Answering Ringgit Queries

It would be more professional to say that I have an economic forecasting model for coming up with the fair-value or effective competitive levels for the ringgit. But sadly, I don't have one, plus I think crap comes out of models anyway... my opinion on parity is based on my heartfelt guesstimates based on "each country's sector competitiveness", "the level of high and low value add services in each country", perception by foreign investors on labour competitiveness, land cost and stability ... so its not scientific at all. My comments in purple.

Tony said...
Ringgit undervalued against what? (Err, Tony, my parity for the currencies cited means I think the ringgit IS UNDERVALUED against those I have cited)

If you look at Asian currencies it looks just about right; if we go too much out of whack with regional currencies we lose competitiveness. (and where did you come up with 'just about right', care to share.... look at your salary and tell me whether an upper middle class working person can afford to stay at any 5 star hotels in Singapore, Thailand, Indonesia, etc... just pick any country la... why???)

If anything the Euro is severely overvalued against USD. Morgan Stanley theorize that this is due to Euroland's "home bias"; their funds not diversifying outside Eurozone significantly.
9:53 AM

Wai Kit said...
Just s few questions which I hope you are able to comment:

1. The discussion that the higher the foreign reserves, the higher the currency should be. IN this case of Msia, we do have a high foreign reserves. However given the uncompetitive nature of our export industries (except of crude oil and CPO which contributes only about 30% of GDP), why should our ringgit be remain strong? ( reserves is one thing and it should not be a major detrminant, you are right... things like GDP growth, expenditure as a percentage of GDP, the evolving trade structure - I find it absolutely hilarous that MOST Malaysians still regard our export as uncompetitive and low end, that is so 80s man... go and check the factories and FDI... if we stay at the low wne, these would have migrated to China 10 years ago, and to Vietnam/Laos/Cambodia 5 years ago... Malaysians have the strongest penchant to ridicule our own abilities and competitiveness... cruel to be kind... or just cynical from day 1, see the way we drive, you cross the road the car will speed up rather than slow down ... why...why... we have very low land cost, we are accessible, the infra and logistics routes are good to land, ports and air... staff are bilingual or trilingual, the country is open to foreign labour participation from the region... while there are still many things wrong and there still is a huge misallocation of resources, we are not that bad...)

2. Is it not that in USD term, RM is appreciating but if we compare this against the YEN, EURO and S$, the RM is on a downtrend (depreciating)? (exactly my point, tony is hoo-hah about ringgit's appreciation, when in reality the ringgit only appreciated against the USD... have you been to Singapore or Thailand over the past 2 years or recently... I don't feel rich at all..)

3. Msia will be net importer of crude oil by 2010, should foreign investors not worry about this fact? and the fact that we are losing more talent to developed world than we can acquire/produce. This erodes competitiveness on a country. In any case, I think RM long term should be going the path of Indonesia Rupiah. (another cynical view... the assumption is from the view that we do not discover more oilfields... is Malaysia, Thailand, Singapore or HK more likely to discover oilfields??? we already subsidise so much to foreign companies operating in Malaysia, look at their industrial fuel cost... we should withdraw the subsidy slowly.. where else can they go to?)
9:58 AM
solomon said...
The valuation question ie. whether is overvalue or undervalue, is difficult to appreciate. Like Tony's sayings, it could be up with one set of currencies but depreciate with another.The key things is the peg against USD. Should we slowly get away before more problems? Not even the crystal ball can tell abt the depeg timing and effects. Nonetheless, without systematic or appropriate mky interference, the threat to our economy is more than we can think of. But if the USD keep on sliding, I think it will cause the global commodity price increase. Jim Roger predicted it too. Another word, import inflation will be more prominent. Then, the Central Banker will have to increase their interest rate to contain the situation. The boomerang effect will fasten the depreciating of USD.Well, Ben Bernake cannot afford to reduce the rate further. Paul Volker will tell you so. (well, Volcker will tell you that Bernanke will go even lower, see the rates go to 1% even if things get worse... and why do you say USD cannot fall anymore, of course it can...)