(Petaling Jaya, Friday): The ringgit's free fall to an all-time low of 3.7300 against the US dollar yesterday when all Asian currencies rallied against US dollar on conclusion of the US$57 billion IMF bail-out for South Korea should be a matter of grave concern to Malaysian economic planners and the people.
The Malaysian ringgit was the only Asian currency to buck the regional trend yesterday. The Korean won led regional currencies higher, closing at 1,170 won to the US dollar, up from 1,196 won at Wednesday's close and a full 10% higher than its all-time low of 1,290 won, reached early Wednesday.
The New Taiwan dollar, Singapore dollar, rupiah and baht also strengthened in response to news of the South Korean deal.
The Malaysian ringgit was not only the sole exception in not strengthening against the US dollar, it hit an all-time low of 3.7300 against the US dollar, although it recouped slightly to close at 3.7100/200.
The Malaysian ringgit's plunge to a new low to 3.73 against the US dollar yesterday, a fall of about 1.7%, has been attributed to negative market reaction to the speech by the Prime Minister, Datuk Seri Dr. Mahathir Mohamad in Langkawi yesterday that Malaysia would proceed with the RM10 billion land bridge project linking northern peninsula and southern Thailand despite the ringgit's depreciation, as it raised the question as to the government's commitment in September to shelve or delay mega-projects.
This morning, the ringgit has weakened further to an all-time new low of 3.7900. This has again brought up the issue of confidence as a fundamental prerequisite to any national economic recovery and revival, and I would urge the Prime Minister to give top priority to the restoration of confidence and to exercise the fullest of restraint in his pronouncements at this delicate stage of trying to restore confidence in the economy.
One of the biggest obstacles to restoring confidence is the serious problem of information deficit in the country. The right of Malaysians to information is an important key to restoring confidence and the government should not treat Malaysians as if they are children who could not withstand bad news.
When the Prime Minister was in Tokyo on Nov. 28, in a very offhanded manner, he suddenly made an major announcement that Malaysia’s economic growth next year would be 6 per cent or even lower
Mahathir’s forecast of 6 per cent economic growth next year is a drastic downward revision of the estimate given by Anwar Ibrahim in his 1998 budget speech in Parliament last month that Malaysia’s economic growth next year would be moderated to 7 per cent cent, as compared to 8 per cent this year and 8.6 per cent in 1996.
Four days later, on Tuesday, the Malaysian Institute of Economic Research lowered by a full percentage point its forecast for next year’s real GDP rate, from 6.8% to 5.8%, although it predicted that Malaysia should emerge from its present financial crisis and return to its 7%-8% GDP growth rate in two years in 2,000
Malaysians are rightly entitled to know the expert opinions of others as to whether the bottom has been reached in Malaysia as far as the economic and financial crisis is concerned.
In this context, it is most unfortunate that a report by Reuters yesterday forecasting that "Malaysia's economic growth will slow down sharply in 1998 as a belt-tightening budget and declines in stock and currency values begin to bite" had not been reported in the local mass media.
The Reuters report was based on a poll of 13 research houses in Malaysia and Singapore which yielded a median gross domestic product (GDP) growth rate estimate of 4.67 per cent for 1998 and 7.66 per cent for 1997.
Malaysia reported GDP growth of 8.6 per cent in 1996. The government has forecast a growth rate of 8.0 per cent for the current year. It has reported GDP growth of 7.4 per cent for the third quarter, 8.4 per cent for the second quarter and 8.5 per cent for the first quarter of this year.
The forecasts were in a wide range, varying from 3.5 to 6.5 percent for next year and between 7.0 and 8.0 percent for 1997.
According to the Reuters poll, economists have blamed the recent slide of the Malaysian currency and stock prices on a large current account deficit and unsustainable growth levels, factors which have been central to financial turmoil in the region as a whole.
They said the Malaysian economy could also suffer from high interest rates, a liquidity crunch, sagging confidence, a loss of wealth due to stock and currency declines, increased competition in the export sector from other countries in the region and a potential slowdown in Japan.
An economist with a Malaysian brokerage, requesting not to be identified, told the Reuters poll: "Though we cannot say it in Malaysia, I think growth will be between four and five percent". However, some economists said that the Commonwealth Games, hosted by Malaysia next September, could push up growth beyond current forecast levels.
Although the Reuters report yesteday contained "bad news", Malaysians should be trusted as capable of handling such bad news and to exercise judgement as to what to believe. The authorities should realise that there is nothing worse than manipulating or suppressing such "bad news", which is not only impossible in this era of Information Technology, but would give such "bad news" even greater currency, credibility and weight - which would be completely counter-productive to the paramount objective of restoring confidence during the economic crisis.