By Wong Chen
The last six months have seen a lot of highs and lows. At the end of this tumultuous six months period, we are now at a time filled with a lot of economic anxieties on the back of the weaker ringgit, rising food inflation and general political instability.
In this article, I will provide a commentary on politics and economics. At the first quarter of the year, Malaysia was on track to slowly recovering from the Covid-19 pandemic. When we entered the endemic phase on 1st April 2022, things looked even brighter. However, while things did improve initially, the world was then hit by the full impact and economic costs of the Russian invasion of Ukraine in mid April 2022. Since then, this has taken the wind out of the sails of global economic recovery.
Recall that on 24th February 2022, Russia invaded Ukraine. As a pacifist, I immediately took an anti-war stance on the matter and raised several points in Parliament. I warned Parliament of the dire consequences of the war as Russia was a major supplier of fuel and gas for Europe.
At one point, I was also in touch with a Ukrainian MP and pushed for a peace agenda at my Inter Parliamentary Union working group meeting. I also took part in the International Red Cross forum in Parliament, to promote the principles of the Geneva Convention for the protection of all from human rights abuses from armed conflicts.
However, since my area of expertise is primarily on finance and international trade, the invasion was starting to negatively impact economics in late March and early April. By end of April, the alarm bells starting ringing in full. Ukraine and Russia are big wheat producers. Russia supplies 26% of the world fertilisers. Ukraine is a top producer of sunflower oil.
In the subsequent months, the world saw rising fuel costs, with supply disruptions of wheat, fertiliser and cooking oil as a direct result of the war. These factors then caused other commodity prices to also run. When the initial Russian advances were stopped by a determined Ukraine, the forward trading positions taken by speculators shifted to fears that the war may drag on for years. These outlooks coupled by real supply disruptions triggered a massive inflation spike in May 2022. In many Western nations, the inflation rate rose above 7%, the highest since the late 1970s.
In response to this, the US Federal Reserve has decided to dramatically raise bank interest rates, so to cool inflation. This then caused capital to flow back to the United States, triggering currency devaluations globally. The Malaysian ringgit is not spared from this devaluation but we fared worse than Singapore and Indonesia. This low demand for ringgit situation is then exacerbated when China, our largest trading partner decided to go for lockdowns in May in response to a spike of Covid-19 cases.
While many of the above international factors are beyond our control, the current government, in a series of policy missteps have not helped to alleviate the situation.
Many rich and private individuals, together with GLCs and GLICS continue to move, keep and hoard dollars overseas. This most recent round of domestic capital flight is a direct vote of no confidence in the current political leadership of the prime minister, seen to be weak and supported by ministers lacking in competency. The open electoral quarrels between government parties, the lack of faith and trust in Malaysian politics have also clearly spooked domestic investors.
The failures of the authorities, in particular the Securities Commission poor handling of the Azam Baki, Serba Dinamik and CTOS cases; have also driven away portfolio foreign investors, driving the ringgit value further down.
While the ringgit devalued, the government is able to contain inflation with subsidies. However, it is clearly struggling now that the subsidies bill is expected to cost close to RM80 billion and there is no clear answer how these subsidies will be financed. If the government is unable to provide finances to maintain subsidies in the next three months, then inflation is set to spike for Malaysia too.
As it is now, we are witnessing our food imports going up to an estimated RM70 billion this year, and that the weak ringgit is contributing further to food inflation. Since global transport costs are high, wheat and cooking oil are in short supply, and fertilisers are extremely high, we are now facing the worrisome prospect of food insecurity. This worry is best illustrated by the inconsistent government policy on the supply of chicken. There have been two U-turns on this chicken policy within a spate of one month. More worrying is that the prime minister and his cabinet are finally exposed to be indecisive, incompetent and out of depth on this relatively small matter of chicken. And we are supposed to depend on them to competently handle the much bigger issue of currency and inflation?
It would be apt to describe the government’s current approach is driven not by data but populist sentiment. If the government can’t deliver, then we will need to step up on personal responsibility to our family and community. On my part, I will continue to do my best in providing inputs and advisory (setting aside political differences) when serving in the bipartisan National Recovery Council. As an Opposition MP in Parliament, I will redouble efforts to critically keep the government honest and competent via my work in the Parliamentary Select Committee on Finance and the Economy.
Lastly, I wish all a better and more productive next six months.