Currency, investment, stock market, GDP all face headwinds
Malaysia’s
central bank is clearly losing the battle to defend its national currency, the
ringgit, which fell to RM4.2275:US$1 on Aug. 24 before recovering slightly on
Bank Negara buying, with the pace accelerating as the international financial
community continues to lose confidence in the country’s deteriorating
economic position and its massive twin financial scandals.
Events over the weekend did little to inspire
confidence, with police arresting 29 protesters before they could even start a
rally and charging them with Sec. 124 of the penal code, a nebulously worded
amendment that deals with “activities detrimental to parliamentary democracy”
and carries penalties up to 20 years in prison.
The electoral-reform group Bersih has called for mass street protests in
Kuala Lumpur, Kuching and Kota Kinabalu on Aug 29 and 30. Police have
vowed to stop the rally and jail its organizers. The harsh penalties
leveled at the protesters over the past weekend may have been aimed at
frightening next week’s participants.
UBS issues currency alert
The Swiss bank UBS last Friday, Aug. 21, issued an alert saying the
magnitude and speed of the currency’s decline “exceeded our bearish
expectations,” falling 24 percent against the US dollar over the past year and
bringing the rate to a 17-year low. But although UBS set a short-term
target of 4.35, privately UBS bankers are saying the currency could go to
RM5.0:US$1 just this week. It shot through the psychologically important
barrier of 4:1 last week without a hitch.
With international reserves having fallen to US$94.5 billion as of Aug.
15, Bank Negara has few tools to stop the slide. Bank Negara Gov. Zeti Akhtar
Ahmad last week ruled out currency controls, leaving her only the weapon of
raising interest rates, which would play havoc with the economy, given high
household and government debt. With crude oil and other commodity prices
sliding, GDP growth fell to a still-respectable 4.9 percent for the second
quarter.
The Kuala Lumpur stock market has headed for collapse as well, falling
by 12.7 percent since Aug. 3 and 2.17 percent today alone. Although all
Asian markets have been descending in line with China’s crashing bourses, the
KLSE is the worst-performing market in Asia and looks set to get worse. Foreigners
have been bailing out of the market, the currency and foreign direct
investment, with FDI plummeting by 41.8% to RM21.3 billion in the first half of
2015, although officials said the sharp fall was due to a high base year in the
first half of 2014.
Throw it away
Prime Minister Najib Razak is seemingly willing to wreck almost every
government institution in his bid to stay in power in the face of a widespread
effort by the opposition and members of his own party to oust him over two
massive scandals, one a US$681 “donation” from unnamed Middle Eastern interests
into his personal account, supposedly in gratitude for fighting ISIS. However,
US$650 million was spirited back out of the account in 2013 to another Najib
personal account in Singapore – then disappeared out of that account to
somewhere else, raising more questions than it answered.
The
second is his stewardship of 1Malaysia Development Bhd., a state-backed
investment fund which, according to critics, has US$6.6 billion worth of
unfunded liabilities that a revolving door of chief executive officers and
accounting firms have been unable to explain. The Sarawak Report, edited from
the UK by Clare Rewcastle Brown, alleged that hundreds of millions of dollars
have been diverted to accounts in Singapore and elsewhere held by the young
Penang-born tycoon Jho Taek Low, who was instrumental in persuading Najib to
establish the fund.
Unity Coalition
Seeking No Confidence vote?
However, despite desperate attempts to contain
the scandals by sacking or neutralizing a long list of officials involved in
investigating them, there are indications that they are escaping into the wider
global financial sphere. On Aug. 29, Switzerland’s financial regulator FINMA
announced that it is investigating the extent of any involvement which its
banks may have had in any of the alleged ‘dubious’ transactions linked to 1MDB.
At least half a dozen banks including Falcon Private Bank, BSI of Lugano, JP
Morgan and Coutts & Co have been named elsewhere as involved. Singapore authorities have also said they are
investigating accounts connected to 1MDB.
Over the weekend, it appeared that the
opposition Pakatan Rakyat coalition’s three component parties might be
willing to at least discuss the possibility of teaming up with former Prime
Minister Mahathir Mohamad, Najib’s severest domestic critic, to seek a vote of
no confidence in the parliament. Mahathir is insisting that the ruling Barisan
Nasional lead any unity government. Lim Kit Siang, the Democratic Action Party
parliamentary leader, said that the idea might be worth discussing.
For Mahathir to team up with Lim would be a
surprise. But earlier this month he agreed to meet with longtime foe Tengku
Razaleigh Hamzah, who tried to oust him in the 1980s and failed, nearly
destroying UMNO in the process. A vote of confidence would first have to get by
the parliamentary speaker, who is a close ally of the prime minister’s.
Perhaps anticipating such a challenge, over the
weekend Najib set out to play the race card, telling a United Malays National
Organization assembly that Malays and Muslims would be ‘bastardized’ if UMNO is
ousted from ruling the government as a part of the Barisan Nasional coalition.
The leaders of the challenge against him are almost all ethnic Malays,
including Mahathir, Razaleigh, fired deputy prime minister Muhyiddin Yassin and
others.
Fear tactics by
Najib
“Some people say that the Malays will be
defeated, beaten or fall flat on the ground but I choose the word
‘bastardize,’” Najib was quoted in local media as saying – a veiled reference
to the possibility that ethnic Chinese would dominate the political process as
well as the economy.
He and other officials have also charged that
unnamed foreigners are also out to wreck Malaysia’s parliamentary democracy. The United States’ two leading newspapers, the
Wall Street Journal and the New York Times, have both carried extensive, deeply
detailed stories describing both the 1MDB shenanigans and the Najib family’s
personal wealth including expensive properties in New York and California.
Najib has threatened to sue the Wall Street Journal for its reports, but has
stalled on actually issuing a demand for retraction. His counsel’s latest ploy
was to say he would seek advice from “other countries” on the feasibility of suing.
That has been met with derision.
The Sarawak Report has been a particular source of irritation, with a
constant drumbeat of entries describing family and governmental misdoings. The
government has charged Rewcastle Brown with sedition and sought to have her
extradited from the UK, which is regarded as nonsensical grandstanding for a
domestic audience. Posted on August 25, 2015
By John
Berthelsen Headline,
Malaysia,
Politics
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