The challenge posed by the sliding ringgit must be addressed head on, says Member of Parliament for Ipoh, Howard Lee. In a statement issued today, Lee, who is also member of the Consultative Council for Foreign Policy and the Parliamentary Special Select Committee, is suggesting several ways to arrest the slide in the currency with strengthening demand for MYR to bolster its value. Following is his full statement.
KUALA LUMPUR, Feb 25: Against the backdrop of a global financial upheaval and conflicts, the Malaysian Ringgit has plummeted to new lows against the Singapore Dollar and the United States Dollar.
The already widespread concerns over the nation’s economic resilience and strategic response is escalating. Some are even drawing parallels with the Asian Financial Crisis (AFC) .
Granted. The Ringgit slide is no small matter. The impact is felt through the cost of good and materials by Malaysians across the board.
Despite that we have seen unprecedented and extraordinary levels of Foreign Direct Investment (FDI) unlike during the AFC, when the opposite was prevalent.
The Malaysian economy in 2024 shows signs of resilience and growth, with moderate inflation, a stable unemployment rate, and expectations of further foreign and domestic investments.
This contrasts dramatically with the period of the Asian Financial Crisis, which was marked by economic contraction, higher unemployment, reduced investments and even divestments, as well as deflationary pressures.
The facts show that Malaysia today holds strong economic fundamentals and resilient financial structures, therefore the current challenges require a more nuanced understanding. It is a far cry from the crisis we saw in late 90s.
Nonetheless, the currency challenge is still something we must address head on. The strategic imperative here is to strengthen demand for the MYR to bolster it’s value. To do so, Malaysia must consider adopting a series of tactical policies aimed at achieving that:
1) Fiscal Policy: Implementing fiscal policies that stimulate economic growth can enhance the currency’s value. This includes reducing government debt, increasing infrastructure spending, and creating a favorable business environment to attract foreign investments.
2) Boosting Public Confidence: The value of a currency is significantly influenced by public perception. Thus, fostering political stability, transparent and consistent government policies, and effective communication can enhance confidence in the MYR. All malignant speculations and attempts of extra-parliamentary change of government by irresponsible quarters must be stamped out as a bare minimum. Stronger investments is urgently needed, into communication and amplification of government policies to instill the confidence, consistency and clarity that is currently lacklustre.
3) Expat Pay into Malaysian Accounts: remunerating expatriates in their home currency is prevalent ( 27% of expats in Malaysia are paid on a part home part host split of varying percentages, and 31% of all expats with 51% from the USA being fully home currency remunerated according to Mercer) . Transitioning towards mandating expatriates remuneration to be deposited into Malaysian accounts but allowed to be denominated in their home currencies needs to considered. Especially during this period of significant FDI and technological transfer by expert expatriates, such unpopular yet necessary intervention aligns with broader economic goals. This includes enhancing local economic activity, stabilising the MYR, and bolstering the nation’s financial health. However, this policy shift requires meticulous planning and execution to avoid it becoming a push factor for investment realisation.
4) E-Payment Platforms for Incoming Tourists: Promoting or mandating the use of local e-payment platforms by foreign tourists can directly boost demand for MYR, reduce transaction costs, and improve data collection, despite potential adoption and compatibility challenges. Security concerns will always be in the background, however if done well, can be significant weapon to have in the arsenal against the current attack on our MYR.
5) Promoting Foreign Education: Making Malaysia a more appealing destination for foreign students can increase the demand for the domestic currency, particularly given the high demand for Malaysian postgraduate programs among foreign students, especially from China and the Middle East. Of course this must also be in tandem with reforming the higher education architecture to retain the best of our local talents, and prevent them from being appropriated by foreign elite universities due to them being denied the best local universities for various reasons.
6) Sideways Foreign Exchange Intervention: cognisant of the strong economic fundamentals that our economy sits on, as a monetary last resort,strategic interventions in foreign exchange markets can elevate its value. Bank Negara Malaysia however must first establish a ‘red line’ only known to the institution itself. Although this short-term strategy can mitigate rapid devaluation and combat volatility and imported inflation, its sustainability is questionable due to limited reserves. Nonetheless, it is an intervention that must not be discounted during these testing times, and also to ensure the exchange rate of MYR is reflective of Malaysia’s strong economic fundamentals.
7) Currency Stabilization Funds Leveraging MM2H Deposits: The revamped Malaysia My Second Home (MM2H) program, which requires cash deposits in exchange for medium to long-term residential visas, could serve as a currency stabilization fund, providing additional support to the Ringgit.
Raising interest rates by BNM could be a remedy, and is probably the easiest to kick into action. However, the side effects of this economic prescription—such as higher borrowing costs for businesses and individuals, a potential slowdown in economic growth, and a dampened property market—cast a long shadow. The broader impact on the Rakyat who borrow and the economy suggests that this financial maneuver is a bitter pill that should stay in its box. The delicate balance between stabilizing the currency and maintaining economic vitality makes the decision to hike interest rates a contentious strategy, one that might be better left on the shelf for now.
While the Malaysian Ringgit’s depreciation against major currencies is alarming, it does not parallel the Asian financial crisis, thanks to today’s different and much stronger economic fundamentals. This situation calls for the Malaysian Government and Bank Negara Malaysia to collaborate closely with Members of Parliament, uniting efforts and strategies to address this crisis effectively.
The coming parliamentary session commences tomorrow, I’m sure it will be lively forum for this hot button issue. The concerns and suggestions of my constituents in Ipoh Timor I put forth herein, will be what I intend to vocalise in the August house, and to BNM when I meet them on the 3rd day of this Parliamentary session.
–WE