Ringgit weak due to crisis of confidence – S. Ramakrishnan

While the Prime Minister and Finance Minister Datuk Seri Najib Razak is struggling to stay in Prime Minister Office, the ringgit remains the worst performing currency and continues to weaken without any sign of reversal.

Consumer sentiments are low after the introduction of goods and services tax (GST) which has triggered sharp increases in prices of goods and services across the board and investors are uncertain of increasing political risk.

Even Malaysians are wondering what is the direction and future of this country in the aftermath of GST, 1MDB, PFI, poor delivery system, poor quality of education, high corruption and the list goes on. Malaysia seem to be the only country stagnating and unable to move forward in the neighbourhood while even the poorer countries stricken with war and corrupted dictatorship are able put the past behind and move forward.

Washington-based financial watchdog Global Financial Integrity (GFI), in its reports which tracks capital flight, says close to RM200 billions of dirty money was siphoned out of Malaysia in 2010. In 2009, GFI put the figure of illicit outflows at RM93 billion and the figure in 2011 is 174 billion. Malaysia lost over RM170.7 billion in illicit outflows in 2012 based on the Washington based financial watchdog GFI. Why the sudden upsurge in money leaving the country. The weakening ringgit reflects the low level of confidence in the integrity and competence of the financial regulators and authorities.  The large cash outflow of funds is weakening the ringgit further.

The weakening ringgit is driving business people with cash to convert to other stable currencies. Malaysian ringgit seems to have lost the trust and confidence of Malaysians themselves. Sharp currency depreciation and the introduction of a goods and services tax (GST) are widely expected to drag 2015 gross domestic product (GDP) growth below 5% from an estimated 5.8% in 2014 reports CNBC. Besides there are about 6.5 million legal and illegal foreign workers remitting about ringgit 20 billion per year. The situation is quite critical that even government has requested GLCs to scale back foreign investments in order to contain the outflows reported a foreign bank.

As it is, there are already concerns that the high level of indebtedness and the goods and services tax, or GST, could put pressure on growth this year. Malaysia’s household debt-to-GDP ratio at 87.1% at end-September 2014 is already among the highest in Asia, while the government debt-to-GDP ratio may have exceeded the self-imposed ceiling of 55%. The revised budget after the huge drop in oil prices doesn’t seem to have changed the public confidence in government’s ability to reduce the fiscal deficit for the past 17 continuous years.

The years of race based affirmative policies have sneaked in chronic corruption and nepotism into the government delivery system which may take one generation to eradicate. Can Malaysia ride out of the current crisis of confidence?

The Barisan Nasional government is too embroiled in internal feuds to bring about real structural and economic reforms. All the hype of transformation programs only incurred cost but did not yield any tangible results. The government has to become realistic and take the bull by the hone. NEP has swallowed trillions of ringgit but Malays other than Umnoputras are still in the limbo. It created billionaires out of Umno leaders’ children and their cronies. The kampong Malays and the nation are worse off supporting NEP.

Umno’s long time lying to kampong folks has blurred the truth and made them accept falsehood as real. Their thinking is coloured with fear, falsehood and anger as to the 1MDB and other scandals rocking Malaysia. We need a drastic change from the past divide and rule policies to move ahead.

* S. Ramakrishnan is a former senator.