The perception of political instability is the prime factor why the Ringgit goes down the toilet bowl.
The Ringgit has been dropping like a rock since February this year, depreciating from RM4.24 to RM4.69 against the US dollar. If it breaks the RM4.75 level recorded in November 2022 under the previous backdoor government of Ismail Sabri, all hell will break loose. The currency made a stunning recovery from RM4.75 to RM4.24 after Anwar Ibrahim became the 10th Prime Minister of Malaysia.
So, what is happening to the currency that despite commanding a two-thirds majority in the parliament, the Anwar Administration appears to be fighting a losing battle against the weakening Ringgit? Telling the world that Malaysia’s economic fundamentals are strong will not convince investors. Reducing the stamp duty rate for shares traded in the stock market by 0.05% will not win investors’ interest.
Over the weekend, PM Anwar, who is also Finance Minister, shared his thought about the declining Ringgit with students at a local university. He blames the currency depreciation partly on the country’s low-interest rates, arguing that small and medium companies will be affected if the government raised the interest rates too much. Therefore, the government is still seeking a balance.
The premier said – “If I have RM1 million, I want to put it in a bank. I have a choice of Malaysia, Singapore and Indonesia. Singapore and Indonesia have high-interest rates. So, I choose to save it outside (Indonesia and Singapore). That is our problem now”. As of June, Singapore and Indonesia’s interest rates are 3.58% and 5.75% respectively, whilst Malaysia’s is merely 3%.
Anwar’s argument, however, was only half true. If the high-interest rate is the prime factor determining the strength of a currency, the Singapore Dollar would have depreciated against the Indonesian Rupiah. Likewise, people would have dumped the Singaporean currency in favour of the Vietnamese Dong (interest rate 4.5%) and the Philippine Peso (interest rate 6.25%).
But in certain countries like the United Kingdom, raising the interest rate indeed could boost its currency. On June 22, the British government unexpectedly raised its bank rate by an incredible 0.5 percentage point to 5% to tackle stubbornly high inflation. As a result of the increased rates for the 13th consecutive time to the highest level since 2008, the British Pound skyrockets.
Of course, the Bank of England had no choice because the country’s inflation remained unchanged at 8.7% in May. But high-interest rate could risk tipping Britain’s economy into recession, as higher borrowing costs reduce households’ disposable income and crush consumer demand for goods and services. The central bank might raise its base rate above 6% before Christmas.
In Turkey, its central bank jacked up the country’s key interest rate – almost doubling it from 8.5% to 15%. Even then, analysts have criticized the 650 basis point rate rise as insufficient and were expecting a 1,150 basis point hike to 20%. Yet, the Turkish Lira plunged to around 24.1 against the US dollar – a record low. In the last five years, the currency lost 80% of its value against the greenback.
Clearly, the problem with Britain was inflation, whilst Turkey has a combination of problems of inflation, macroeconomics, monetary policies, leadership, politics and whatnot. Turkey’s inflation was at a jaw-dropping 39.6% in May 2023 alone, after hitting 85.51% in October 2022 – the highest ever recorded. It’s not rocket science that investors have more confidence in the Pound than the Lira.
Exchange rates, hence the strength of currencies, are determined by a few factors such as interest rates, inflation rates, economic growth, political stability, government intervention, government debt and investors’ confidence. PM Anwar said the country’s economic growth continued to rise in the first quarter of this year, surpassing that of Singapore, Indonesia and China.
In fact, he bragged that the government has attracted investments worth RM71 billion in the first four months of 2023. In the same breath, however, Anwar admitted that it would not be easy to attract more investments into the country because foreign investors still have a perception of instability in the country following rumours that there might be a change of government.
Yes, foreign investors are not stupid. Despite RM71 billion investments and the two-thirds majority enjoyed by the Anwar-led unity government, the fact remains that the current administration is under constant threat and sabotage by the Opposition Perikatan Nasional. Undermining the government’s stability, the extremist opposition continues to spew racist hatred, xenophobia and all forms of bigotry.
Malaysian Islamic Party (PAS – Parti Islam Se-Malaysia) and Bersatu (Malaysian United Indigenous Party) would rather destroy the country using racial and religious cards than become a responsible opposition after failing to form the government after the Nov 2022 General Election. Gullible young Malay voters were bribed and radicalized to blindly vote along racial lines.
After the 15th national polls, PAS president Hadi Awang and Bersatu president Muhyiddin Yassin have doubled down in spewing racist statements to brainwash and instigate Malays under the pretext that the community has lost power to non-Malays. The intention was to overthrow the government by spooking investors with the perception that the Anwar government could collapse anytime.
To make matters worse, Anwar’s unity government has so far refused to arrest, let alone prosecute the provocateurs and traitors who were threatening national security. Exactly why should foreign investors pump money into Malaysia knowing there would be policy changes if the radical Islamic political parties succeeded in forming yet another backdoor regime?
The perception of political instability is the prime factor why the Ringgit goes down the toilet bowl. It was already bad that the Anwar government inherited a whopping RM1.5 trillion national debt from previous corrupt and incompetent administrations. It has now become worse when investors – both foreign and domestic – adopt a “wait and see” approach to the country’s investment climate.
Even if the Bank Negara Malaysia (Central Bank) wishes to intervene in the foreign exchange market to prop up the local currency, it has very limited spare funds to do so, thanks to incarcerated former Prime Minister Najib Razak’s marvellous debt accumulation of RM1 trillion. The country has only US$113 billion in foreign reserves as of June 15, 2023.
Make no mistake – the local currency could plunge beyond RM4.75 if Perikatan Nasional performs better than expected in the upcoming six state elections. Investors will dump the Ringgit like a plague in anticipation of a fragile Unity Government that could collapse anytime. As the opposition is obsessed with toppling the Anwar government, investors flee somewhere else.
Spooking investors with a political coup to topple a democratically elected government is the secret recipe for the Ringgit to go south. Radicalizing Malays with violent Islamic extremism to the extent of Talibanizing the country is certainly the formula for local currency to go worthless. The best part is those voters had no idea that their support for extremism contributes to weakening Ringgit.
It didn’t help that China’s economic slowdown will reduce demand for Malaysian products, including electronics and palm oil. In the four months between January and April, Malaysian exports to China dropped by 11.13%. April alone saw both countries’ trades fall 17.4%. China has been Malaysia’s largest trading partner for 14 consecutive years – hitting a record US$203.6 billion (RM949 billion) in 2022.
Between the Malaysian Ringgit and the Singaporean Dollar, obviously the neighbouring country’s economy has stronger fundamentals. In fact, the stronger Singapore dollar against the Ringgit is due to investors’ confidence in the Singaporean economy, which is supported by its AAA credit rating (Malaysia is rated BBB+), substantial foreign-exchange reserves and solid current account surplus.
While Singapore practises good governance, Malaysia – even during the Anwar Ibrahim era as deputy prime minister – has been in self-destruction based on racism and discriminating policies like the NEP (New Economic Policy) derived from “Ketuanan Melayu”, the ideology of Malay supremacy espoused by UMNO (United Malays National Organization).
Malaysia’s policy saw a brain drain in the form of hundreds of thousands of technical skills going through a large-scale migration to other countries. The education system itself was a joke. At least 90,000 of the 373,974 candidates who sat for the Sijil Pelajaran Malaysia (SPM) examination – equivalent to “O” Level – last year failed the Mathematics paper.
According to some teachers who used to mark SPM exam papers, the passing score could be as low as 20% especially for subjects like Mathematics and Science to make students of a certain ethnic group happy. Even then, some 30,000 candidates who were registered did not sit for the SPM. It’s not surprising that the system produces unemployable graduates and graduates with poor command of English.
The opportunity to work in advanced industries in Singapore, which promises better pay, career development and an attractive lifestyle saw ethnic Chinese rushing to work there, attracted mainly by its stronger currency. Meanwhile, unemployable graduates or SPM dropouts joined the gig economy as food delivery riders, making it even more difficult for the government to raise interest rates.
Like it or not, there’s no solution to boost the value of the Ringgit till there are internal structural reforms. Once the country possesses the necessary favourable investment environment, the investors will naturally have confidence and flock in – boosting the local currency. In reality, Anwar does not have the tools or the political will to fix the problems because the political impact involves race and religion. – Finance Twitter