‘Najib’s RM2.6 billion scandal has raised ringgit's risk premium’

Financial scandals implicating Prime Minister Najib Razak has placed a "risk premium" to the value of the ringgit, said KiniBiz CEO P Gunasegaram.

These risks, he said, are short-term factors that have led to the ringgit's downward spiral against the US dollar.

"The impact to the ringgit is on perception of risk.

"If a prime minister can still serve after being implicated in the RM2.6 billion (donation) scandal, it raises questions (among investors) as to what this country will allow its leaders to do," Gunasegaram said at a forum titled ‘State of Malaysia: Politics, Business and Economy’ at Rumah Gerak Budaya in Petaling Jaya yesterday.

He was responding to a question from the floor on implications of the ‘donation’ scandal, as well as alleged mismanagement of state-investment fund 1MDB, to fluctuations in the value of the ringgit.

At the same time, Gunasegaram said the ringgit's long-term value would still be based on its overall demand.

"The ringgit has been hit more than others (currencies) because of other risk factors associated with it.

"But eventually it (the value) will depend on (overall) capital inflow and outflows," he said.

Najib in his address at the Prime Minister Department's monthly assembly on Monday said the country’s current challenging economic scenario was influenced by "outside factors" that he claimed are beyond the government's control.

Among others, Najib blamed the shortage in federal revenue to plunging global oil prices and the United States Federal Reserve move to normalise interest rates, making the US dollar stronger against the ringgit, which has plunged to a record low over the past year.

Although Gunasegaram noted that Bank Negara governor Zeti Akhtar Aziz had previously said that 1MDB does not pose a systemic risk to the local banking institutions, he said the company's RM42 billion debt has given rise to considerable uncertainties in the country's economy.

"(People wonder) what else can happen? Is there no system in the country that can stop this blatant pillage of national wealth?

"What kind of country are we? Risk is everything as far as economics go," he stressed.

Also on the panel was Universiti Malaya political economy professor Edmund Terence Gomez, who noted that political patronage and money politics has been a culture ingrained within ruling Umno-BN.

"The politics of money is so ingrained within Umno that is of utmost importance that Najib has access to a large amount of money," he said, referring to seats won by Umno by a slim majority, particularly in the Malay heartlands.

Najib had insisted that the RM2.6 billion deposited into his personal accounts, purportedly by an Arab donor, was primarily used to fund BN's 13th general election campaign.

GLCs little help

In drawing comparisons between Najib and former premier Dr Mahathir Mohamad, Gomez said businesses during the latter's time were more transactional and market driven.

"(The situation) today is an undoing of what Mahathir has done," he said, citing a "clear abuse" of government linked corporations (GLC) under Najib's tenure.

On the role of GLCs in the current economy, Gomez said there is a limit as to how much they can help to boost domestic investments.

This, he said, could be a factor that contributed to the government's insistence on signing the highly controversial Trans Pacific Partnership (TPPA) agreement, as a step towards attracting more foreign investments to Malaysia.

Amid a backdrop of regional economic downturn, Najib is set to table the a revision of his Budget 2016 in the Dewan Rakyat on Jan 28. -Mkini