Sabar! Let's get some perspective on the recent Ringgit weakness

I was motivated to write this article due to someone sending me the following piece of misinformation written by Pascal Najadi,

I had noticed recently that Mahathir and the opposition had started attacking the weakening of the Ringgit and said this is a sign of Malaysian going bankrupt so I thought I would pen a few pointers to help Malaysians get a better perspective.

I will come back to Pascal Najadi later on in this article but in the meantime, fellow thinking Malaysians, please consider these first before you start believing their propaganda :

1. If Mahathir can peg the Ringgit at RM3.80 to the US Dollar by imposing capital controls, why can't Najib?

If Najib peg the Ringgit then you don't even have to read the rest of this article. All problem solved. All attacks by opposition on our Ringgit's strength (or weakness) stops. Everyone go home happy.

This is also a question that I have posed numerous times to Mahathir supporters and the opposition leaders but NONE of them were able to give me an answer and remained silent.

So, why didn't Najib do this?

For one, if we peg our Ringgit at a strong rate to the USD while the currencies of our major customer nations and competitors are weak then our economy will be in trouble. Foreign investors won't invest here and our major export destination will buy from our competitor nations whose currency is weaker instead. Then Malaysia WILL go into recession just to maintain Ringgit strength.

Secondly, we had already tried this before in 1998.  This had resulted in major problems for Malaysia for many years which had stunted our economic growth for the longest time. 

South Korea, Thailand and Indonesia who were also affected by the 1998 crisis did not peg their currency and in the following years were able to outpace Malaysia.

Have a look at the foreign investment inflow chart for Malaysia.

Do you see what happened in 2006 where the foreign investment into Malaysia suddenly jump? That was because in May 2006, Pak Lah unpegged the Ringgit and relaxed the capital controls on our currency.

When you impose capital controls, investors will be scared to invest in your country. Although they can put in their money but it will hard for them to take out. This is a major turn-off for investors.

Malaysia paid the price for these capital controls then and had many years of lack of foreign investment in the early 2000s which impacted medium to long term growth in the following years.

But Mahathir didn't care as by the end of 2003, he had quit.

It is praise-worthy that Najib and his government had remained steadfast and did not take the easy and cowardly way out to peg the currency - preferring to suffer short term political pressure and slander in favour of protecting Malaysia's long-term growth and competitiveness.

Mahathir attacking our Ringgit claiming this is Najib's fault is even more funny when you consider that he had made the ringgit drop by more than half from RM2.30 to as high as RM4.88 (intra-day) before he took the easy way out and pegged it at RM3.80

And yet Mahathir still has the cheek to use the recent Ringgit weakness in his politically-motivated attacks. How shameless is this?

2. During GE13, the opposition ALSO said Malaysia is going bankrupt.

Have a look at the chart.

Najib took over in April 2009 and at that time, USD1 = RM3.73. By early May 2013 at the time of the 13th General Elections, the ringgit had strengthened to as strong as USD1 = RM2.93 - the strongest since 15 years ago in 1998

But this never stopped the opposition using  "Malaysia is gong bankrupt"as a key GE13 campaign propaganda.

And now they are saying that the ringgit has weakened and this means Malaysia is going bankrupt.

So, when the ringgit is strong you say Malaysia is going bankrupt and when the Ringgit is weak, you say this is evidence that Malaysia is going bankrupt. What gives?

For 40 years, they have played this Malaysia is going bankrupt story every single year while their leaders become increasingly rich.

Don't believe me? Look at this book by DAP's Lim Kit Siang published almost 40 years ago. You can still buy this book on Amazon for US$23.

The fact is, since GE13 in 2013, one DAP founder and their current life-time adviser who was opposition MP for 30 years sold his company to Felda for RM1.3 billion while the DAP Sec-gen got a new Camry and then a new Mercedes S-Class and then bought a 10,550 square feet bungalow in an exclusive part of Penang Island with a market value of up to RM7 million.

Meanwhile, the head of Perak DAP famous for saying that "Malaysians are now eating grass and sand" moved into a massive new house in 2014 which is dubbed the White House of Ipoh.

But careful as Nga Kor Ming does not want you to distribute pictures of his house as he says it disturbs his privacy and endangers him

Not once, have the opposition ever said Malaysia economy is doing well even though the evidence of development and growth is all around us. In fact, Malaysia has the highest percentage of households in the world owning more than one car and third highest overall in the world.

Go to any new village or suburbs in Malaysia - even the supposed lower-income ones - and you will see that their biggest problem is the lack of places to park their many cars.

3. Our Ringgit is adversely affected by low global oil prices

I wish our country can control global oil prices but it can't. The fact of the matter is that our Ringgit has an almost perfect inverse correlation with oil prices.

You can see this from the graph trends below:

This is also the reason why the Ringgit was strong in 2011-2013 due to high global oil prices.

4. Our Foreign Exchange Reserves are still strong.

In fact, it is still higher than in 2008 before Najib became PM.

Not only is it still higher but our FOREX reserves actually gained ground in previous months due to a mild recovery of oil prices and a trade surplus that is holding up pretty well. In fact, if you look at the past year, the FOREX reserves had stop plummeting and has started inching up.

According to Bank Negara, as at latest available date of 15 Nov 2016, our reserves are pretty decent.

The international reserves of Bank Negara Malaysia amounted to RM407.8 billion (equivalent to USD98.3 billion) as at 15 November 2016. The reserves position is sufficient to finance 8.4 months of retained imports and is 1.2 times the short-term external debt[1].

Economists normally use the benchmark of 3 months of retained imports to determine if our reserves are adequate. We are at 8.4 months.

As a basis of comparison, the reserves of USD98.3 billion is double that of Australia's USD48.5 billion (AUS64.9 billion) and is USD100 million more than England's USD98.2 billion.

5. The US Dollar is at its strongest for 14 years against all currencies.

Yes. It's true. You can read it from the Wall Street Journal too.

Also, the Chinese Renminbi is at an 8 years low versus the USD while the Indian Rupee is at its all-time record low against the USD.

And who would have thought that one US Dollar would soon equal to one Euro (€) when 10 years ago the US Dollar was almost half a Euro then.

And if you believe the PakaTun that the currency's strength is an indicator that a country is bankrupt then the United Kingdom must have become more bankrupter than Malaysia is already. But these PakaTun people still look up to the UK and loves to holiday there.

Despite the Ringgit's recent weakness, the Ringgit is still way stronger against the UK Pound (£) compared to 10 years ago when one Pound can fetch RM7.10.  In fact, one year ago, the £ could fetch RM6.70 but today it is RM5.50.

Overall, it is not that the Ringgit is crashing due to mismanagement but the US Dollar is gaining incredible strength due to Donald Trump's recent victory, higher US Interest rates and a decline in global oil prices.

6. A Weak Currency can actually benefit Malaysia

A country's exports can gain market share as its goods get cheaper relative to goods priced in stronger currencies. The resulting increases in sales can boost economic growth and jobs, as well as increase corporate profits for companies that do business in foreign markets. 

This means that Malaysia being a highly trade-dependent nation can keep our economy growing and fight off recession or slow growth by keeping our exports competitive.

This is also the reason why the USA previously wanted to go to trade wars with China as it had accused China of being a currency manipulator for making their currency cheap.

Go look at the share price of export companies in Malaysia such as Top Glove and Latitude Tree whose profits have soared since late 2014 when the Ringgit started to weaken on the back of weak oil prices and strengthening US Dollar.

 

A strong Ringgit only benefits consumers who rely on imports and likes to go overseas for their holidays - both of which means money flows out of our country.

However, a strong Ringgit may also mean imports becoming  more expensive and will drive up inflation but this is mitigated by the fact that many imports can be substituted with local equivalents - especially food. Buying local products also strengthen our economy and boosts our local producers.

This is also mitigated by the fact that many products and commodities that Malaysia imports have also fallen in price globally in US Dollar terms as commodities generally have a inverse (or opposite) correlation with the US Dollar strength.

Typically, there is an inverse relationship between the value of the dollar and commodity prices. When the dollar strengthens against other major currencies, the prices of commodities tend to drop. When the value of the dollar weakens against other major currencies, the prices of commodities generally move higher.

This is why you do not see all the products you buy in Malaysia suddenly becoming 30% or 40% more expensive and why stores such as McDonalds have not increased their prices even after the US Dollar had gained so much strength.

Of course there would be a period of adjustment but generally, a weaker Ringgit can and has actually benefited Malaysia.

Another point is that A weaker ringgit also lowers Malaysian foreign debt in USD terms.

As much as 97% of Malaysia’s external debt – both government and corporate sector – is ringgit denominated, hence our external debt is being reduced significantly in US dollar terms.

As such, Malaysia is in no danger of slipping into economic turmoil due to foreign debt as the ringgit value weakens against the US dollar – unlike the situation back in 1997 during the Asian financial crisis when most government and corporate debts were in US dollars, yen and euro.

And because foreign buyers of Malaysian debt issues – bonds, sukuk and other instruments largely denominated in ringgit – stand to lose out a lot should they cash out now.

For example, a foreign investor who invested USD1 billion in 2013 when USD1=RM3 would get RM3.3 billion which they then invest in ringgit bonds.

If they sell the RM3.3 billion bonds today, they will only get back USD740 million - less than their original USD1 billion.

If they still insist to bring their money out, the USD currency outflow from Malaysia is much less.

Most of them will hold on to the debt instruments because it is too high a loss in US dollar terms if they exit now. Because they are long term investors, most will just hold on to the debt until maturity in the hope that the ringgit value will rise again in coming years.

7. Pascal Najadi is a lying scumbag

Okay. This is not a reason why the Ringgit is weak Those who have followed my writings for some time would know that I seldom resort to such name-calling but this person deserves it.

Pascal Najadi had previously alleged PM Najib of killing his father because his father, Hussain Ahmad Najadi allegedly "knew too much" about Najib's "corrupted deals" on the basis that his father was the founder of Ambank and had access to Najib's accounts at the bank.

This accusation is despite the fact that his father had sold the bank some 30 years ago and has not been involved in the bank ever since. Or the fact that his father never once publicly raised these matters to anyone else. 

Or that numerous other executives including the IT staff, counter staff and bank officers who, unlike Pascal's dad, are actually aware of Najib's accounts would similarly also have to be killed if the motive of Pascal's dad is to silence him. 

Heck, Pascal even publicly said that he wants to bring the matter of his dad's murder to the United Nations!

Investigations over his dad's murder had been concluded and found to be related to a temple land sale dispute where the shooter has been sentenced to death. However, the mastermind who ordered the killing was not able to be charged as there was not enough evidence to build a case since the shooter refused to identify who hired him. 

If Pascal had direct evidence to link the mastermind to the shooter, please submit this to the police or publicly release it. But don't simply accuse and drag the Prime Minister into this based on frivolous reasons that make no sense.

Pascal was never a Malaysian citizen and spends most of his time doing business in Russia, as he would readily admit.

Although this publicity-mad Pascal focuses almost extensively on the Russia market, he chooses to write that Malaysia's Ringgit is disappearing but somehow ignores the point that the Russian Ruble has perfomed horribly - even against the recently weakened Ringgit.

Ten years ago, each Ringgit could buy 7 Ruble. Two years ago, one Ringgit can change for 10 Rubles and today one Ringgit could change for 14.5 Rubles.

But yet, Pascal writes bullshit that the Ringgit is disappearing. If this is the case, the Russian Ruble has ALREADY disappeared and Pascal should no longer be doing business there. But yet he does.

But the biggest reason why Pascal is a scumbag is in the picture below:

The above is a picture of his father after being shot. His step-mother was also shot and injured but she cradled her dying husband right to the end. 

And what does the scumbag Pascal do? He sues his stepmother to claim every single sen of his father's asset and wins!

I am using a harsh tone because I will not forgive Pascal for using the Syariah Courts to sue your late father's wife Cheong Mei Kuen and deprived her of RM1.8mil inheritance because she was not a Muslim.

To add insult to injury Mdm Chong was even forced her to pay RM500 legal costs to you.

Mdm Cheong stood with your father till the very end and was also injured in the shooting.

She held and comforted her dying husband (and your father) in her arms in a pool of blood and this is how you treat her just because of money?

If all you wanted was the money, why can't you just work things out with your step-,mom instead of suing her in the Syariah courts?

She lost everything because she married your later father in Australia but did not convert to Muslim. That is why the Syariah courts here did not recognize her marriage to your dad and she lost to you.

SCUMBAG!.