;;::::~::::~:::::::-~~=::=::::::::::":::::=;;:::;::;::=:::;:. 1 has been affected by a 2 tQ 3 per 1 cent depreciation against the US The recent currency crisis has joltedASEAN out dollar. of their smug confidence. In this first of a two­ part article, DR SUBRAMANIAM PILLAY ex­ The reaction to Southea..:;t ASia !:: amines the underlying causes for the fall in the currency crisis from the regt n value of the ringgit. politicians and bankers h o very predictable in bl, mun~ eigners. Currency spe\,; pecially the (in ,fa Soros, are bei.:• g villains. Dr M a bit more polue, tbey to be equally upset \\ ith gn currenc} speculators. But more seriously the PM is quoted in the same report hav­ ing said ''We have worked 30 40 ) ears to develop this econo } and here comes someone \\ th few billio n dollars and. in 1\\ o weeks. he has undone most four " ork:' This together wtth the dire n the past 2 to 3 weeks. per cent. The Indonesian rupiah's predictions that have appeared in there has been much fall bas beenless severe during this the local media may gJ\e crure g volatility in the value of period partly because it has been of doom and gloom of eco- the frve main Southeast allowed to depreciate in a more nomic future. To better under's and Asian currencies. All of them have gradual and gentle manner against the currency crisis and tts pact depreciated against the US dollar. the dollar since m.id- 1996. In the on the economy. this am... e at­ The most severely affected cur- case of our own ringgit, it has de­ tempts to answer some frcq1 ;;:mly rency is the Thai baht which has preciated about 5 per cent jo the asked questions on thi~ depreciated by 20 per cent. The past 2-3 weeks. Even the u uall) ' Filipino peso is down by about 15 stable and strong Singapore dollar Before we begin, we mns Ali ran Momhly 1997: 17(6) Pag~ 2 Bank Negara's Speculation M)npic and Per.onal Civilisations Course 17 lhinking Allo"l-d 19 Current Concerns 28 A Day of Shame 22 Prinll!d by RP f'rinler!l ~nd. llhd. Seven Richest Could End World Poverty 30 66. 68 & 70 Jalan Air haotl :\lcmorandum to ACA .36 1().160 l'ulau l'lnang. \lllla~,;-. Td:~·ZW~ Corruption and Political Will 38 Fu: 6114. 227111>1 Aliran is a Malaysian non-governmental organisation listed on the roster ol the Econom1c and Social Council of the United Nations. Guided by univel"\al '>ptritual value.,, AHran strives for genuine unity hy promoting Published by Aliran Kesedaran ~cgara (AURAN) social justice and human dignity. Memhcrsh•p is open to 1.2, .I alan Pantai Azb lbruhim, all Malaysians uhovc 21. If you are interested injoimng 11900 l'uluu Pinang. \lalaysla. li'OO.tal.\ddress: I' 0 Bo• 1().111, Aliran, please contact the Hon Secretary at the addre~s lotl'U Pulau Pirumg• .,1ala)•ia.J ~ho\\ n in this page. Tell fa' : 604 • 641!\7115 ,\limn Mmllhly IW7: I 7(fi) l'al(t' 3 stand that the value of the ringgit not intervene. the value of the protected. In this case. the "crimi~ is a relative concept depending on ringgit will decline a~ it has hap­ nal" label is more appropriah!. a-; the currency we are comparing it pened this July. Many speculators it directly impoverished the lheli­ with. It is measured by the num­ even borrow ringgit from commer­ hoods of thousands of workers in ber of ringgit that we pay to huy cial banks and sell it first for CS the tin mining industry here and in one unit of a foreign currenc}. dollars. When the ringgit depreci­ other poor countries such as Bo­ Thus it is not strictly accurate to ates, they can then buy back the lh·ia and Thailand! say Lhatourringgil has depreciated ringgit for fewer US dollars and without mentioning the currency return the loan. As long as their In the long run. the ringgit's value that we are comparing it with. For profit on the deal exceeds the in­ depends on economic fundamen­ example, while it has depreciated terest they have to pay on their tals. According to most economists, against the US dollar. the Malay­ short-term loan, they will make higha economic growth rates. sian ringgit has in fact appreciated money. higher economic pmductidty and against the baht during the past higher exports tend to increase the three weeks. However. most glo­ It is important to note that specu­ value of a country·s currency while bal trade is conducted in US dol­ lators do not always make profits. higher inflation rate, higher im­ lars and the US is one of Sometimes they can make colos­ ports and larger increases ilz money Malaysia's most important inves­ sal mistakes a!> had happened to supply tend to lower the value or tors and trading partners. There­ our own Bank Negara in the early a currency. Thi!> can be illustrated fore, the ringgit's value against the 1990s when it was speculating in with an example. During the past US dollar plays a signilicant role foreign currency markets. (See the 50 years, Japan has performed bet­ in our economy. accompanying extracts from ear­ ter on almost all the above factors lier articles in theA/iran Momhly). when compared to, say. the Coiled ~AT DETE~INES Thus, if George Soros. a <;elf-con­ States. Thus it is not surprbing that THE VALUE OF fessed speculator. is labelled a the Japanese Yen appreciated from OUR RINGGIT? "criminal", so must be those who 360 Yen to one US dollar in the The factors that influence the value were responsible for this fiasco at 1960s to about 80 Yen per dollar a of a currency depends on the time our own Bank Negara during that couple of years ago. HO\\e\eT. the frame that we are looking at. time. recent strength of the US economy coupled with the su~tained reces­ ln the short run. i.e. for periods It is also useful to remind our read­ sion in Japan has weai.~ned the Yen of up to a year, a currency's value ers about the Maminco incident in to the current level of 1 18 Yeo per can be influenced by speculative which our own government specu­ US dollar. activities. interest rates and short lated in tin futures in the London term inflow and outflow or funds. Metal Exchange in the early 1980s HOW HAS For example, if foreign money 1s with the help of another infamous MALAYSIA PlltFOIUUD attracted by our relatively higher speculator called March Rich. The ON THESE camaJA? interest rates. foreigners may con­ government unsuccessfully tried to Since our mdepcn~ f~ ~ears vert their dollars, sterling etc. to comer the tin market which led to ago, we ha\e - v.ben compared ringgit fixed deposits; this action the dramatic collapse of the tin with many other countnes - per­ will increase the demand for price in October 1985. The lin mar­ formed very \\ell on most of the ringgit and thus raise the value of ket has still not recovered from the criteria ( espedall} on ecorn •rnic the ringgit. shock and this is one of the main growth rate .. md inflation)- For ex­ factors for the rapid demise of our ample, the British pound v."as"' '1rth Similarly. if currency speculators own local tin industry. The direct RM8.67 in 1957andtoda~ u1- less feel that our ringgit is overvalued losses incurred in tin speculation than half that \"lllue. This ts be.:ause they will sell the ringgit that they was borne by taxpayers. Those re­ during the<:e fort) ~e.an our are holding for dollars. In such a sponsible who also ought to be la­ economy has been Otitperfonning situation, if the central bank does belled as "criminals", were aU well the Brit1~h econom) lhougb on ab- A/iran Momhly 1997: 17(6) Pagl' 4 solute terms Britain's economic Jar or other currencies. Thi.o; is lar. output per capita is still higher than known in lhe jargon of economists ours; however, the gap is narrow­ as a fixed exchange rate regime. A While our Bank Negara officially ing. Of course a few countries like good example of this is Hong Kong follows a floating rate regime. it Japan, Taiwan, Hong Kong and which has fixed the value of the was well known among currency Singapore have done even bener HK dollar at HK$7 .80 per US dol­ traders that it did not want to sec than us and their currencies have lar. The H K Monetary Authority lhe value of our ringgit weaken become stronger against the Ma­ (HKMA) then uses its foreign ex­ beyond RM2.5250 per US dollar. laysian ringgil. change reserves and its control As explained earlier, given our over interest rates to ensure that the slightly deteriorating economic Having said this, il is also useful HK dollar does not deviate from fundamentals, this position was not to note lhat over the past 2 to 3 the given exchange rate. This im­ tenable and it became a target for years. our economic performance plies a stable exchange rate but a speculators. After losing a large on money supply and current ac­ very volatile interest rate environ­ amount (reported to be between count (i.e. exports of goods and ment Some years ago when specu­ RM2 - 9 billion) in a few days fol­ services minus imports) has not lators were betting that the HK dol­ lowing a futile attempt in defend­ been all that good.