Currency Choke

It was the title of Philip Bowring article on Asia's currency published in New Straits Times on Wed, June 9. No url is available for me to link it to. It also covers the Malaysian currency which he said is also in need of revaluation. The exchange rate in Malaysia, like that of other Asian countries, is a barrier to consumption led growth which the country needs.

He observed that with the rising oil price, which is denominated in USD, has caused alarm to Asian countries although, he said, it is less felt by Malaysia. I think Malaysia is also not spared by the oil price increase, despite having own petroleum resources, because the oil is in USD and that is the world market price. If you are a buyer you have no choice with the price and if you are the seller you will not sell it at lower than market. It will definitely be translated into higher fuel cost for Tenaga, airlines operator etc, and perhaps it will result in less revenue for the govt if retail prices of petroleum products is not revised upward. With the lower exchange rate the impact on domestic price is exarcebated. Also Malaysia imports a lot of foodstuff for public consumptions and the exchange rate affect the cost of living of ordinary Malaysian. Since the introduction of exchange rate pegging domestic prices has been rising and it will be a matter of time before it will explode into a political issue.

Also in the letter from a reader entitled "Don't rush to open medical schools" he said the availability of sufficient quality lecturers has been a problem since the establishment of the first medical school (at Universiti Malaya). He said the ringgit then was good value for the international recruitment. Obviously it is even more unattractive now for prospective foreign lecturers to offer their services, even if pay is tripled that of the local lecturer.

Our high value added exports are not the manufacturing products but continue to be contributed by primary commodities like palm oil and crude oil. Revaluation of the ringgit therefore is unlikely to unfavourably affect our export earning.