The value of the ringgit over time in a freely floating market is always a reflection of what the market thinks is the state of the economy, political stability, and outlook after taking into account what is happening, results achieved, and improvement measures.
Yes, in the shorter term, movements are impacted by the flow of funds such as foreign investments, outflows of funds, market conditions, uncertain events, and many others. While short-term factors are difficult to control, longer-term ones are fundamental.
If you run the economy well, reduce wastage, have political stability, are competitive, and etc, the long-term effect on the ringgit will be positive - it will become stronger because the economy is strong, funds flow in, confidence all-around is high, and people are happy, educated, and productive.
It’s not difficult to identify what makes for a stronger ringgit. What is needed is the long-term political commitment to do what it takes, putting the right people in place and unrelenting and scrupulous implementation.
This is what Prime Minister Anwar Ibrahim must do - without compromise. But this is lacking and that is why confidence in the ringgit is sagging, hitting an all-time low against the US dollar and the Singapore dollar. We did a good job from independence until about the eighties. Then things started to change - for the worse.
The ringgit’s long decline
It is instructive to look at the two charts below. One tracks the movement of the ringgit against the US dollar from 1957, the year of independence, to May 2023. The other tracks the movement of the Singapore dollar over the same period.
From 1957 up to March 1973, under the Bretton Woods fixed exchange rate system, both the ringgit and the SG$ were fixed at slightly over three each to the US dollar. When they were floated, they maintained parity up to about the late 1980s when they started to diverge.
The ringgit headed down and the SG$ up. More ringgit per US dollar means the ringgit weakens - the line rises. Less SG$ per US dollar, means the former strengthens, the line dips. And ever since then the two lines have diverged, Malaysia for the worse and Singapore for the better.
During the Asian financial currency crisis of 1997/98, Malaysia imposed a currency peg at RM3.8 per US dollar and capital controls to fix the ringgit rate in September 1998, after current PM Anwar was arrested and jailed following a bitter feud with then prime minister Mahathir Mohamad.
While the ringgit continued its long slide down, the Singapore dollar recovered strongly post the Asian financial crisis after a short respite. It continued its strength on the back of consistency, stability, competency, and relentless implementation.
Malaysia’s currency peg was lifted in 2005, following which the ringgit strengthened at first, then weakened, strengthened in the wake of 2007-2009 world financial crisis, and then started weakening again in the aftermath of the 1MDB crisis, extensively reported from 2015.
It strengthened briefly after Pakatan Harapan came to power in 2018 and then went down again when reforms did not happen, Harapan lost power and political instability and poor economic policies reigned after that.
More recently, it went up again after Anwar became prime minister in November 2022 and then resumed its downward fall as reforms again stalled, Deputy Prime Minister Ahmad Zahid Hamidi had 47 charges against him dropped and the thieving former PM Najib Abdul Razak - whose loot was in the billions - was partially pardoned.
Ironically, the ringgit is now surpassing the lowest average rate it reached in 1998 just before the sacking of Anwar from the cabinet and his imprisonment. We had it all and we lost it.
Anwar must be bold
There were hopes that Anwar would get it back - at least some of it - but now it does not look like it. Anwar knows what should be done but he is paralysed and catatonic with the obsession to remain in power.
He must realise that he has the power now - even if Umno leaves the unity government, he will stay in power. He needs to push back and put Umno in its place, otherwise he will be compromised and ineffectual. He should focus on the economy and make political stability a priority.
He should fix the education system, do all the things necessary to make the country competitive and reduce racial and religious strife by doing things which all Malaysians can put their shoulder to.
He should not be apologetic about protecting the constitution against any infringement by any party. He should do everything possible to protect its integrity from attack by any quarters and publicly defend it when necessary.
It’s a long haul but it can be done. To not do anything and instead to pander to the clearly corrupt is to lose our collective body, soul, and heart. We were there once, we can do it again. If commitment is matched with action, the ringgit will start recovering.
Fighting corruption is a good place to start, without exception and even if it involves Umno leaders past, present, and future. Simultaneously, do all that it takes for the other measures without compromise. - Mkini
P GUNASEGARAM says a leader needs to rise above politics to achieve true greatness.
The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.
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