Weak Ringgit Panic Muddle

FOR someone who has lived through the gloomy uncertainty during the 1997/8 Asian financial crisis as the ringgit value plunged daily, there are certainly some parallels which can be drawn with the same regional currency turmoil happening now.

There was a lot to be fearful about back in 1997. Many of us were truly worried we’d lose our jobs as swathes of firms and banks teetered towards bankruptcy, as economic gains in the previous three decades looked as if they would be wiped out and Malaysia possibly slipping back to the poverty-stricken 1960s.

Until the currency peg restored some form of stability, with the ringgit fixed at RM3.80 against the US dollar on Sept 2, 1998, Malaysians lived in fear akin to the May 13, 1969 racial riots — due to student riots which erupted in Indonesia and South Korea which eventually brought down governments there.

There was every reason to panic back in 1997 as everyone scrambled to get US dollars so much so that local banks literally ran out of money — resulting in mortgage interest shooting up to over 30% at one stage and fixed deposit rates at over 20% as banks desperately tried to get cash into their kitties.

The stock market plunged with heavyweights like Tenaga Nasional Bhd shares falling from over RM10 each to become penny stocks and house values falling as many defaulted on mortgages. Anyone with cash was king.

What made the situation worse was currencies throughout Asia were falling like dominoes — which meant that it wasn’t possible to stem the losses however much money was poured into domestic economies, courtesy of massive debts from the International Monetary Fund.

Today, in 2015, the situation is far different. No one is worried about losing jobs — even those retrenched are confident of finding employment quickly. Interest rates aren’t soaring and it’s still easy to get loans. Stock markets are only dipping; panic selling is limited to just China.

So why the difference?

It all goes down to debt — specifically US dollar-denominated debt, which started as the money taps turned on during the 1980s Reaganomics and cheap US dollars flooded the world in pursuit of quick gains, leaving havoc behind when shifted out.

Such was the situation when the Thai baht peg against the US dollar was breached on July 2, 1997 — leading to other currency exchange rates falling when the greenback flowed out of Asian markets.
A similar situation is also happening now, wreaking havoc on Asian currencies, but Malaysia has been relatively insulated from debt problems because most of it is in ringgit and sukuk.

That’s why firms and banks aren’t really worried about possible bankruptcy and chasing after US dollars. Hence, jobs are safe and people are still spending like there’s no tomorrow on everything from houses to cars to the latest electronic devices.

So what if imported goods are expensive? There’s some alternative available locally or within the region. And in the meantime, local goods exported are reaping huge gains with currency exchange.
There’s really so little to panic over the weak ringgit and doomsayers are in a muddle because everything’s fine so far with the Malaysian economy.

By FRANCIS NANTHA,  Source - therakyatpost.com