Not a good way to handle the economy .....

As a matter of policy, the Malaysian govt. should not allow the Malaysian Ringgit (MYR) to slide as we have seen in the past few months. On the contrary, I believe, it's better for the govt. to strengthen the Ringgit to the status before the 1997/1998 crisis of RM 2.50 to the USD. Eventually, the govt. should strive to make the Ringgit at 1:1 par with the Singapore dollar. 

The govt. probably, and in my book mistakenly, believes that a weak Ringgit is one way to make the country's products cheaper to generate more sales (hence more foreign revenue) of the products at the expenses of, say similar products from Singapore or Taiwan such as electronics and electricals. In a competitive environment, the Malaysian govt. should strive to get better value for their products by making them better in terms of quality and availability. Malaysia should compete on good products rather than on cheaper prices. A cheaper Ringgit is tantamount to giving a discount. Better still if Malaysian products can sell at a premium and still maintain sales volume.

In a non-competitive environment, as for example where products such as palm oil,  timber and rubber are being monopolised by Malaysia, Thailand and Indonesia, prices in the world market can be easily determined by the three countries. We need not worry about soya oil competition from the US where the price is always higher than palm oil. Further, the US farmers are heavily subsidised to stay competitive with palm oil.

to be continued ....

Not a good way to handle toll rate increases .....

Although this is somewhat belated (it should have been written in February 2009), I am not all agreeable to the way the govt. is handling the increase in toll rates by the the toll concessionaires such as PLUS and a few others. Somewhere in the agreements between the govt. and the toll operators , the latter have the right to increase toll rates by 10 percent every 3 years. If not, then the toll operators have to compensated by the govt.

By how much, I don't know but the amount must be based on a formula relating to the new rate, the volume of traffic, and the duration of 3 years. This is not difficult to figure out especially past data are plentiful. The commuters plying the highways on a regular way are happy that they have a reprieve for a year, or two or even three, depending on the amount of compensation; and the toll operators are also happy that they get paid in lump sums without the hassle of administration, like collection, paper work, printing tickets, etc. 

The system is not fair to the other thousands of taxpayers, like the people in, say Kelantan, who do not use the highways but have to be made to pay indirectly. Let the toll rates apply or at the very least not as much as 10 percent. Let those who use the highways be made to pay the extra toll expense.

The decline and fall of the Ringgit ? ...

The writing is on the wall. The Malaysian Ringgit, since some few months before, has been weakening against the USD. The weakening is inexorably and excruciatingly slow but sure. From a position of about RM 3.20 to the USD, the Ringgit is now RM 3.75 to the dollar. It wont be long before it weakens to RM 3.80 to the dollar and is likely to reach to RM 4.00 to the the dollar before the end of year 2009. During the heights of the 1997/98 financial crisis, the Ringgit went down to as low as RM 5.00 to the dollar. Will the Ringgit weaken further ?

But what I cannot comprehend is why does the USD keep on strengthening against most currencies when the US economy itself is mired in a recession. Do people hoard or buy US currencies to the exclusion of most others, with the exception of the mighty Yen ? The current status of the US currency is good for those countries that hoard the USD - such as China with its two trillion USD in reserve and Japan with over a trillion in reserve.  The same thing goes for countries such as Singapore, Taiwan, South Korea, and Hong Kong whose combined reserve amount to more than a trillion USD.

However, unlike during those Asian crisis days, the sterling Pound and the Euro have weakened. Only the Yen and the Singapore dollar seem to be invulnerable to the fluctuations in exchange rate. Being a Malaysian, I dread to think that the Malaysian Ringgit will go the way of the Turkish Lira some time ago. Heavens forbid should the Ringgit become as worthless as the currency in Zimbabwe.

As for the country's forex reserve, Bank Negara stated that the 13th February 2009 forex reserve status is RM 317.7 billion or USD 91.6 billion, equivalent to 7.6 months of imports and 4 times the short term external debts. Slightly more than a year ago, its reserve is in the plus RM 400 billion or about USD 125 billion. See how much the reserve has come down in a matter of about a year. Compare this with Singapore whose latest reserve position is about USD 167 billion from a peak of USD 177 billion about a year ago. Malaysia's reserve has depleted 3 times more than Singapore's.