WHY THE RINGGIT IS FALLING AND WILL KEEP FALLING - A TAKE ON MURRAY HUNTER

 

This is taken from:

Dark clouds over Malaysia’s economic horizon by MURRAY HUNTER, MAY 28, 2023

Click here for the original article.

My comments in blue.

• economy expanded 5.6% Q1 2023
• Putrajaya complacency 
• BNM unexpectedly raised OPR to 3.0% 
• gross exports declined 17.4% y-o-y April 2022, 1st time in two years
• indicator of storm clouds over economic horizon
• commodity price earnings, poor global growth prospects for 2023
• trade surplus down to RM 12.9b, from RM 26.7b in March, lowest for a year
• BNM forecast GDP growth 4-5% this year
• However BNM’s interest rate rise might restrict liquidity
• stock market sluggish, Ringgit falling, cost of living, food rising, bankruptcies high
• middle class getting poorer, struggling to pay for food, rent, debt (OSTB : Thank you BNM).

OSTB  :  The Ringgit is falling because our exports are falling. There is less demand for our goods and services by weight, by volume, by its value, by its shiploads.

Let me explain. A tonne of CPO palm oil is now about RM3,500. That is just over one cubic metre by volume (assuming palm oil still floats on water). Even if you fill up a 40 foot tanker truck it will only take 30 to 60 cubic meters. Worth about RM200,000 max (plus minus ok).  So all those palm oil tanker trucks going down the highway are carrying about RM200,000+ worth of commerce. Thats it.

But when we import one I-phone from Apple it already costs us at least RM4,000 each. The I-phone is much smaller than your pocket, otherwise it cannot be a mobile phone. 

How does this happen? Because we import uneducated Bangla, Indon, Indian, Nepal, Myanmar workers to work at slave labour levels to produce the palm oil. The added value and hence productivity of our economy is so much lower. Even if we sent all the Banglas and Indons home (actually they are now going home by themselves already) our economy is still a low value added economy.

So Apple can sell just one I phone (sold by just one salesgirl over the counter) in exchange for just over  ONE TONNE of palm oil which needs a tanker truck with 18 wheels,  a truck driver, a highway, a toll gate with toll operator etc to export that ONE TONNE of palm oil.

Our productivity is at the lembu level. Kerja kuat but still at a lembu level of productivity.

So our trading partners need less of their money to buy our low value added products. We need more of our Ringgit to buy less of their high value added products. Itu pasal our Ringgit is falling.

If there is an economic slowdown in China and in our major trading partners, our Ringgit will fall even more because they will buy less of our products.  

• BNM raised interest rates without looking further beyond
• spill-over from supply chain disruptions from Ukraine war
• weak US financial sector, Europe and US in recession
• weak demand from China
• will all add to woes of Malaysians
• middle class finding very difficult to meet monthly budget requirements
• poverty still on increase

• Hybrid-stagflation
• economic downturn in external domestic sectors
• inflation erosion of incomes
• Bureaucracy galore
• 4 ministries responsible for economy - Finance, Economy, MITI, Domestic Trade 
• wall to wall economic advisors and consultants
• limitations in thinking with BNM interest hike
• increased hardship on households, SMEs

• economic solutions must be creative
• policies have to be novel
• require wise, ‘out of the box’ thinking (OSTB means OutSyed The Box).
• can current set of advisors, consultants find solutions without hurting M'sians (OSTB : NO!!)

• budget 5.5% of GDP
• govt debt/GDP ratio 73.3% this year
• 18.5% Budget allocated to repaying public debt
• Shortfalls in income, economic growth, leakages will increase deficit
• money still growing
• result of expansionary budget, public debt

OSTB : Allow me to intercede here a little. This is exactly what Najib said about his super management of Khazanah Nasional Bhd. Najib said that under his tenure Khazanah Nasional's assets increased by tens of billions of Ringgit. But he forgot to say that the increase in assets was financed by hutang or borrowings which hit RM55 BILLION during his time as PM. 

That is not clever business management at all. And there were many assets which did not generate returns or sufficient returns. The year after Najib was kicked out (2019) Khazanah sold over RM9.0 Billion of some of those assets - to reduce their hutang and to get out of non-profitable investments.

This is what is also happening with our Federal Budget. The government is borrowing money. Government debt is increasing (the bullet points above). Then the government uses the borrowed money to spend here and there. Hari Raya Open Houses, give Duit Raya to Civil Servants etc. Plus other expenditures going on (like RM11.2 Billion for the LCS Navy ships again). 

These expenditures DO NOT GENERATE MUCH OF NEW ECONOMIC ACTIVITY. It is just spending money to generate a feel good atmosphere. Once the Hari Raya is over the feel good disappears, the government has spent billions of Ringgit with no great Return on Investment from spending all that BORROWED money. 

But when money is spent, especially BORROWED money, then the prices of goods in the country will go up. The economy's productivity is falling meaning you are producing less goods and services. Your exports are lower, meaning you are producing less goods and services for export. But you have tons of borrowed money to go out and buy the lesser output of goods and services in the economy. So more cash chasing after less goods and services. Of course prices will go up. 

• Public sector
• Public sector spending must be curtailed
• public institutions made efficient and productive
• GLCs must be scrutinized for efficiency, productivity, profits, benefits to people
• Those which fail these criteria should be shutdown, or sold off on open market
• civil service bloated 
• Many institutions ineffective activities, no public benefit
• free up economy from regulation and monopolies that benefit elites
• govt interventionist policies of 50s and 60s best left for communist countries 
• Malaysia must embrace free market to improve productivity
• Crony capitalism must be broken up
• Crony capitalism is largest form of corruption in the country

• Go back to the farm
• must ‘great leap forward’ in food production
• M'sia 60% dependent upon food imports
• Many food items subject to import taxes 
• rice subject to monopoly controlled by Bernas
• promote food production by entrepreneurs and SMEs (OSTB : regardless of race quotas)
• past schemes to increase food production few positive results
• Food production should be highest priority for this government
• put people on the land, create viable farm business (OSTB : regardless of race quotas)

• prime importance for BNM to reset OPR back to 2.75%
• to minimize damage to households and small businesses
• to cope with the coming storm clouds