By A Kadir Jasin aka The Scribe
Monday, September 22, 2008
[LATEST – The Star Online reported that the Government will not re-peg the ringgit now or in the future and is committed to allowing the market determine the value of the currency. The Finance Minister, Mohd Najib, said. He added that the Cabinet will decide in a few days’ time on the new fuel price.]
[Original Post]
TWO most read and e-mailed stories in The Star Online yesterday and part of today are the allegations by the DAP Member of Parliament for Seputeh, Teressa Kok that she was fed “dog food??? in police detention and Tun Dr Mahathir Mohamad’s proposal for the re-pegging of the Ringgit.
That Kok’s claim received the top spot is not unexpected. It was sensational and was easy to understand. Kok, who was released from a one-week detention under the ISA, had claimed that she was served rice with boiled egg and some gravy.
A commentator to this blog retorted that if Kok considered the meal “dog food??? then many Malaysians eat dog food regularly either out of poverty or simplicity of taste.
I would not want to say more about the food served to police detainees because the matter was widely discussed and presented to the government several years ago by the Royal Commission to Enhance the Operations and Management of the PDRM.
But what is more interesting is the attention given to Dr Mahathir’s proposal that the Ringgit should again be re-pegged to stop its volatility against the US Dollar.
This has prompted the Second Finance Minister, Nor Mohamed Yakcop, to reveal that the reintroduction of the system would be among the proposals to be presented to the new Finance Minister, Mohd Najib Abdul Razak, in a special briefing in Putrajaya today.
Nor Mohamed was quoted by the Utusan Malaysia as saying that many issues and proposals would be presented covering both the local and global economic developments.
The former Prime Minister had suggested that the Ringgit pegging should be reintroduced to reduce the impact of the falling Dollar.
Dr Mahathir introduced the peg as part of the limited exchange control implemented in September 1998 to halt the depreciation of the Ringgit at the height of the 1997/98 Asian financial crises. The Ringgit was pegged at RM3.80 to a Dollar.
Nor Mohamed played a key role in the pegging, having been consulted by Dr Mahathir. Nor Mohamed, who was then in the private sector, was “summoned??? to meet Dr Mahathir in Buenos Aires, Argentina.
Dr Mahathir was on an official tour of the South American nation and Anwar Ibrahim was still the Deputy Prime Minister and Minister of Finance.
Dr Mahathir and Anwar differed on the ways of handling the crises. While Dr Mahathir favoured saving the businesses by not allowing the banks to foreclose them, Anwar was in favour of the more stringent IMF’s prescriptions.
Instead Dr Mahathir introduced measures to ease the banks of their non-performing loans and re-capitalised them. He also introduced the limited exchange control to discourage the speculation in the Ringgit and stop the outflow of capital in September 1998.
As a result, mass bankruptcies were averted and almost all banks and major private and public corporations were successfully rehabilitated, thereby saving jobs and stopping strategic assets from falling into foreign hands.
The pegging remained until July 2005, When Abdullah, in his capacity as Finance Minister, removed it.
Since then the Ringgit had risen painfully slowly against the Dollar to around RM3.30 but had since fallen to above RM3.40. By right the Ringgit should rise as the Dollar weakens. Instead the weakening Dollar is pulling the Ringgit down with it.
Many shared Dr Mahathir’s view that the pegging should remain but the rate could be reviewed and adjusted from time to time. This would limit the effects of the exchange rates volatility on it.
The current global economic difficulty started with the sub-prime crisis that erupted in the US last year. It had since caused banks in America and a few in Europe to fail.
The US government, going against its free market dictum, is now seeking authorisation to spent up to US$700 billion to buy the toxic assets of the banking system and to support the various public loan funds.
The former Finance Minister, Daim Zainuddin had warned of the possible negative effects of the sub-prime crisis on the local economy earlier in the year in his interview with The China Press. But the newspaper had not highlighted his warning for fear that it might spook the stock market.
(In the same interview, which was held before the March 8 general election, Daim also warned that the Barisan Nasional would face problems in five states including Kedah, Penang and Selangor. The BN went on to lose Kedah, Penang, Perak, Selangor and the Federal Territory of Kuala Lumpur).
But Mohd Najib needs more than just the tweaking of the exchange and interest rates to perk up the economy and to bring back investors’ confidence.
He has to bring back investors’ and consumers’ confidence, halt inflation and fulfill promises to allow fuel prices to float in consonant with the prices of crude oil.
To this end, he has to have a big heart and a lot of courage to consult the people who are knowledgeable in economic, financial and business matters, and to reactivate the government-business consultation via the once powerful Malaysian Business Council (MBC) and the National Economic Action Council (NEAC).
This does not, however, mean that he should put politics, in particular the December Umno election, in the backburner. Saving the economy and strengthening the government has to go hand in hand.