AgendaMalaysia

The Ringgit Doomed?

I have been thinking about the Ringgit and where it is going and I think I support the view that a devaluation is something that Bank Negara simply cannot avoid. One of the greatest problems facing East Asia is that as a result of the excesses, overcapacity has been created in all sorts of industries. The slowness in restructuring businesses throughout East Asia has made deflation and not Nike shoes their greatest export to the US. All this might be great for the US consumer but we may never be able to get out of this vicious spiral. The increasing number of foreign direct investment into China doesnīt help things. Everybody is building a plant that is reexporting stuff to the US while the rest of Asia is essentially playing catch-up.

Whatīs worse is that China actually has the brainpower to make things themselves even though they are resorting to copying first. This is like Japan after the Second World War; the difference being that Japan didnīt suck in as much foreign direct investments. It would seem that we have to keep running faster in order to remain standing. If we slow down or stop we would fall flat on our faces.

It makes me want to cry when I read a government official (which basically explains the ludicrousness of the statement) that Malaysian manufacturers can compete without the need to depreciate the currency. The very reason for capital controls from an economic standpoint at least is that the currency depreciates slowly over the long term.

Where does all of this lead and what do we need to do? Firstly, a lower equity market as Malaysia becomes uncompetitive at a much faster rate than the rest of Asia. Even if Mahathir decides to push the market up, fundamentals will consistently push it back down again. Secondly, an even lower valuation on the KLSE - as the traditional medicine for this sort of problem is to spend and Mahathir, being a true Keynesian, will spend. So I suspect for all of us who have grown up on a steady diet of financial gobbledygook, itīs time to get a proper job. Proper in so far as doing something tangible but realizing that itīs all going to go to waste. I think building a brand is going to be crucial and if the Internet bubble hadnīt burst so quickly some Malaysian companies might have had the opportunity to re-invent themselves but alas it was not meant to happen. Itīs probably time to begin sucking up to the mainland Chinese as all that money will begin to flow out at some point.

China will become the new Japan acting as the benevolent elder economic statesman in Asia. Ironic how communism has triumphed in this fashion. What we need to do is to get ourselves into the driving seat as Mahathir spends himself silly. Financial transactions i.e. managing money for EPF for example will become a no brainer if it is not already. What Mahathir probably fantasizes of doing but canīt is to annex Indonesia. A huge population base requiring the Mahathir type leadership tonic. He is basically done with Malaysia and needs to move on to greater heights. Maybe somebody can broker a deal with Gus Dur.

-Ustaz Kuala Lumpur-
(30/4/2001)