LONDON, 30 July 2004 — Malaysia has emphatically ruled out any de-linking of its currency, the ringgit, from the US dollar. This despite the fact that there are some signs that the direction of Malaysian exports may be moving away from dollar zone to the emerging markets of ASEAN (the Association of South East Asian nations), East Asia, and the Gulf Cooperation Council (GCC) states.
“The peg to the US dollar as a mechanism will stay,” confirms Rafidah Aziz, the long-serving Malaysian minister of international trade & industry to Arab News. “What may happen in the future is for the government to revise when it feels that the time has come for it to do so, the rate at which the ringgit is pegged to the US dollar. The current rate is 3.8 ringgit to the US dollar, but if the situation warrants it, for instance our competitiveness with our neighbors such as China, and we need to vary the 3.8 ringgit rate say to 3.7 or 3.5 ringgit or to whatever rate, that’s what we will do. But the peg will stay as a mechanism.”
The minister, who has been in her job for 18 years promoting Malaysian trade and inviting investments to the ASEAN country, was accompanying Malaysian Prime Minister Abdullah Badawi on his first visit to Britain last week.
Minister Rafidah denies that there was any agenda as far as moving the Malaysian currency away from the US greenback. Some analysts and businessmen in Malaysia increasingly suggest that it is perhaps time for the ringgit to breakaway from the link to the US dollar, and for Malaysia to assert its economic independence. A free floating ringgit would also be the true test if the Malaysian currency can stand up to the rigors and challenges of the currency markets.
In her usual forthright way, Minister Rafidah dismisses any such suggestions. “We don’t care what some people would like. We want to be sure that what we do benefit those who matter, that is, the traders and the investors. They are the one’s that are very comfortable with the peg as a system. And they would be telling us sometime in the future when we need to vary the rate to 3.7 or 3.2 or whatever.”
For the moment, the traders and investors, according to the minister, prefer the peg to stay because it has brought “predictability, certainty, and has made Malaysia more resilient because people don’t have to hedge or bother about currency volatility. They only have to look at how other currencies behave. They will inform us when it is affecting their competitiveness. All these have been factored in already, but we will keep monitoring what is happening almost on a daily basis”.
Malaysia, she insists, is not look east for its trade at the expense of traditional trading partners such as the United States and the European Union EU. “America and Europe will continue to be major trading partners of Malaysia,” she explains. “It is just that there are more market opportunities in ASEAN, East Asia, the GCC states, and the newly-emerging economies. As such we are not moving away from the United States and Europe. We will continue to strengthen our export base in Europe and America because there are still vast opportunities in these countries that we have not hitherto tapped. But at the same time we would also like to take advantage of the new markets that are emerging in other parts of the world.”
The proportion of trade with the United States and the EU has come down, she concedes, but in terms of absolute figures it is going up because Malaysia’s trade is also expanding. Malaysian exports in 2003 totaled 398.9 billion ringgit — up from the 357.7 billion ringgit in 2002.
With GDP growth projected at 7 percent per annum in 2004 compared with 7.6 percent in 2003, and manufacturing sector sales increasing month on month by some 13.5 percent in first quarter 2004, exports are projected to sustain strong growth in 2004 and 2005. In February this year alone, manufacturing sector sales topped 29.4 billion ringgit, suggesting that the Malaysian economy has finally turned the corner and recovering from the after effects of the SARS outbreak in Southeast and East Asia in the last two years.
Minister Rafidah confirmed that the GCC states, especially Saudi Arabia, UAE and Bahrain, are a major export and trading target for Malaysia. “We continue to get new market opportunities there especially in the area of halal foods and halal products. We have been on trade visits in the GCC countries a few months back; and we have had a series of moving trade and industrial products exhibitions there in late 2003. We see Jeddah, Dubai and Bahrain as major entry points into the wider Middle East markets.”
Boosting Malaysian trade with the Muslim countries and intra-Islamic trade is a major priority of the new Badawi government.
Prime Minister Abdullah Ahmad Badawi is the current chairman of the OIC (Organization of Islamic Conference) and in London last week he confirmed that Malaysia was working on a plan to reform the OIC which would be announced at the appropriate time. Out of total Malaysian exports of $88.199 billion in 2001, only $4.951 billion was to fellow OIC member countries. Similarly, out of total Malaysian imports of $73.857 billion in 2001 only $4.711 billion was from OIC countries. Malaysia’s share of intra-Islamic exports and imports totaled a mere 5.6 percent and 6.4 percent respectively in 2001.
Malaysian trade with the Gulf states has remained relatively low; and Malaysia, despite impressive economic growth and achievements in the last decade, has hardly attracted any inward investment flows from the Gulf, supposedly with its huge liquidity. In 2003, there was some progress toward greater trade with the GCC countries. According to Martrade (the Malaysian External Trade Development Corporation), Malaysian exports to the UAE for the first 11 months of 2003 topped the $1 billion for the first time. This figure rose to $1.4 billion for the whole year. UAE exports to Malaysia — mainly oil products, gold, and non-ferrous metals — totaled some $300 million for the same period, leaving the balance of trade strongly in Malaysia’s favor.
Minister Rafidah stresses that progress is also being made toward an ASEAN customs union and economic market. “We already have the ASEAN Free Trade Area, and we are now looking at the ASEAN Economic Community by 2020. It is already part of the agenda.”