Tag Archives: Malaysia Economy

What 20 cents can tell you about our economy?

A lot of people queuing up at money changer outlet for the past few weeks. To be exact, the day after the General Election is over. Well, what does this thing say about our economy?

It seems that Malaysia Ringgit (MYR) is getting stronger against foreign currencies. Now you can get one US dollar for two ringgit ninety five cent. Previously it was twenty cents more. Of course 20 cents is a pittance if you just exchange for 1 dollar.

Imagine you have RM10,000 cash in your hand. So you go to the money changer and ask the merchants to exchange your ringgit to US dollar. (For some people, they may ask the merchants to sing the Negaraku first due to their striking resemblance to Bangladeshis. However that’s another story.)

Now you have USD3,400 in your hands. What happen next? Since most of the economic activities are transacted in US Dollar, the value of the currency will go back to its normal level- as it always does. Therefore given the 20 cents difference between current value and normal value, you will get extra RM800 should you decide to exchange again to Malaysia Ringgit.

RM800 profit from RM10,000 is a 8% dividend. That is more than 3-4% fixed-deposit interest and comparable to any medium-risk unit trust products. After all, you don’t have to wait for one year to reap your dividend and you get the money immediately (read: liquidity). The only hassle is for you to line up at the counter over and over again.

Well, where does the 20 cents difference in currency exchange come from? Why suddenly Malaysia Ringgit is so strong and US dollar is cheaper? How is that possible?

We know that financial market in European countries is sluggish and weak. Greece, Iceland and Cyprus have gone bankrupt. Austerity measures have been put in place so there is little money coming from the government. As a result, the private sectors are also tightening its belt. It means less investment, less project and less economy activities. Consequently, the market is deemed less attractive for investors.

The same goes to the mighty United States. The clarion call for reducing national debt and deficit has dampened the effort to revive the economy. United States’ economy too has lost its charm..

We know for a fact in turbulence times, spending is more important than saving. The mantra of ‘your spending is my income and my spending is your income’ should be remembered.

Here is the situation; there are hundreds of billion from investors, multi-national companies and countries floating in the market that need to be invested. Already realised the United States and European countries are no longer the most preferred destination, investors are looking for a new destination to park their money.

Knowing this opportunity, our trained-economist Finance Minister (who happen to be the Prime Minister as well) together with first-class economy graduate International Trade Minister and PEMANDU have introduced Economic Transformation Programme (ETP) outlining 12 strategic sectors that needed the money the most. ETP has become the impetus behind the country’s growth.

To inject the much needed capital to stock market as well as uplifting the profile of Bursa Malaysia to restless investors around the world, Malaysia has successfully launched the second and third biggest Initial Public Offering (IPO) in the world namely Felda Global Venture and IIH. Actually the size of IPO doesn’t matter. The most important thing is the timing was right.

Slowly but steadily, the Bursa Malaysia has seen capital inflows worth billions of ringgit were coming in. This is where the overwhelming demand of Malaysia Ringgit comes from. Applying the rule of supply and demand here, anyone can tell with stronger demand for Malaysia Ringgit, the value of the currency will increase.

For the past 1-2 years, investors were playing wait-and-see game. They hold their money until the new government is elected. In this case, it should be noted that many foreign investors and international financial mouthpiece are in favour of retaining Barisan Nasional as the new government.

Why wouldn’t they? BN’s economic policies are far more comprehensive, pro-growth and business-friendly. BN’s ability to deliver also speaks louder than rhetoric.. As far as profit is concerned, Barisan Nasional is the better bet.

Therefore when it was announced Barisan Nasional won the election, money starts to coming in- in a large amount. The next day after the election, we saw Malaysia Ringgit was valued at RM2.95 for USD1- 8% stronger. Bursa Malaysia has reached its all-time high with over than 1,800 points.

Malaysians or detractors may say BN has lost popular votes and gained fewer seats than the last election. But for foreign investors especially those from matured democracy countries, the 44 seats majority was not a ‘razor-thin majority’ as widely claimed. In fact it was a solid majority and good enough to instil confidence among them.

I know people on the street couldn’t care less about this number. They are not the broker, shareholder, and currency trader anyway. But for majority of Malaysians (people on the street included) who put high regards to Mat Salleh’s wisdom, they should not be selective in their assertion. Just accept the fact our economy is well-managed and Malaysia is enjoying gravity defiance boom that is confounding sceptics.

I know it sounds so cliché and mainstream. But as long as people continue to prosper, it doesn’t matter.

 

ps: perplexed why government can handle the economy very very well but not in politics and perceptions.

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Budget Deficit- Judging by Sense or Cents?

It’s normal to turn on your twitter or read a Facebook status these days encountering someone declaring (or parroting?) that excessive spending and the resulting budget deficit is Malaysia’’s biggest economy problem. Such declarations are usually accompanied by comparative analysis between former finance ministers’ performance in balancing country’s budget. And this declaration-as they say is apolitical.

Well, whether it is apolitical or not is another question. But most importantly, whether the ‘excessive’ debt and budget deficit does make sense or not.

Firstly, the budget deficit isn’t our biggest problem. Furthermore, it’s a problem that is gradually being solved.

Admittedly right now we have a large budget deficit. 4.5 % or RM42 Billion to be exact. But that deficit is mainly the result of a depressed economy — and you’re actually supposed to run deficits in a depressed economy to help support overall demand.

Here is the situation; the financial crisis has created a situation in which almost all of the economy’s major players are trying to spend less than their income. Since my spending is your income and your spending is my income, this means someone has to spend. Apparently right now everyone wants to save and nobody wants to invest. Yes, that includes the private sector and free-market preacher.

Therefore it is the duty of the government to keep the economy robust. Since revenue is falling and everyone hates to pay more tax, government has no choice but to borrow some money.

Psychologically, if the government also don’t spend, who will?

Strangely, far from credited for this effort, everyone loves to make this short-run deficit an issue. It would be good if these people can give a name which country has made surplus budget in this turbulent time.

Whatever, will economic recovery be enough to reduce the deficit outlook? The answer is, pretty sure. The budget deficit has fallen from 6.6% in 2009 to 5.6% in 2010. Later it was 4.8% in 2011 and 4.5% last year. How is that possible?

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The key is by growing the economy. With a growing economy, revenue is increasing. With that extra revenue, it can be used to servicing the debt thus, reducing the deficit.

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For anyone who keeps parroting our debt is worrying, please look at Europe.

See the disastrous effect of harsh austerity on weak economies. See what would happen if the government choose to cut spending. See whether we like it or not when there is no money for everything just because we think budget deficit is more important than creating jobs and generates revenue.

Had we choose to borrow less, save more and cut this and that, Malaysia would be in the same league with Greece, Iceland, Spain, Portugal,Italy and Cyprus.

So, after this, when someone telling you to voted out the current government because of ‘excessive debt’ and budget deficit issue, please tell them “the borrowed money has contributed to the increase of Government’s revenue by 31.5% since 2009. The extra revenue has been used to debt servicing and for the benefits of the people. Any wonder where the BR1M money comes from? After all, bear in mind that our reserves stand at all time high- RM430 Billion.”

You can always voted out the current government if you want to. It is democratic to do so. But obviously, you should not do that based on this reason. It just doesn’t make sense. As someone told me, ‘voting with sense does not cost us anything, but voting with cents may cost us everything.’

MatRodi

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