Why is the ringgit so weak? Is this part of policy strategy?
I read with bewilderment the comment by FMII in Parliament that Malaysia is not in recession - does this mean that the government is in denial?
To argue the recession on technical ground - of contraction in two consecutive quarters (how do you measure that?) - is a great debating point but an insult to intelligence.
Why is the economy not in recession?
1. The government does not know how to measure quarterly GDP. Do you do a year-on-year growth for the quarter to get the change? Or do you do the real thing by first deseasonalising the quarterly GDP and calculate the change against the preceding quarter?
2. Is Malaysia different from the US? If it is, then the technical definition of a recession may not be relevant - a definition created by the US National Bureau of Economic Research. What should be Malaysia's definition of recession? Growth below 3%?
3. Malaysia has already been in recession for too long already. Maybe because Malaysia has been in recession since the end of the Era of the Mega Projects which left a hole in the economic structure and psyche - and our Series of Little Doses of Government Spending is our way of bypassing that psychology but still engaging in the stimulation. If the economy is already in recession, you cannot drop any further - you are already at the bottom.
Why is the ringgit so weak across the board?
1. Interest rate cuts. Because of the cuts in the interest rate which means that savers are going to other currencies to learn higher interest rates. But all interest rates have been cut to near-zero except for Australia and New Zealand.
2. Loss of Investor Confidence. The cuts in the interest rate may be an indication that the economy is really in trouble and the central bank is merely protecting itself from criticism by "pre-ampting" the recession which may be coming. With no hope in listed companies - which are looking for cash from investors to bail them out - investors are fleeing from stocks in the market, selling them and getting out of Malaysia.
3. Anti-Deflation Policy. Maybe the policymakers are trying to counter the possibility of deflation in Malaysia by creating inflationary pressures from a weak currency. If so, this is a very sophisticated policy move.
4. No Support for Ringgit. The authorities have decided not to support the currency in order to preserve their holdings of foreign reserves - as well as to inflate the ringgit value of the foreign reserves which, by definition, are all held in foreign currencies. The authorities have boasted about the strength of the local economy by the amount of foreign reserves that we have. Has this been a tactical error?
What for the stimulus package?
1. If the economy is not in recession, then there is no need for another stimulus package. Or, what was meant is that the economy has not been in recession in the last year - but that it could be in recession in the new year. If this is the case, then there is deliberate attempt at being pedantic. Policymakers are looking at history not the future.
2. We want to know what is the problem with the economy as a starting point for policy. The bloggers seem to know. But the bloggers want to be reassured that the authorities know. We live the Great Age of Globalisation. We are at risk of knowing what is happening around the world, but not the problems in our own little backyard.
3. We should create opportunities for the young generation to venture into business - all members of the young generation and not just a select few. If we cannot interact among ourselves at home, how are we going to be able to interact with the rest of the world. Create opportunities by providing means of interaction and exchange of ideas - with the financiers (microcredit or otherwise) always at the background ready to seize the opportunity to lend. Or, has our system been spoiled for mega projects such that financing the little men and women has become not a business proposition but a tedium?