What is Najib’s response to arrest impending ringgit, equity and bond meltdown?
The next to be “contagiously infected” would be those that have a combination of these factors: “high fiscal deficits, high subsidies bill, slowing economies and high foreign ownership of government bonds”. Malaysia and Thailand fit into these profiles.
Granted, the Asian currencies which have been weakening since May 2013 have been duly noted. The Malaysian ringgit’s recent fall, in that sense, is in tandem with the regional currencies.
Many took comfort in observing that the depreciation is not a reflection of economic weaknesses but more as a result of strengthening of the US dollar, i.e. as a result of US bond purchase or tapering of the quantitative easing (QE).
Some economists went further as treating it as a blessing in disguise as to find our “natural economic equilibrium”. While that may be arguably so, it is not entirely true or at best, only half-truth? We couldn’t resist noting that it is too much of an apologia.
Already the Fitch Rating has mooted and alluded to the possibility of credit rating downgrading both the Indian rupee and the Indonesian rupiah if their governments fail to halt the slump in investors’ confidence and maintain financial stability.
The far-reaching implication on the cost of funding and the impact quality of life, i.e. inflation and burden on debt repayment must be fully appreciated. This is especially so if income and wealth divides have been widening, hence affecting the lower income group more severely and creating social tension of sort.
While not forcing a similarity with the earlier crisis, wouldn’t it better for the emerging economies to be more on the alert so as to avoid the recurrence of a catastrophic currency crisis and, subsequently, a full-blown Asian financial melt-down as seen in the late 1990s?
