Ringgit's Resilient Stance and Navigating Slow Structural Reforms

Regardless, we can inquire about the appropriate actions to take moving forward to enhance the strength of our economy relative to others.

THE Malaysian ringgit again touched the recent high against the US dollar at 4.8026 on Feb 21, 2024. It got many of us roaring, fearing the cost-of-living issues we usually experience with the depreciation.

Many of us wish we could index our wages with the changes in the cost of living, but that ask is a bit out of reach.

The historical perspective of ringgit’s performance against the US dollar has never been great. In fact, it is easy to ascertain, ie it is a one-way street downhill over the long run since, and to be exact, it has been since we abandoned the currency interchangeability we had with Singapore and Brunei in 1973.

It is important to state that this event is not the cause of the slide.

In recent weeks, many of our prominent economists have sprung out in the press to defend the strength of our economy’s fundamentals. Some went as far as claiming that the fair value of ringgit against US dollar is 3.90. However, I view that US dollar/ RM3.90 as the fair value is a bit far-fetched, and none provided with their basis of estimation.

Well, the ringgit is where it is, as perceived by market forces, and there is not much we can do about it. But we can inquire about the appropriate actions to take moving forward to enhance the strength of our economy relative to others, thereby bolstering the value of the ringgit.

In other words — where is the datum to fix this?

There is a big word for it: Structural reforms, which means changes required to improve the economy and increase its ability to absorb shocks. It involves changing the makeup of the economy and regulatory environment to realise its growth potential.

The easiest place to start is for the government to change how it procures goods and services. The process has to be made more transparent and efficient through process improvement and selecting the most efficient services or goods provider.

The other place to look into is the government bureaucracy. Significant investments have been made to digitalise processes and reduce red tape, but the size of the bureaucracy and the share of civil service emoluments have not shown any significant reduction.

There is a saying for it: Learn to do more with less.

Steps facilitating markets to operate efficiently and promoting free enterprise should also be further liberalised. The monopoly of Approved Permits (APs) to import is one area that requires attention, and so is the case with the concentrated market power of government-linked companies (GLCs) or politically connected persons that distort the market operations or increase the cost of transactions.

The government has to play a big role in this. It has done this in the past by transforming Malaysia from a primarily commodity-based economy into the current one that can deal with economic booms and busts with less social cost.

It is nothing new, and the government can do it if there is political will.

Of course, there will be temporary shocks and political resistance to structural reforms, but a responsible government must be proactive and forward-looking and promote the democratisation of our economic cake for the benefit of all its citizens.

There is a lot of work to be done, and don’t expect perfection, idealism or smooth sailing.

We need to gradually transition away from our current patrimonial economy and remain pragmatic in challenging the status quo. And, if we don’t, we’ll be stuck in the middle-income trap, and issues like the cost of living and the long-term direction of the US dollar/ringgit will remain unresolved, dragging us all down with them.

This article was first published by The Malaysian Reserve (click here ) print edition on 11 March 2024. The views expressed here are the writer's own and do not reflect the opinions and views of any organisation or its members.