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The PN & Muhyiddin Government Had Printed RM 1.9 Trillion – Ringgit Has Effectively Lost Its Value & Will Breach 4.50

Ringgit does not seem to be in a good position. The Malaysia currency is trading at more than 4.43 to a dollar – the lowest for the year, having plunged from 4.16 in January 1. Technically, its resistance is 4.50 – less than RM0.07 away. The last time the currency was trading at this low was in early March 2020, when the country crowned its first backdoor government of Muhyiddin.

Immediately after Muhyiddin Yassin was sworn in as the 8th Prime Minister on March 1, 2020, Ringgit crashed to as low as 4.44. But the illegitimate prime minister lasted only 17 months. He reluctantly resigned after withdrawal of support from UMNO faction led by former PM Najib Razak and UMNO president Zahid Hamidi. Ismail Sabri became the 9th Prime Minister on August 21, 2021.

Prior to Muhyiddin’s despicable “Sheraton Move”, the political coup that toppled the democratically-elected Pakatan Harapan government, the local currency almost breached the 4.50 level. It briefly touched 4.499 in early January 2017 as investors dumped the Ringgit after the 1MDB scandal involving then-PM Najib triggered global investigations across three continents.

The 1MDB scandal, which saw at least US$4.5 billion siphoned and spent on high-end property, luxury goods and lavish holidays and parties involving Najib, his family and partner Jho Low, was also responsible for the collapse of Ringgit in 2015. The currency plunged from RM3 to RM4.48 in 2015 during Najib administration, despite burning truckloads of foreign reserves to stabilize the Ringgit.

The most disturbing fact is that Ringgit has effectively lost its value – forever – after it breached RM3.80 to the greenback and hasn’t looked back, even though then-PM Najib implemented the Goods and Services Tax (GST) effective April 1, 2015. The extra revenue from GST, averaging RM43 billion a year, wasn’t enough to impress or convince the currency market.

Coincidentally, RM3.80 was also the exchange rate adopted by the Mahathir administration to peg the Ringgit to the U.S. dollar to address the Ringgit’s volatile fluctuations as a result of the 1997-98 Asian Financial Crisis. This means the country’s financial situation has actually become worse than during the financial crisis more than 25 years ago. Can’t we use the same trick again?

According to former Bank Negara Malaysia (central bank) deputy governor, Dr Sukudhew Singh, pegging the local currency to the greenback isn’t a child’s play otherwise any country could easily pull the stunt. When you peg the Ringgit to the dollar, you must have the ability to defend the exchange rate, which means when speculators try to weaken it, you must have the reserves to intervene and defend it.

The pegging also worked some 25 years ago because the country had a large current account surplus post-1998. Essentially, strong demand for Malaysia’s exports (partly due to depreciation of the Ringgit) had provided strong foreign-currency inflows – vital bullets to defend the fix RM3.80 exchange rate. Today, the government can’t peg it due to weak reserves and trade surplus.

Political instability isn’t the only factor that affects the confidence of investors, otherwise how do you explain that the local currency stabilized at RM4.20 during the previous 22-month-rule of Pakatan Harapan government, but deteriorated to almost RM4.50 during Muhyiddin’s short-stint 17-month rule and current Ismail administration, who is entering its 11th month?

Even if political instability is the prime factor, who was the one started stirring up racial and religion sentiments among the Malays that the Muslims and Malay Rulers have lost power to the “Chinese, Christians and Communists” in an attempt to destabilize the Pakatan Harapan government? The current unelected backdoor government – UMNO, PAS and Bersatu – has been ruling for the last 28 months and see where they are leading the nation.

In the context of Malaysia, investors have fled in droves, and is still in the process of leaving because they are not only spooked with the political instability created by the racist and radical Malay-Muslim government, but also has lost confidence with the clueless and incompetent leadership of the country. First, it was Mahiaddin Yassin and now it is Ismail Sabri.

According to the United Nations Conference on Trade and Development (UNCTAD), the UN body that deals with trade, investment, and development issues, Malaysia was the worst performer in the region. Inflow of foreign direct investments (FDI) into Malaysia stunningly dropped by 68% from US$7.8 billion (RM31.5 billion) in 2019 to US$2.5 billion (RM10.1 billion) in 2020.

While it’s true that FDI inflows to Southeast Asia contracted by 31% to US$107 billion in 2020 due to the Covid-19 pandemic, other countries in the region did not do as badly as Malaysia. In comparison, Singapore saw its FDI plunged by 37% and Indonesia fell 24%, while Thailand dropped by 50% and Vietnam lost by 10%. Surprisingly, Philippine saw its FDI increased by 29%.

Essentially, Malaysia managed to attract only 2.3% of total FDI in 2020 – an extremely pathetic performance. It means despite political instability flamed by UMNO, PAS and Bersatu, the previous multiracial Pakatan Harapan administration had performed better. It also proves that foreign investors were not convinced with an unelected backdoor government.

Foreign investors have every reason to doubt the illegitimate governments of both Muhyiddin and Ismail. According to M2/GDP ratio from Bank Negara Malaysia, there was a huge spike of money supply (M2 is a measure of the money supply that includes cash, checking deposits, and easily-convertible near money) against the country’s GDP (gross domestic product).

When the M2/GDP ratio skyrocketed to 6.8 from 5.6 around second and third quarter 2020, it means the country has 6.8 times amount of money compared to GDP growth. This could only mean one thing – Malaysia was suddenly flushed with cash because backdoor PM Muhyiddin was printing money. Exactly how much money? The additional 1.2 jumps in ratio means 1.2 multiples of GDP.

Based on 2019’s GDP of US$364.7 billion, it means the backdoor government had printed at least US$437 billion or RM1,900 billion – that’s RM1.9 trillion. The M2/GDP ratio is also a measurement of how much money is needed to create a single dollar of GDP. Crucially, M2 is a critical factor in the forecasting of economic issues like inflation. Printing money increases money supply, which in turn causes inflation.

So, when Deputy Youth and Sports Minister Wan Ahmad Fayhsal suggested during a session with BFM Radio in November 2020 that Bank Negara print more money, his idea of “helicopter money policy” was not merely an idea. The Youth Chief of the Malaysian United Indigenous Party (Bersatu) knew his boss had already printed a country load of Ringgit.

Now we understand why Malaysia has to spend RM77.3 billion this year – the highest in the history ever – to contain inflation. It’s not because the economy was booming and people have too much money to spend, which leads to increase in the prices of goods and services. Rather, the secret money printing scheme has led to a depreciation of Ringgit, reducing the currency’s purchasing power.

This is also the reason why the central bank had to raise the overnight policy rate (OPR) by 0.25% last week (July 6) for the second time in two months to fight inflation, despite claims that the nation’s inflation rate was at laughable 2.2%. When a U.S. bank is offering a 3% return for 1 year Fixed Deposit while Malaysia bank is only offering a 1.75% return, it is not rocket science why foreign funds would flow out from Malaysia.

The fact that Bank Negara can’t hike the interest rate at the same percentage point as the aggressive Federal Reserve makes the Ringgit even less attractive as the dollar continues to strengthen with more increases and higher hike rate in the pipeline. By the end of the year, the Fed is expected to take rates to between 2.5% and 3.25%, while Malaysia is projected to hike the OPR to between 2.25% and 2.50%.

To make matters worse, instead of appreciating against the greenback when the crude oil prices go up, as it usually did, the local currency seems to have diverged or broke away from the crude oil trend in recent months. Even the recent rally in crude palm oil (CPO) fails to help the local currency to climb higher. Clearly, something is broken in the country’s financial system and structure.

The international investor community has and will continue to relocate investments in higher-yielding assets in the United States or even park their money in neighbouring countries like Singapore, Vietnam or Indonesia. The best part is the government is still in denial. They never fail to cook up excuses to justify the plunging value of Ringgit.

They will say a weaker currency can boost the competitiveness of Malaysia’s export. When that fails, they will say the economy is on the right track. Finance Minister Tengku Zafrul will repeat like a broken record that the fundamentals of the economy are strong and the growth prospects remain strong. Other boring mantra – the value of the Ringgit is expected to remain stable and continue to strengthen.

Then the government will lie that hundreds of foreign investment projects worth hundreds of billions have been secured. When the currency continues to weaken, they will blame it on weaker China’s growth or Xi Jinping’s Covid-19 lockdown. Of course, the clueless UMNO-PAS-Bersatu government also blames the U.S. inflation as well as the Russia-Ukraine War.

The Ringgit will plunge into a free fall if breaches 4.50 to a dollar.

Source : Finance Twitter

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