Along The Watchtower

Published: Wednesday August 26, 2015 MYT 12:00:00 AM
Updated: Wednesday August 26, 2015 MYT 7:36:46 AM

Fears over our waning economy

No clear solutions seem to be in sight for Malaysia’s falling currency and economic woes.

WE are supposed to be celebrating our 58th year of independence in five days’ time but instead of cheer, there is gloom in the air.

The ringgit has plunged to 4.2 to the US dollar. It is now the worst performing currency in the region after losing more than 16% against the greenback since May.

It has tumbled past RM3 to the Singapore dollar, a new all-time low.

As described by Singapore’s Business Times in June, “shringgit” might be the more apt name for our free-falling currency.

There are a host of reasons why this is happening but dwindling oil prices is a major factor.

Oil has slumped to US$38.24, the lowest in six years, due to oversupply and worries that energy demand would slide further with China’s economy facing a stark slowdown.

As the biggest oil exporter in Asia, Malaysia has been hit the hardest in the region.

Last year, when oil was around US$100 a barrel, the country’s oil-­related earnings amounted to RM63bil – almost 30% of the Government’s revenue.

As the world’s second largest producer of palm oil and rubber, we have also been hammered by the decline of prices for these commodities.

The price of palm oil has dropped by 9% this month to RM1,924 a tonne, the lowest in almost a year.

Confidence in the ringgit has been shaken by capital outflows from the country and also by the rapid depletion of Bank Negara’s international reserves over the past few weeks.

As at two weeks ago, the central bank’s foreign exchange reserves were at RM356.4bil (US$94.5bil, an RM8.3bil drop from its RM364.7bil in July when the reserves dropped below the psychologically significant US$100bil level for the first time in five years).

In addition to our shrinking currency, there are other troubling ­figures.

Our household debt, for example, is more than 85% of the gross domestic product, while the Government’s debt, as at December last year, stood at RM582.8bil or 54.5% of the country’s GDP, just marginally below the 55% limit.

Adverse global media coverage over the past few months has compounded the glum scenario.

It cannot be denied that controversies and conflicting stories surrounding 1Malaysia Development Bhd (1MDB) have cast Malaysia under a negative light, adding to our economic problems.

The issue is being seen as distracting the Government from addressing the country’s economic woes.

Political wrangles and bizarre actions undermining the credibility of the country’s institutions have also added to our anguish.

Malaysia needs to bring back confidence and credibility but no clear solutions seem to be in sight yet.

Let’s look at another country which is also grappling with economic issues related to currency depreciation – Uruguay.

It is not an apple-to-apple comparison though. The South American nation does not have the same economic fundamentals and its population is only a tenth of Malaysia’s.

But the Uruguayan peso has depreciated to 28.5, its weakest against the US dollar in over a ­decade, and has lost 17.5% of its value since January.

The country is struggling with falling exports while inflation has been running at 9% with prices of basic consumer goods rising steadily.

Earlier this month, there was a major general strike as unions demanded inflation-adjusted wage hikes before the government tabled its five-year budget to the country’s congress.

About a million workers, out of the country’s 3.4 million population, took part in the first such strike faced by the government of President Tabare Vazquez since he took office in March.

The 75-year-old oncologist, who also served as president between 2005 and 2010, however, is not facing any serious political problems and is still respected in the country.

But he is not as popular or well known throughout the world as Jose Mujica, the man whom he took over from.

Dubbed the “world’s poorest president”, Mujica, fondly called Pepe, enjoyed huge public support because of his frugal lifestyle and simple dressing.

He captured global attention for his liberal policies, including regulating the sale of marijuana, legalising gay marriage and introducing Latin America’s least restrictive abortion laws but it was his spartan lifestyle which made him a hero.

Mujica did not bother about dress codes at official functions and often turned up in jeans and sandals.

He refused to wear a tie even when meeting President Barack Obama at the White House.

“The tie is a useless rag that constrains your neck,” Mujica told a Spanish TV station in an interview last year.

“I’m an enemy of consumerism. Because of this hyper-consumerism, we’re forgetting about fundamental things and wasting human strength on frivolities that have little to do with human happiness.”

His comments were part of a larger criticism of leaders who splurged on luxuries that were unimaginable to most people, which Mujica described as inconsistent with democracy.

Instead of the presidential mansion, he lived in his wife’s farm, among animals which include a three-legged dog.

He gave away 90% of his salary of US$12,500 and so did his wife, Lucia Topolansky, who is a senator.

Mujica has a fascinating past. He was among the leaders of the Tupamaros National Liberation Movement.

The guerilla organisation fought Uruguay’s repressive CIA-backed dictatorship in the 70s, when the country was known as the “Torture chamber of Latin America”.

It is wishful thinking but how refreshing it would be if all countries had leaders like him.

Associate Editor M. Veera Pandiyan likes this quote by Jose Mujica: Poor people are those who only work to try to keep an expensive lifestyle and always want more and more. The views expressed are entirely the writer’s own.

Tags / Keywords: M Veera Pandiyan, columnist

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