsidised. So the average person isn’t affected too much by the ringgit hovering around 4.60 to the US dollar.
Take Switzerland, for example. It’s a popular holiday destination for Singaporeans. Why? Their strong dollar goes a long way there. One Swiss Franc only costs them about S$1.30. In contrast, for us, one Swiss Franc will set us back by RM5. Suddenly, that simple meal you had starts making you question if the trip was worth it.
In conclusion, the ringgit’s decline is a complex issue that cannot be attributed to a single factor. It is a result of a combination of policy mistakes, lack of financial discipline, and global economic factors. So, yeah, Anwar has been catching a lot of flak lately for letting the BNM hike up these rates. Honestly, he’s just doing what needs to be done. We need to cut excesses and implement targeted subsidies, even if they’re unpopular moves. They might not like it, but hey, that’s life. If we don’t, we’ll just keep spiralling downwards.How about we finally give these so-called phony economic reforms a break?
The views expressed here are those of the columnist and do not necessarily represent the views of New Sarawak Tribune.
