The Economist: No end in sight to Malaysia’s economic woes before commodity prices rebound

KUALA LUMPUR, Aug 7 ― As the ringgit plunged to its weakest level against the US dollar since 1998, The Economist said it was unclear how long the economic slump in Malaysia would drag on until commodity prices rise again.

The London-based publication noted that the halving of oil prices over the past year has been severely damaging for Malaysia as the country depends on oil for about 30 per cent of its revenue, while the slowing of China’s growth and waning appetite for commodities has exacerbated the problem.

“Its (Malaysia’s) foreign reserves look set to drop below US$100 billion (RM392 billion), depriving it of a much-needed buffer, and suggesting the government may have tried to prop up the ringgit,” said The Economist in an article titled “Plunging like it’s 1998”.

The weekly pointed out, however, that investors may be jittery due to the corruption allegations against Prime Minister Datuk Seri Najib Razak.

“The question now, for both countries, is how long the pain will last. Many predict that commodity prices will rebound; fewer predict when. In the meantime, depreciation should make their exports more competitive, but low commodity prices seem to be offsetting that gain,” The Economist said, referring to Malaysia and Indonesia.

The falling ringgit, at almost RM4 per dollar today after it weakened past 3.9000 per dollar yesterday in a 17-year low since the Asian financial crisis, will also fuel inflation, said The Economist.

“Whenever the Fed gets around to raising rates, these ailments will presumably worsen,” said the weekly.

The Economist said that ringgit and the Indonesian rupiah were plunging to “depths unseen” since the Asian financial crisis in 1998.

Four years ago, a dollar fetched just over 8,500 Indonesian rupiah, and just under three ringgit. Today a dollar is worth nearly 14,000 rupiah and almost four ringgit, the weekly noted.

“In one sense, Indonesia and Malaysia are far from unique: declining commodity prices, the slowdown in China and the growing likelihood of an interest-rate rise in America have combined to make 2015 a miserable year for emerging-market currencies,” it said, adding that countries like Brazil, Russia, Turkey, Chile, Colombia and Mexico were all experiencing major currency drops.

But the rupiah and ringgit were the hardest-hit, having fallen by 8.4 per cent and 9.8 per cent against the dollar this year — much further than the Thai baht at 6.4 per cent and the Philippine peso at 2.2 per cent, said The Economist.