Malaysia Ringgit Falls, Funds Out and Party Over?

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Aug 22 2007
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Remember those days when the exchange rate was RM2.50 to USD1.00? Not to give away my age, not that I’m that bloody old, I somehow fantasized how cool and happy everyone would be if that currency rate remains, if not better, till today. Considering that the amount of things we can buy today doesn’t differ much from 20 or 30 years ago, you can imagine how the inflation has eaten up into our pocket, thanks to the government’s incompetency in governing the country.

If you have doubts just go and ask your father or someone elder than you. Best still, the take-home salary of a graduate today is almost static compare to 10 years ago but you should be able to feel the pain of inflation. Consider this, a liter of fuel cost less than RM1.00 while it’s almost double today. Same goes for the daily foods, groceries, health-care, tuition-fees and etc. No wonder everyone sings the same song – “everything up but salary never up”. Who can blame them?
Of course the government’s argument for the last 20-years still remains – that Malaysia need to have lower currency to be competitive as far as export is concern. Until 1973, the Malaysian dollar was exchangeable at par with the Singapore dollar and Brunei dollar, meaning with the same RM1.00 you can cross over the bridge to Singapore and buy anything there without the need to exchange your curency. The Monetary Authority of Singapore and the Brunei Currency and Monetary Board still maintain the exchangeability of their two currencies until today at the 1 to 1 rate.
Singapore’s prosperity started in the manufacturing and when the sector peaked in the late 1980s, Malaysians were flocking into Singapore’s manufacturing section to earn more after the currency conversion. Seeing this, Malaysian government decided to follow in full-speed into the manufacturing. But the currency rate which is in favor of Singapore saw huge migration of semi-skilled and skilled Malaysian (mostly Chinese) into the small nation, leaving unskilled workers back in Malaysia.
The currency exchange was about RM2.80 to USD1.00 before the 1997-1998 Asia Crisis hit. Almost all Asian countries were affected and the currencies took the free-fall into the Niagara waterfall thereafter. Malaysia being the outstanding and proud nation as it was, refused to take the pill of IMF and took the unexpected path instead. The former premier Mahathir surprised every single people in the globe by implementing capital control, instantly locking all the foreign funds within the country. Foreign investors are not allowed to repatriate their hard earn money back home.
It created panic and every single foreign soul dumped their stocks in the Malaysia stock market. And so the legendary Malaysia Composite Index nose-dived from more than 1,000 points to 200+ points. Without IMF-assistance, Malaysia was alone in fighting the recession. The currency was fixed at RM3.80 to USD1.00 and that was the time when everyone, except the top government officials of course, felt the pain of having such a low currency power. Yes, it gave the country the advantage of “cheap-export” but at the same time, the nation’s import suffered in the same quantum as well. Import goods were at the historical high and the high inflation was eating into the flesh.
It turns from bad to worse during the current Badawi administration when the high inflation was allowed to multiply. While the Singapore already in high-gear into high-tech engineering such as bio-tech and services sector, Malaysia seems to back-tracked into agriculture-age, not to mention the pathetic beliefs of the government that the manufacturing could still survive when almost all of them were relocated to China. I would rather have stronger ringgit; at least I don’t have to spend so much to go on an oversea holiday or foreign education, not that you can assured of a seat in local university even if you’re one of the brightest.

kuala lumpur stock exchangeWeak currency is for an export-oriented country, not a very smart solution for a developing country which aims to become a developed nation in 2020, less than 13 years away. With almost all the developed countries have a strong currency Malaysia’s path couldn’t be right, could it?

And so, the Malaysian ringgit was appreciating after the Badawi finally let go of the RM3.80 to USD1.00 tag. At one time it was at RM3.38 to USD1.00 and talks on the street were that the ringgit will further strengthen to RM3.00 to a dollar. Somehow it has weakening to the current level of almost RM3.50 to USD1.00. Interestingly the strengthening and weakening of the ringgit appears to be synonym with the Composite Index.
ringgit and us dollar currency exchangeLooking at the graph, if both the currency rate and performance of stock market can be co-related, it shows the ringgit is actually depends on the foreign investors who poured in hot-money into the equity markets. If so, does that mean the ringgit will continue to weaken since the foreign investors have pulled out majority of their funds since the subprime mortgage erupted?

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this is not worrying for blog authors 😛
it is actually good~!

rauff, it’s indeed a good news for investors who are trading U.S. markets and repatriate it back to malaysian soil … if that’s what you meant …


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