Strong fundamentals are weakening and we are failing – Ramon Navaratnam

Strong fundamentals are weakening and we are failing – Ramon Navaratnam
Published: 24 August 2015 2:32 PM

Our leaders keep saying that our fundamentals are strong. This is comforting.

But actually, our apparently strong fundamentals are weakening and we are failing. But we still have hope as we approach our 58th Merdeka anniversary.

Whether we like it or not, the falling value of our ringgit is a fair reflection of the state of our nation. Our gradual socioeconomic and political decline does not indicate confidence in our strength or success, but sadly our weak fundamentals and prospects.

The performance of the ringgit is like a thermometer that measures our economic fever. Indeed the economic temperature is rising, while our socioeconomic and political health is failing.

If we do not arrest our ringgit’s decline, our economy, like our health, can deteriorate rapidly. Then we could become a “failing state”. But if we still adopt an apparently complacent and cavalier attitude towards the falling ringgit and our current slackening socioeconomic system, then there would be the rising risk of becoming a failed state.

We are not there yet, but the following are some of the signs of a failing state:

1. The steadily falling ringgit is a sign of weakness. Hence the question on most Malaysians’ minds is, how low will the ringgit go? And how long will the ringgit take to stabilise and hopefully strengthen? At what low levels will the ringgit settle?

We have now to work much harder to earn foreign exchange. Imported inflation can cause major problems for all, especially the poor and middle income Malaysians. The 11th Malaysia Plan's aim is to help raise the living standards of the bottom 40% of the population but this goal can be seriously impaired as there are also now new and higher risks of social restlessness and even potential unrest.

2. The federal government's budget deficit has been lowered commendably in the last few years. But can the deficit reduction be sustained in the longer term, with declining oil and commodity prices?

Will the pressure on the government to spend more be adequately resisted as we approach the elections?

It will be very difficult for politicians to face this real challenge, which will require very strong government leadership, especially when the economic fundamentals continue to weaken.

3. Portfolio investment outflows have been rising to nearly RM12 billion in the last quarter, from about RM8 billion in the second quarter this year. Will this unfavourable trend continue, and how much and for how long?

Although foreign direct investment rose to over RM12 billion, creditably the highest inflow in the last 10 quarters, investments by Malaysians abroad rose dramatically to over RM16 billion in the last quarter. This is the highest outflow in the last 5 quarters and poses a weak fundamental.

Hence overall, more private investment capital flowed out than came into Malaysia. This means that Malaysians have less confidence in the country than foreign investors. The private capital flight from Malaysia is certainly not a strong fundamental. This has been carrying on for some time together with a massive brain drain. These trends are clear expressions of much loss of confidence in our good governance. They weaken our socioeconomic fundamentals and don't strengthen them.

All these weakening fundamentals underline the poor public perception that the government has so far not adequately handled the complex and complicated 1MDB alleged dcandal. This alone constitutes a major source of low confidence in economic management and political governance.

4. Foreign exchange reserves are under severe strain. The balance of payments surpluses keeps narrowing due to lowering commodity export prices and rising import prices. Furthermore, Bank Negara's orderly intervention to smoothen currency fluctuations and the decline of the ringgit acutely erodes our hard earned national reserves. They have now declined to about RM94 billion, thus breaking the sensitive psychological barrier of RM100 billion.

The ringgit slide can no longer be regarded therefore as a temporary phenomenon, but a longer term trend. The ringgit cannot and should not be artificially supported by Bank Negara, through more intervention and worse still thorough fixing of a currency peg or via exchange controls, as in the past.

5. Unemployment is low at about 3%, but underemployment can be a very serious fundamental flaw. The huge number of legal and illegal immigrants amounting to arguably about 4 million workers, with low paid wages, forces out our own Malaysian workers from plantations and now even the service industries. Waiters cashiers etc are mostly foreigners whom we see all over the place. Where have our own workers gone?

There are at least 100,000 unemployed graduates who are looking for suitable jobs. This is surely not a sound fundamental. And yet, we have postponed again the teaching of English as a second language. Why? Is it sadly politics again, that will undermine our children's future?

Preserve institutional integrity

6. The national institutions and their strength and resilience are vital for our sustained growth, progress and prosperity. But the wide perception both at home and abroad is that our institutions have been badly hurt and weakened. Even the civil service has suffered from attacks against its traditional independence and integrity, through unfair interference and unnecessary transfers during the course of officials undertaking their duties diligently and faithfully.

Today, there is considerable anxiety and also some fear among Malaysians about expressing their views and participating in public discourse and debate. Those of us who take part often feel we are sticking our necks out. But we soldier on in good faith and in our belief that it is in the public interest to do so. It’s our way to fulfil our own sense of duty to God, king and country. But this feeling of insecurity,should not prevail so widely, as it shows a lack of public confidence in the government to uphold the principles of our constitution, our institutions and good governance.

There is also the perception that the government is selective in the administration of law and order. The passing of the Peaceful Assembly Act was welcomed only because it was thought that it would be fairly implemented.

But there have already been many hurdles put in the way of those who want to organise peaceful rallies before Merdeka. How then can the people develop more confidence in our government and the sound fundamentals governing our institutions?

Democracy may not be dead as yet. But the apparent curtailment of basic and fundamental freedoms such as speaking freely, assembling peacefully, and the non-access to several UN human rights conventions create the sad impression that we have a “deceased democracy” in Malaysia.

Avoid state capture

7. State capture is perceived to be broadly present in most aspects of our life. This happens when governments anywhere use state institutions like the civil service, the police, the judiciary, education system, the Election Commission etc, to ensure continuing rule by a particular government.

The question arises in our Malaysian minds as to whether state capture is practised in our country too. It's an important issue that is worthy of public consideration.

8. For instance, Internet regulation can be a very sensitive matter. It is important to discourage racial and religious intolerance and bigotry, so as to preserve the peace and build national unity. But if new regulations are used to restrict the fundamentals of free speech, then any disease in our democracy can only worsen and cause Malaysian democracy to decay and then die!

9. Malaysia's economic growth is still respectable despite all our problems. But this growth and financial stability runs the grave risk of declining while inflation can keep rising. All this will happen not because of only external factors over which we have no control, but because of our poor governance and excessive and unproductive politicking.

We are still caught in the middle-income trap because we fail to do more to phase out of the outdated NEP and to adopt more of the New Economic Model. We cannot bumble along in a globalised world with outmoded protectionist policies that benefit much more the minority elitist rich and not the majority poor and the middle class!

Given the decline in the ringgit and our fundamentals, we have to adopt some radical reforms in our old and outmoded socioeconomic models. If we are slow or reluctant to do so, we will decline further.

Conclusion

10. Our 58th Merdeka anniversary is only a few days away and it's worth honestly pondering whether our national fundamentals in all fields are still strong or weakening. Can we live up to the sound values and noble aspirations of our founding fathers like Tunku Abdul Rahman and Tun Abdul Razak?

Or do we continue to flounder in our weakening fundamentals and stale thinking, from which we may not recover for a long time?

But we can draw from our rich traditional inspiration of Merdeka. With a new national resolve, we can determine to strengthen our weakening national fundamentals.

But for now, the government has to present a plan of action to the rakyat on how to deal with the falling ringgit and failing fundamentals, to prevent state capture and Malaysia from becoming a failed state.

We shall then overcome our present critical problems and move forward to a better Malaysia for all Malaysians.

On a personal note, I was at the Merdeka Stadium as a university student and shouted “Merdeka” with our beloved Tunku Abdul Rahman on our first Merdeka Day in 1957. I still cherish the recollection with emotion.

So let me greet you all: Selamat Hari Merdeka and God bless our beloved country Malaysia! – August 24, 2015.

* Tan Sri Ramon Navaratnam is chairman of the ASLI Center for Public Policy Studies.

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