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Will the ringgit hit US$4.20?
By Asia Newspaper

7/4/2001 11:31 am Sat

[Ramai analis berpendapat ringgit sepatutnya bernilai sekitar RM 4.20 untuk setiap dolar Amerika jika tidak ekspot Malaysia akan semakin merana kerana nilai matawang serantau lemah belaka. Mereka berpendapat Mahathir dan Daim ada memberi beberapa petanda dalam ucapan mereka bahawa ringgit akan dinilai semula walaupun Mahathir kerap menidakkannya.

Tetapi kemungkinan pilihanraya DUN Berserah dan perhimpunan agung Umno yang semakin hampir tiba menyebabkan Mahathir tidak mengubah nilai ringgit kerana itu menggambarkan betapa lemahnya beliau. Ringkasnya Mahathir sedang terperangkap oleh egonya sehingga ia menjerut dirinya juga. Jika BSKL tidak sihat-sihat juga sehingga pemilihan agung Umno - Mahathir akan tertendang dengan aibnya.

Khabar angin memang merbahaya - BSKL meragam teruk sehingga jatuh 38.91 mata atau sebanyak 6.1% kepada 594.26 dalam satu hari sahaja. Punca masalahnya Mahathir juga kerana dia sering menterbalikkan apa yang dikata serta-merta dan sering samar berbicara sehingga resah pelabur dibuatnya dan terpaksa asyik hidup dalam meneka..... - Editor]

Will the ringgit hit US$4.20?

Apr 5, 2001

HOW much longer can the ringgit stay pegged to the US dollar at RM3.80 ($1.81)? That is the question swirling around boardrooms and the KL Stock Exchange.

The RM3.80-US$1 exchange rate was fixed on Sept 2, 1998. The peg was introduced to ward off speculative raids on the currency during a time of financial upheaval.

Now, many businessmen and bankers in Malaysia feel the ringgit is overvalued, reports The Business Times. The country's falling foreign currency reserves - on which the peg is based - plus a falling yen, a stronger US dollar, and a weakening US economy have all put downward pressure on Asian currencies.

BT reports that many businessmen are now saying the range should be between RM4 and RM4.20 to the US dollar.

With the pegged ringgit overvalued against other regional currencies (the Sing dollar has fallen six per cent against the US dollar in the past week), Malaysian goods will be priced uncompetitively.

The devaluation camp is reading a lot into recent remarks by Prime Minister Mahathir Mohamad and his finance minister.

On March 26, Dr Mahathir said the government would not be swayed by short-term currency market movements.

He said: "At this point of time, we don't see any necessity to change (the peg) because we are fairly efficient, and even if the ringgit is more costly, we are still competitive."

Last Tuesday, Dr Mahathir reaffirmed his no-change stand. But he also didn't rule out a review at some point. That would come, he said, if the regional currencies continued to depreciate by 20 per cent.

This week, he restated his no-change stand. "At the moment, we don't see any reason why we should change our present system," he said. But many will sure ponder: At the moment?

Around the same time, Finance Minister Daim Zainuddin was also reported to have hinted at a possible realignment of the ringgit peg. The report was quickly denied by Malaysian officials, who said it would not make sense for the government to tell the market beforehand. But there's no smoke without fire, said market watchers, pointing to Tun Daim's hints.

If the finance minister is inclined towards a devaluation, analysts say, the prime minister may eventually agree with him.

But Dr Mahathir, facing a Pahang by-election and upcoming Umno party elections in June, will not unpeg the ringgit if that act makes him look weak.

Meanwhile, the Malaysian stock market took a severe beating yesterday on renewed fears of the devaluation of the ringgit.

The Kuala Lumpur Stock Exchange Composite Index (KLCI) yesterday tumbled 38.91 points or a hefty 6.1 per cent to 594.26 points.


GLOBAL market weakness dragged Asian currencies lower yesterday.

A heap of negative factors, ranging from a weaker yen, slowing exports to the US, falling stock prices and a growing diplomatic dispute between China and the US all contributed to the weakness, currency traders and economists said.

The US dollar remained Asian investors' preferred currency.

Only the Singapore dollar bucked the losing trend, closing at $1.816 to the greenback.

The yen traded at around 125.80, down slightly from 125.6 on Tuesday.

It has lost around 10 per cent of its value since the start of the year.

The Thai baht hit a fresh 37-month low of 45.465 to the US dollar.

The greenback gained 1.4 per cent to 10,595 Indonesian rupiah.

- Wire services.

The Business Times, Singapore

6th April 2001

Testing times ahead for Malaysian ringgit peg

The clamour for a change in Malaysia's fixed exchange rate is growing louder as regional currencies sink and recent dives in the share market are sending a message to the government that patience is waning. But its future is tied up as much in politics as economics -- the peg was part of Prime Minister Mahathir Mohamad's defiant policy to avoid the perceived humiliation of an imposed Western aid package as the Asian crisis savaged regional economies.

This year the ringgit has gone from being cheap to slightly overvalued and, as the falling yen pulls other Asian currencies down, it is starting to look expensive and put strains on Malaysia's export-oriented economy.

Recount: as the falling yen pulls other Asian currencies down, the ringgit is starting to look expensive and is putting strains on Malaysia's export-oriented economy

There is no immediate pressure on Dr Mahathir to adjust the peg, but growing speculation that he will have to act sometime is manifest in a Kuala Lumpur Stock Exchange index which lost over 6 per cent on Wednesday and was down again yesterday.

It has now fallen around 15 per cent since the start of the year, putting it among the worst performing markets so far in 2001 along with Hongkong and Jakarta. Political bravura will underpin Malaysia's resolve to stand by its RM3.80 per dollar exchange rate peg when economic forces bring pressure to bear. Dr Mahathir sacked his deputy and finance minister Anwar Ibrahim in September 1998, fixed the peg and slapped on currency controls as a means of rescuing the economy, even as Thailand, Indonesia and South Korea turned to the International Monetary Fund.

And Malaysia has bounced back more strongly from the Asian crisis than those countries which signed up for the IMF's free-float prescriptions, which Anwar was also willing to take. Malaysia's two big risk factors, foreign fund managers say, are the issue of who takes over when 75-year-old Dr Mahathir finally moves aside, and the sustainability of the ringgit peg.

On Wednesday, Dr Mahathir said there was no need for a change, after a Chinese business group proposed the authorities move to a "crawling peg" or fluctuation band system. The same day the share market struck a two-year low, partly due to currency worries. "The ringgit is slightly, not grossly overvalued, and the odds that the peg will break are less than even, in our opinion," Citibank Salomon Smith Barney said in a report on Wednesday.

Last week central Bank Negara said, based on the real effective exchange rate index, which measures a currency's value based on inflation differentials with major trading partners, the ringgit was now almost at its equilibrium value.

That could be underselling the ringgit -- Citibank Salomon prefers to use the competitive real trade weighted exchange rate index, which shows the currency is overvalued by around 7 per cent versus its September-October 1998 level. "It is critical that the trade surplus stays large enough to sustain public confidence in the ringgit peg," Citibank said in a recent report, noting that additional fiscal spending could continue to draw in imports.

Malaysia, constrained by the potential conflict between the peg and a looser monetary setting, may have to adopt an even more expansionary fiscal policy, it added. "We believe policymakers will probably try to exhaust the fiscal options, leaving a ringgit re-peg as a last resort," Citibank said. -- Reuters, AFX-Asia