Thursday, June 11, 2015


Since he mentioned it, I thought I might just as well add in my bit of understanding of our recent economic history.

I disagree that the weakening of the ringgit in the past during his tenure was due to currency traders who were speculating on the ringgit in order to make money out of the ringgit. Of course, it is the business of currency traders to make money out of currency trading, either up or down, but not unchanged and hence the currency trading business was killed (along with a major portion of the financial industry) with the subsequent currency peg. The currency controls that were installed to reduce the outflow of currency were at the very centre of the subsequent loss of investor confidence in Malaysia as a country where you can trade without the rules being changed halfway at the convenience of top politicians. The loss of investor confidence has not recovered even until today, so that the slight sign of trouble is a signal to get out of this country, literally.

The ringgit was trading at around 2.70 against the US dollar for a while in late 1980s. When money flowed in to invest in privatised infrastructure companies, the ringgit went up to 2.50 and our foreign reserves swelled. Everybody was happy and congratulated themselved on a job well-done in running a successful economy. The stock market was up because of the inflow of short-term speculative funds and the government was using this temporary to fund long-term infrastructure. In so far as the foreign stock traders are concerned, they were waiting for the signal to get out of the Malaysian stock market. The signal came from Thailand when the Thai Farmers Bank could not pay back an offshore loan syndication for a private real estate development. The Thai central bank refused to support the Thai Farmers Bank and this was rumoured as the Thai central bank running out of money. All the stock investors from Europe bailed out, or tried to bail out out of Asia and this exodus of funds is now called the Asian Financial Crisis of 1997.

It must be obvious when funds which had been accumulating year by year for twenty years suddenly wanted to exit within a day or a week, it is similar to the crowd trying to rush out of a cinema in panic. As the central bank refused to support the currency, the value of the currency dropped. This gave opportunity to currency traders to short the ringgit in the hope of selling ringgit cheap and honouring the trade with cheaper rinngit later. But the market should be self correcting because once the currency traders think that the currency cannot go down any more, they will then have to quickly reverse their position and in the process strengthening the ringgit subsequently. Rumour had it that the policymaker panicked and was angry and slapped his close buddy who shorting the ringgit as well. Then he imposed the peg.

It is incredible that Malaysia, which has undergone a major economic policy change to open up the economy and to encourage growth such as that is now such a deficit of labour that we have to import many foreign workers for almost all economic sectors, has been suffering from a weakening of the ringgit since 1997. Why couldn't the ringgit go back to 2.50 or 2.70?

It is clear that there has been a persistent outflow of funds from Malaysia ever since we opened up the economy for rapid growth since the late 1980s. While we have seen the rapid development of real estate as plantation lands are converted, we are also seeing a heavy congestion of our roads as we expand our national car project. Instead of encouraging savings and investment, we are encouraging consumption and speculation in the stock market and the property market. The main driver for the economy seems to be the government spending itself to bankruptcy.

Could it be that the money that is being made from consumer indebtedness and government spending is causing the outflow of funds as Malaysia becomes less an attraction for investment as it is being overpriced?


walla said...

Others may say ringgit weakening will attract dollarized investments but in the light of political uncertainty, economic window-dressing, financial scandals, social delusions and a low-value labour base, that will be moot for investments looking to tap or create long-term twenty-first century enterprises.

Certainly, there are many other places where labour is cheaper and hungrier for harder work and higher productivity in high-volume, low-cost enterprises whilst new age high-value enterprises are these days globally-configured in such a way creative work is done in-situ but cloudly collaborated by remote-controlled networks across geographic borders.

That we still haven't found a way out of this twin middle-income but GST-shocked dilemma may explain why funds have gravitated instead to just local stock and property plays; that could be why investors have long lost confidence in a government only opportunistic for big project constructions in which kickbacks are the primary inducement over real-world business case, thereby explaining why so many projects are over-priced but under-delivering.

Moreover the names of the perps will not be found in the MACC list of the seven hundred or so. Who won't therefore say it's all a serialized sandiwara? And with that perception all too real, no honest foundation forward.

Therefore, given the present government's weak institutional integrity and bad financial prudence credential instanced by having to subsidize nine billion a year to its linked corporations, the keynesian approach remains hardly comforting for future foreign investors let alone locals.

So the outwards trickling has become a torrential exodus soon to become an avalanche when Pembinaan PFI explodes on the abracadabra misuse of your EPF, gone the way of 1MDB. After fifty eight years, what a stellar performance. A galaxy of exploding death stars...

While at it, notice how the highly-funded Talent Corporation has become silent as a mouse; so too the proposed corporatisation of Miti. By the way how much does a Miti officer make that she can later afford a highly conspicuous consumption lifestyle of the rich and (in)famous especially since her in-laws would hardly be the ones to sponsor it and her hubby's gazetted monthly take won't even pay for the leather strap?

walla said...

It remains to wonder why those who are highly educated and placed have not articulated what is plain and obvious if their intent has been to find credible solutions to persistent problems affecting their society let alone those of the other communities. Unless they never really had any intention in the first place.

Leaving a rustic setting for faraway lands where eyes get opened by what are needed to make global progress, they return but remain deafeningly reticent on the real causes of the present plights of all. All, in the name of the Almighty not just their race.

One can only hazard gratitude should be to the bigger pool of humanity who had made their journeys possible, not to a government that does things but for itself over and above the all (again) from which it had derived its license.

In other words, why be grateful with indeterminate results to those who are ungrateful with bad results from being the actual causes of the problems stone-washed in the latest washing machine of their own spin?

Beyond funds, loss of intellectually honest and concerned brainpower is more irreparable to a country aspiring to achieve developed status especially when those clueless others will only continue to put all their eggs in the same basket to find safety in numbers by reproducing more until the final paradoxical result is achieved - extinction. Maybe that would also explain why marital rape is still sanctioned. No?

As for the Asian financial crisis of '97, juxtapose the aftermaths of the others - Thailand, Singapore, Hong Kong and South Korea. Their domestic inter-playing factors will throw light and conclusive wisdom on what to do and what not to do for the basics of policy decision-making and follow-through. Nothing recondite about it all.

In the words of an ex-MI6 officer, we only live twice and one's a dream. For us? A frigging nightmare it has become, yes?

walla said...

joe black said...

Thanks for your Covoluted Comments Walla...

Would help if someone can translate his comments into at most 2 Lines. And those two or so lines could well be ...We have manufactured our own Perfect Storm in the form of GST, 1MDB, FGV, Property Bubble, Overblown Household Debt, Pemandu, NajibRazak, TunDrM and a myriad of other lesser known Acronyms. No need to blame others.