Malaysia wants to be great again, at least in foreign exchange. The nation's currency recently approached a level seen as near-catastrophic during the Asian financial crisis of the late 1990s. Authorities insist the ringgit is way too cheap and blame forces outside the country, chiefly high interest rates in the US. The remedies are modest, compared with the shock therapy meted out a couple of decades ago.
This time around, the government and the central bank have been careful not to encourage talk about reviving the radical solutions employed by former prime minister Mahathir Mohamad a generation ago: capital controls and pegging the ringgit. The treatment worked then, in the sense it wasn't the disaster that was widely predicted. By insulating the domestic economy, the steps staved off the need for an International Monetary Fund rescue. They also allowed Mr Mahathir to purge his deputy and finance minister, Anwar Ibrahim, now the current premier, who favoured a more conservative response to the crisis. By ring-fencing markets, Mr Mahathir could move without huge backlash from international capital.
The dramatic manoeuvres did leave investors with lingering suspicions that policy could veer off in unexpected ways. Officials appear to have decided that in today's far more complex global economy, adherence to orthodox positions and keeping their heads down will carry the day. They may be right. (Mr Anwar is leading a shaky coalition. His feud with Mr Mahathir, now in retirement, hasn't abated.)
The steps preferred today are less explosive, but nonetheless betray the anxiety felt in Kuala Lumpur. The tools include occasional intervention to smooth the ringgit's decline, encouraging state-linked companies to repatriate funds and the constant talking up of local economic prospects. An appeal to patriotism never goes astray in Malaysia. The Ministry of Finance wants citizens to think about the ringgit in terms of adopting a "Malaysia First" approach to their lives, according to answers to questions tabled in parliament this month. This means a preference for domestic products over imported competitors, deploying cash at home and welcoming tourists.
There's nothing inherently wrong with a sense of national purpose. After South Korea's financial system buckled in late 1997 and the IMF was called in, with onerous conditions, broadcasts featured residents donating gold and other valuables to help out. Without appeals to sacrifice and the broader good, many leaders would struggle to push through unpopular but critical economic reforms. However, taken to extremes and manipulated for political purposes, invoking pride in country can be counter-productive. Some examples include Malaysia's national car, the Proton, which never became truly competitive and is now effectively controlled by Chinese investors, or Mr Mahathir's "Buy British Last" campaign in the 1980s over fees charged to Malaysian students by UK colleges.
The sensitivity of the central bank was on display in another form recently. Bank Negara wants an explanation from Alphabet Inc's Google for displaying incorrect exchange-rate data for the ringgit on March 15. The search engine showed the ringgit trading at 4.98 per dollar, perilously close to the psychologically important 5.00 line.
The bank also said that it had warned Google about erroneous figures in February. There's no suggestion of official sanction, but the ringgit now looks like the primary focus of economic policy, not just something that's a useful measure of investor sentiment toward, and reaction to, general approaches to policy.
Might any of this mean a lasting turnaround in the currency's fortunes? For that, Malaysia will need help from the place that officials credit the slide: the Federal Reserve. At a press conference last week to release Bank Negara's annual report, Governor Abdul Rasheed Ghaffour pointed to a slide that shows the interest-rate gap between the US and Malaysia, and the US relative to other Asian currencies. "Greater policy rate increases in other countries relative to Malaysia is one of the main factors causing the depreciation," he said. The slowdown in China also gets a mention. Abdul Rasheed warned of a "bumpy" road ahead.
Also lurking in the background is concern about the fractious turn politics has taken since 2018. The nation was governed by one party for six decades, but has had four administrations in six years. Bold economic reforms have become a secondary consideration, at best. Maintaining the numbers in parliament comes first. Mr Mahathir's two eldest sons told Bloomberg last week that their father is the target of a probe by the anti-graft agency.
If it really is all about the Fed, then relief may be in sight. Chair Jerome Powell has foreshadowed a couple of cuts this year. By implication, Malaysia just has to hang on and avoid doing anything rash for the next few months. In theory, less restrictive policy in America would dent the dollar's rude health. All Asian boats would rise.
That would be a reward for patience and, relative to past adventures, exercising prudence. If those Fed moves don't materialise, then the ringgit is in deep trouble. It's worth asking, 26 years after the controls were imposed, why is Asia still so dependent on the US for the direction of markets? Was all the talk about greater resiliency, the rise of China and supposed eclipse of US influence just blather? America clearly remains the indispensable player in the economies of Asia and the Pacific. Pax Americana lives in the dealing room. ©2024 Bloomberg
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously, he was executive editor for economics at Bloomberg News.