• Print
Details
Category: Malaysia In The News

Ringgit expected to rally; Political uncertainty bolsters the currency in face of inflation
By DAVID ROMAN, THE WALL STREET JOURNAL ASIA
May 29, 2008

SINGAPORE -- Political uncertainty isn't usually good for a currency, but it's helping the ringgit since Malaysia has few alternatives to using the ringgit to curb inflation.

So as inflation pressures mount, the ringgit is poised for a sustained rally on the dollar. Economists said the dollar, now around 3.24 ringgit, could test three ringgit this year.

In midday trading in New York, the dollar was down at 3.24 ringgit from 3.2415 ringgit late Tuesday.

"The government's unpopularity is keeping a fuel price [increase] and Bank Negara Malaysia interest rate hikes off the table this year," ING said in a note this week. "We expect [the central bank] to use ringgit appreciation to curb imported inflation pressure." Political unrest has been simmering for some time amid rising discontent with longstanding pro-Malay economic policies that resulted in the Barisan Nasional coalition losing its two-thirds majority in
Parliament March 8.

But things are coming to a head as the popularity of former Deputy Prime Minister Anwar Ibrahim grows amid calls for Prime Minister Abdullah Ahmad Badawi to step down or at least clarify when he will.

And just when it seemed things couldn't get worse, the 83-year old Mahathir Mohamad, prime minister for 22 years, on May 20 quit the
United Malays National Organization, Barisan Nasional's leading partner, citing disappointment with Mr. Abdullah's leadership.

The ringgit reacted badly to Dr. Mahathir's resignation, falling to 3.2399 ringgit to the dollar the next day but immediately bounced back.

Malaysia is among a number of Asian countries that subsidize fuel to keep prices low. But that is becoming costly for the government.

Malaysia said this week it will study removing some fuel subsidies, but analysts said that if there are any changes, they will be largely cosmetic, since the government is unwilling to fuel public ire.

That also means there is pressure not to raise rates fast, if at all, to deal with inflation at the expense of weaker growth.

Bank Negara Malaysia opted Monday to keep rates at 3.5% for a 17th straight time, citing balanced risks to growth and prices, though it did signal that increased inflation risks would prompt it to take "appropriate monetary-policy measures" in the future.

Malaysia's consumer inflation stood at 3% in April, marking its highest rate in 14 months and coming in at the top of the government's forecast of between 2.5% and 3% for the year. But it is still low compared with much of Asia.

Malaysian policy makers have been backing the ringgit, apparently favoring ringgit strength over rate increases to control inflation, said Claudio Piron, head of Asian FX strategy at J.P. Morgan.

That comes as the U.S. Treasury this month also said the ringgit was undervalued, given Malaysia's strong terms of trade.

"We are sympathetic to the U.S. Treasury's view," Sean Callow, a senior currency strategist at Westpac, said in a research note. "With inflation a lot less worrisome than elsewhere in Asia...there is no great loss of confidence in Malaysia's macro outlook."

Westpac said it expects the dollar to fall to 3.09 ringgit by the end of September and to 3.03 ringgit by the end of December.

J.P. Morgan's Mr. Piron pointed to Malaysia's current-account surplus -- close to 15% of gross domestic product -- and other solid fundamentals. "If you are worried about high oil and commodity prices, the terms-of-trade impact for Malaysia is fundamentally positive," he said, forecasting the dollar will fall to 3.15 ringgit by the end of June and to three ringgit by the end of the year.

Malaysia is one of the world's biggest producers of palm oil, the most widely used vegetable oil and in demand for biofuel production. The country is also a net exporter of oil and gas. That means the ringgit is one of only five currencies to benefit from higher oil prices, according to a Goldman Sachs report Wednesday.

Nevertheless, some say that feuding in the ruling coalition and waning public support for the government could hurt the ringgit. People are anxious about the rise in political volatility, said Jan Lambregts, head of Asian research at Rabobank. "In Malaysia, investors are not used to this kind of uncertainty."

He said he expects the dollar to fall to between 3.15 ringgit and 3.10 ringgit over the next few months and to end the year around 3.15 ringgit, given a global dollar rally toward the end of 2008.

Write comment (0 Comments)

  • Print
Details
Category: Malaysia In The News
Plugging leaks in fuel subsidies
By S JAYASANKARAN
KL CORRESPONDENT
Business Times
May 05, 2008

KL can take steps to beef up revenue, stop leakages to rich

KUALA Lumpur is between a rock and a hard place.

Last year, when global oil prices averaged around US$70 a barrel, the government spent almost RM$53 billion (S$22.8 billion) subsidising fuel and gas so that Malaysians could continue being the beneficiaries of the cheapest fuel in the region.

But here's the rub - global oil prices have since climbed one and a half times and one shudders at the dent continuing subsidies will make to the government's balance sheet. In 2007, its revenues were around RM$140 billion.

The results of the March 8 general election showed that voters weren't happy with rising oil and food prices. In short, the ruling National Front is leery about any measure that might make it even more unpopular. What's a beleaguered Prime Minister to do?

There are a few things he might consider immediately. One, of course, is the scrapping of completely unnecessary projects. Why does the country need another palace for His Majesty the King when the present palace isn't even 50 years old?

Windsor Castle is a great deal older but the British actually take pride in the tradition implicit in that longevity. We might want to ponder that. And while we are at it, why even think of a RM$1 billion space programme for a country that's classified by the World Bank as a 'middle income developing country'?

We are sure the Prime Minister will find more wasteful projects around. He should halt them immediately for that way lies penury.

The next thing to contemplate is the issue of 'leakages' - the amount of money that's leaked out of an economy via things such as savings, imports and taxes. In many cases, these 'savings' and 'imports' are much more than they should be because the projects from which they were derived were grossly over-inflated.

In the go-go 1990s, for instance, economists were puzzled by Malaysia's growth figures (around 8 per cent on average) because, at the then rates of total investment (over 70 per cent of gross domestic product), growth rates should have been far higher (over 10 per cent, for instance).

Making bids for projects open and transparent would be the best way to stop giving any company excess profits. The practice of 'privatising profits and socialising cost' should also be curtailed as far as possible. Indeed, if these so-called 'leakages' could be cut by, say, 30 per cent, the government's budget deficit could just vanish.

Everyone agrees that the rich, and even the middle class, should not receive subsidies. It is completely inequitable from an economic point of view. But fuel subsidies do not just benefit all Malaysians, rich and poor, but other nations - Singapore and Thailand, for instance - whose citizens frequently cross the border to buy cheaper fuel, rice or milk.

That is not to mention the enormous arbitrage opportunities inherent in huge price differentials across borders, like smuggling. So long as there is opportunity, there will be smuggling.

One way out of this is the use of the MyKad (the national identity card) which is only issued to citizens and which comes with an electronic chip that can be utilised for other services such as e-banking. If it can be used for such things, what's to stop the government from using the Mykad for fuel purchases or, say, rice buys?

Every Malaysian is wired to some government agency through his MyKad in any case, so the government, through the Income Tax Department or the Employees Provident Fund, would know who is rich and who is poor. Put the best brains to this task and subsidising the rich could well become a thing of the past.

Write comment (0 Comments)

  • Print
Details
Category: Malaysia In The News
UMNO Minus Mahathir
From Today's Wall Street Journal Asia
May 20, 2008

Former Prime Minister Mahathir Mohamad resigned yesterday from the party he led for 22 years. It's good news for Malaysia's economic reformers and a sign that the country may finally be able to move beyond the divisive affirmative action policies that have hampered economic growth and soured its democracy for so many years.

Dr. Mahathir's ostensible reason for deserting the United Malays National Organization is the whipping it received in the March elections, when it lost its two-thirds majority in Parliament. The party's losses were due, in large part, to minority ethnic groups throwing their weight behind broad-based secular parties that support economic liberalization and corruption clean-ups, such as the multiracial National Justice Party, unofficially led by Anwar Ibrahim. Malays deserted UMNO too.

The defeat to a party led by his former deputy prime minister must have been especially bitter to Dr. Mahathir. Mr. Anwar was nastily ousted when he challenged the UMNO establishment in the 1990s. The economic and political liberalization he championed then is resurgent today.

The March elections created a crisis for UMNO, which has long based its power on the Malay vote. Dr. Mahathir wants the party to reassert its traditional preferences for Malays. Prime Minister Abdullah Ahmad Badawi, on the other hand, is trying to shore up his base by responding to what voters want. In the past few weeks, he has announced an anticorruption drive and judicial reform measures, as Law Minister Zaid Ibrahim explains on a nearby page.

Whether this is enough to save Mr. Abdullah's job remains to be seen. The UMNO party conference is in December, and Dr. Mahathir's action may intensify calls for the PM's resignation. Meanwhile, UMNO's internal squabbling gives opposition parties a chance to show they're capable of governing. Whatever the outcome, Dr. Mahathir's departure from UMNO is a sign that Malaysia's political debate is changing.

Write comment (0 Comments)

  • Print
Details
Category: Malaysia In The News
M'sia plans to stop S'poreans, Thais from buying cheap fuel
Business Times
May 25, 2008

(KUALA LUMPUR) Malaysia yesterday said that it was considering using its chip-based national identity card to prevent visitors from Singapore and Thailand from buying cheap subsidised fuel meant for locals.

Its latest plan comes as the government begins radically reviewing its fuel subsidies, expected to cost RM$43 billion (S$19 billion) this year if oil prices hover around US$120 per barrel.

Malaysia heavily subsidises petrol, diesel and gas as well as 21 food items but rising global prices and controls have triggered severe shortages, as well as smuggling across its porous borders and long coastline.

'The technical features are there on the Mykad (Malaysian identification card) and can be integrated with fuel pumps so they can be used to identify the person,' domestic trade and consumer affairs minister Shahrir Samad told AFP.

'We are looking to see if we can use it on the fuel pumps so that only Malaysian citizens get the subsidy,' he added.

'We should not be subsidising fuel and goods for foreigners like Singaporeans and Thais. Those without MyKads can continue to buy the fuel at the pumps but at unsubsidised prices.'

Singaporeans often make day trips across the causeway linking the island state to Malaysia to fill their petrol tanks and buy groceries, which are cheaper here.

Smuggling of supplies of cooking oil, petrol and flour is also rife across Malaysia's porous northern border with Thailand.

Mr Shahrir said that the government was also developing a subsidy management system that would ensure that cheap fuel went to the poor to prevent wastage of the subsidy.

'If we can save money on fuel subsidies, we can use this to fund anti-inflationary projects to keep prices and costs low for Malaysians,' he said.

On Friday, the government said that it would spend RM$2.49 billion this year to increase food production amid soaring costs globally for staple items like rice.

Malaysia produces some 1.6 million tonnes of rice, which roughly meets 70 per cent of domestic consumption. The balance is usually imported from neighbouring Thailand and Vietnam.

Global food prices have nearly doubled in three years, sparking riots in Egypt and Haiti, protests in other countries and restrictions on food exports in Brazil, Vietnam, India and Egypt.

Rising use of biofuels, trade restrictions, increased demand from Asia to serve changing diets, poor harvests and increasing transport costs have all been blamed for the price rise\. \-- AFP

Write comment (0 Comments)

  • Print
Details
Category: Malaysia In The News
Fixing Malaysia's Judiciary
By ZAID IBRAHIM
From Today's Wall Street Journal Asia
May 20, 2008

KUALA LUMPUR

If there's one lesson to be learned from March's elections, it's that business as usual in Malaysia is no longer acceptable. This is a challenge to the government of Prime Minister Abdullah Badawi, and to me, as law minister. And it's why our recently announced reforms to the judiciary are so important.

When a videotape surfaced last September of a prominent lawyer purportedly trying to fix the promotion of a senior judge, the government swiftly appointed a commission comprising three senior judges, a former solicitor general and a prominent academic to investigate these events. The commission's report was made public last Friday and the government has now pledged to further investigate the allegations of wrongdoing contained in the report.

The report also contains recommendations to improve the integrity of the judiciary, some of which were initiated prior to its publication. In a speech to the Bar Council last month, Prime Minister Abdullah announced a proposal to establish a Judicial Appointments Commission that will evaluate and vet proposed judges in a systematic and credible manner, based on clearly defined and transparent criteria. Our government will also initiate a review of the judiciary's terms of service and compensation as part of our commitment to attract and retain the very best people to serve as judges.

The prime minister has also moved decisively to confront a serious blemish on our judicial history: the 1988 legal upheaval. That year, then-Prime Minister Mahathir Mohamad accused the judiciary of overreaching its powers and subsequently took steps to reduce its influence. Three judges, including the lord president, were sacked and three others were suspended. Since then, the judiciary has been hampered by serious and persistent allegations of corruption, inefficiency and executive interference.

The malaise must stop. The judges who lost their jobs were recognized at the Bar Council dinner for their commitment to upholding justice and acknowledgement of the pain and loss they have endured. Our government will make goodwill, ex gratia payments to these judges as a small gesture to mend what they have experienced.

Some may wonder why so much attention is being paid to an event that occurred nearly two decades ago. I believe it is important the government acknowledge that serious transgressions have occurred, even if those actions were not taken by the present administration, and to take steps to restore faith and trust in our judiciary. It is important for our people and for Malaysia's reputation in the world.

A fair and impartial judiciary is also critical to sustain Malaysia's strong economic growth and its record as an attractive destination for foreign investment from prominent companies such as General Electric, Google and Virgin Group. The business community in Malaysia has been concerned about the fairness and capacity of Malaysia's judiciary in settling disputes, which affects perceptions of our country's economic competitiveness.

To me, the significance of the prime minister's proposals extends beyond matters of law. Traditionally, the judiciary is an institution that is least amenable to change. By honestly recognizing its problems and acting to bring renewal, the prime minister is sending a signal to other institutions: that the government has heard the people's call for greater transparency and accountability, and will bring reform where it is needed. This is a historic moment for our country, and I am proud to be part of it.

Mr. Zaid is law minister of Malaysia.

Write comment (0 Comments)

More Articles...

  1. Fake farewell for Malaysia's Mahathir
  2. Razaleigh bent on unseating Abdullah
  3. Malaysia's Islamic court makes landmark ruling to let Muslim convert return to Buddhism
  4. Malaysia's leader warns of religious and ethnic tensions