From Walter Sandosam
Malaysia has lost its competitiveness, especially in the region. More conspicuously, the tell-tale signs are beginning to show to our detriment.
Of late, the exchange rate between the US dollar and the ringgit has been in the news for the wrong reasons. It has continued its downward trend over the past year with apparently no end in sight, at least in the short-term.
The public has continually heard the now rather jaded comment from the Bank Negara Malaysia (BNM) governor that the ringgit is undervalued and it should actually be higher given the fundamentals of the economy and future prospects.
Such a comment, while offering some “optimism”, is neither here nor there. It is hinged on external developments. What these future prospects are, with respect to the economy, is left to interpretation.
The market has made its own assessment based on fundamentals – decline in competitiveness, narrow revenue base in relation to taxes, high debt levels, widening deficits. The list goes on.
BNM can only speak on interest rate management (monetary policy) and the effect that interest rates in the global market have on the local economy, and, by default, the exchange rate. Its concern is on money supply and order in the domestic financial market, which is said to have been “deepened” following the 1998 Asian financial crisis.
The other side of the coin is fiscal policy, which is directly under the purview of the government. Both fiscal and monetary policy have to work in tandem to “fix” the economy; by default, an appreciation of the domestic currency against the greenback (US dollar) will be the consequence.
Compared to our neighbours since 2018, and the advent of a government pledging reforms, there has been a state of constant flux, both in politics and economic policy.
Incalculable damage has been done on multiple fronts – reversal of GST (to widen the revenue base), cancellation of mega projects which contribute to multiplier effects in the economy (under the guise they were overpriced, hence corruption), delays in approvals, curtailing funding on projects already started (on the pretext that they favoured certain parties), and the list goes on.
Overall, the penchant was not on developing the economy but settling old scores and using the institutional framework to facilitate this by levelling charges of corruption (money laundering) on all and sundry, namely ousted politicians (and even the textile merchant who provided fabric to a religious school).
Compare this with Cambodia and Indonesia, where, recently, the offspring of proven leaders are now in the ruling party. Singapore used this to its advantage many years ago. To a large extent, there is expected to be consistency in economic policies going forward. This is what investors and analysts look at – steadiness at the helm.
Malaysia has shot itself in the foot. Clarity in delivering the message, especially on the economy, is sorely lacking from the prime minister and the dedicated economy minister. This is what ails us.
Pushing the BNM governor to the forefront to speak is not the answer. He is a bureaucrat who has no control over the horse-trading between the unity government partners and fiscal policy to drive the economy.
What is lacking is international confidence and the ability to attract quality investors. This has been on the decline steadily but surely. While much is said about the highest level of investment attracted currently, unfortunately, this is not translated into higher demand for the ringgit (leading to appreciation).
Alternatively, one can hypothesise that if not for this inflow, the exchange rate against the US dollar could be even worse. There are a lot of deficiencies in the internal environment which have to be remedied which will be ultimately reflected in the strength of the ringgit. If we say there is none, we are deluding ourselves to our detriment.
Put an end to the ceaseless time-wasting on going after perceived corruption and/or abuse of power for which records stretch over half a decade ago. Imported inflation due to currency depreciation, sizeable food import bills due to insufficiency (which is a paradox in a country blessed in agriculture), brain drain, institutional reform, and migrant population growth are but some of the areas of concern.
The civil service has to be more proactive and be a conduit to implement policies speedily. The mindset of “I have not disobeyed orders or questioned directives”, (hence, should not be demoted) reflects the malaise in the government sector, the constituents of which have become robotic and lack creative skills.
Perception is crucial, policy inconsistency is a no-no. Message delivery is core. Give the BNM governor a break, he can only ensure that the market moves in an orderly manner.
Piecemeal measures will not cut it. “Fixing” old foes and investigating leaked papers from an offshore centre will not address ills in the economy.
A wholesome and holistic approach is severely wanting. In this aspect, understand the internal economy first. Remediate what needs to be fixed and stop playing appeasement politics, a challenge by itself. This will only send out mixed messages.
Walter Sandosam served as a senior research fellow at a private university, specialising in economics and accounting.
The views expressed are those of the writer and do not necessarily reflect those of FMT.