Ringgit surge: A moment for caution, not celebration

 

THE recent 12% surge of the ringgit against the US dollar has given rise to optimism within Malaysian government circles, with Prime Minister Datuk Seri Anwar Ibrahim wasting no time in describing this as a sign of renewed confidence in the Malaysian economy.

Ministers and financial experts aligned with the government were similarly gung-ho about the resilience of the economy.

It is fair to say that foreign investments in key growth sectors may have contributed to strengthening the ringgit against the dollar.

In any case, the rise and fall of currencies against the US dollar, the dominant global currency, is nothing new. As pointed out by financial experts, the ringgit’s performance against the US dollar might be indirectly related to movements in the latter.

Nevertheless, given the current economic and financial problems in the country—aggravated by large-scale corruption in the armed forces—the rise of the ringgit has given the country something to be proud of.

Moreover, given the unpopularity of Anwar, it was only natural that he seized the opportunity presented by the rise of the ringgit to illustrate that the government was doing well after all.

The rise of the ringgit against the US dollar, reaching below the 4.0 mark, is somehow commendable. But then again, the rise and fall of local currencies are something of a norm in the international financial arena.

At the same time, there is a flipside to the rise of the ringgit. While such an appreciation is generally regarded as positive for the economy—in terms of imports and wage increases—the export sector may be adversely affected by the strengthening of the local currency.

Malaysian exports overseas are largely based on competitive advantage. When the value of goods and services is cheap and reasonable, there is greater scope and demand for exports.

However, a corresponding rise in the value of the ringgit may undermine the competitive aspects of Malaysian exports.

While government leaders are referring with joy to the rise in the value of the ringgit, whether knowingly or otherwise, they appear to refrain from taking a holistic view of the rise and fall of the currency.

A certain degree of appreciation of the ringgit is necessary, but certainly not a dramatic increase that could lead to balance-of-payments issues arising from a decline in demand for Malaysian goods.

It is hoped that Anwar and other government leaders will adopt a more balanced perspective on currency fluctuations in the international financial market, and not become overly excited by the rise while ignoring its potential downside. 

Former DAP stalwart and Penang deputy chief minister II Prof Ramasamy Palanisamy is the United Rights of Malaysian Party (Urimai) interim council chairman.

The views expressed are solely of the author and do not necessarily reflect those of  MMKtT.

- Focus Malaysia.