Economic déjà vu as ringgit plummets

KUALA LUMPUR, Jan 5: The plummeting value of the ringgit is like a case of déjà vu, with continued depreciation despite rising crude oil prices and so-called ‘fairly strong export growth’, a DAP lawmaker said today.

DAP Publicity chief Tony Pua in a statement today said the ringgit’s depreciation has continued despite pundits predicting its recovery for the past three years.

“Most pundits are telling us that the ringgit is undervalued and will recover by the second half of this year.  PublicInvest Research said the ringgit will recover to average between 4.10 and 4.15 for 2015 against the US Dollar, which is currently trading at 4.48.

“(Prime Minister) Najib Abdul Razak would similarly like you to believe that the ringgit will recover. But didn’t they all say the same thing last year?  Or for the that matter, the year before?” said Pua.

Najib in December had said that the government is confident that the ringgit will recover, as it is due to speculation by outsiders and the uncertainties in the United States that the ringgit dropped, and not because the ringgit is weak.

“The Prime Minister also told us way back in January 2015 that the ringgit will bounce back from the then five-year low versus the US dollar as “Malaysia’s financial market is sufficiently robust”.  Believe it or not, the ringgit was then trading at 3.60 to the Dollar, which now seemed like a parallel universe away,” Pua said.

Pua added that although oil prices were blamed for the drop in the ringgit in 2015, the subsequent rise in oil prices did not result in the recovery of the ringgit.

“The Ringgit suffered more because we were an oil-exporting nation.  As the price of global crude collapsed from US$102.10 in January 2014 to US$60.70 (Dec 2014) to US$36.57 (Dec 2015), it is almost understandable that the Ringgit would be disproportionately pummelled.

“The pundits had predicted that the Ringgit would recover with the recovery of oil prices last year.  They were indeed spot on in their prediction of higher oil prices with the Brent crude trading at US$55 a barrel by December 2016.  Unfortunately, despite the oil price reversal, the Ringgit value worsened significantly. How was that even possible?” questioned Pua.

Pua pointed out that then-Bank Negara Zeti Aziz told an international audience that the Ringgit was “significantly undervalued” as our “export growth remains fairly strong”.

“Except it wasn’t. Conventional economic theory tells us that as our currency gets depreciated, our goods become cheaper and consequently the demand for them increases.  A robust increase of the export of our goods and services would in turn increase the demand for our currency and hence provide a strong platform for the recovery of our ringgit and economy.

“But the government’s own statistics tell us that our exports barely eked out a gain.  The 2016/2017 Economic Report published in October 2016 tells us that our Gross Exports for January to August 2016 grew by only 1.1%, compared to 1.6% in 2015.

“More specifically, the electrical and electronics exports, the pride of our manufacturing industry, grew by only 2.2%, a substantial decline from 7.4% in 2015.  While 2.2% might have been just about acceptable under normal economic circumstances, the number is pathetic given the depreciation the Ringgit suffered,” he said.

Pua said there was even worse news: the Department of Statistics disclosed last month that our exports declined 3.0% and 8.6% for the months of September and October respectively.

“There is no question that our economy is suffering from something chronic which needs immediate treatment.  Alarm bells should have been blaring deafeningly in Putrajaya but all we get is Ministers with their heads in the sand,” he added. – The Rocket

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