Will the falling ringgit topple Najib?

February 8, 2017

Q: Why has the ringgit depreciated so badly in comparison to other currencies? Do you think this has anything to do with the Trump factor?

A: Trump? No. But I am sure some pundits may finger him as one of the factors. The way I see it, it all boils down to two main factors – first is the price of oil has bottomed out to all time lows where the cost of extraction, processing and funneling it thru the supply chain militates against profits.

Malaysia is very relied on oil.

The second reason is China. Growth is slowing in the coastal regions in China. Alongside they have oversupply issues which will all create friction on demand.

Q: Do you see the 1 MDB scandal as a factor that has affected the Malaysian ringgit?

A: The fall of the ringgit has been gradual – if you track back it started somewhere around April 2014. So this predates the 1 MDB scandal. Besides most of it has already been factored into the calculation by investors – and so far although there is certainly the perception that Najib is involved – the fact remains he has not been directly named. Or for that matter indicted.

What I do know is there is a lot of allegations in the public square and it’s really anything goes galore and the fact that last year there was so much schism within UMNO along with Mahathir factor certainly didn’t help in the way of stability.

So I don’t see the 1 MDB case as having a big impact at all on the fall of the ringgit.

Q: Why has the ringgit fallen despite Najib securing massive investments from China. Doesn’t it seem like an economic paradox to you?

A: Paradox not at all. As most of these massive investments take a long gestation period before they can actually work to revivify the local economy – but what Najib has very skillfully accomplished is to parlay with Chinese to buy more oil palm and that has certainly had a direct and immediate effect on the local economy.

Q: You seem to have a lot of faith in oil palm as a savior of Malaysia. Do you see it as a saving grace for Najib as well?

A: let me put it this way. The price of oil palm currently stands at RM3,209 per metric ton compared to RM2,500 last year, as for rubber prices they have tripled and will quadruple soon. Now all this may seem like just meaningless numbers to you. But you’ve got to understand the social cultural realities of how politics has always been conducted in Malaysia – if UMNO is going to win in 2018, they need the Kampung votes. The city votes is increasingly getting optional. That’s the mathematical reality of how votes and seats all stack up to form the next government.

Now oil palm is the life blood that drives most kampung (rural) economies the rest are just side dishes – understand this! We are not just talking about planters like me, but downstream you have millions of Malaysians in the shape and form of harvesters, pickers, lorry drivers, mill workers right down to grannies and grandfathers who gather palm fronds to weave baskets and make brooms.

Now I live in the kampung – it is to my interest to keep tabs on the local sentiments. That’s why I keep a log on the price of everything from fish, cockles or eggplant – has inflation hit the kampung. Yes. But it’s been off set by the high price of oil palm – so the executive summary is most villagers are very happy with Najib.

Reuters likes to interview city folk who complain no end about Najib & Co. But why don’t then go and do the same with millions of Felda small holders who work the land and see whether anyone is complaining. That to me is the paradox.

Truth is the depreciation of the ringgit along with Najib’s recent deal with the Chinese to get them to buy Malaysian oil palm is what saved him – had the kampung economy collapsed. Then it would be a different prognosis.

My point is Malaysia is not like Singapore – it’s a big country with a lot of people – so it’s not entirely true to say that every Malaysian regards Najib as predation. Many do see him as a savior.

Q: Do you see Najib as a stabilizing or divisive figure?

A: You’re not listening to me again – it depends who you ask in Malaysia. If you ask the city folk who all turned out for Bersih. Of course they will say Najib is the devil. But these same ingrates don’t seem to realize their quality of life is improving with new MRT’s. Tell me what did Mamak do? He built twin towers with oil money. But did he put in place modern infrastructure and amenities that actually improves people’s lives?

So to me I see these city folk as just a bunch of ingrates who don’t ever seem to count their blessings.

Q: How much damage did Mahathir do to Najib?

A: Correction Kompf. The question is how much damage did he do to the country!

You’ve got to understand. We are dealing with two opposite personalities here. Mahathir is a street fighter. That’s how I have always seen him – he blames the habuan (corruption) culture that has riven Malaysian politics. But he was the one who propagated it to the level of theoretical science. Now he’s playing the race card with Forest city – from day I said I will bring him down with the power of the internet.

Najib on the other hand is an old school public school boy – he’s a gentlemen – is he white as spring snow? No. But then again which politician is.

The problem with Najib is he’s got shit advisors! The only one who seems to be calling the right shots is this character called Nazri – but the rest are full of shit because they’re so out of touch with the internet and the ground they have absolutely no idea how to prosper in this new age.

The way I see it – Malaysia always needs a leader with one feet planted in the West and the other in the kampung to prosper in a globalized age – I am very realistic in my appraisal of Malaysian politics. Because if you have a kampung hero – then it’s finished.

But the problem with Malaysian politics these days it’s riven with so much noise – a lot of Fitna.

It’s hard if one is not educated and perceptive to winnow truth from lies. And that is where I consider Mahathir a very dangerous element. As he is an expert in sowing the seeds of schism.

Q: What do you think Najib should continue to do to stop the ringgit from falling further?

A: It’s beyond his control. The ringgit will continue to fall. But please let us not run wild Kompf – as every single major currency in the world has gone that way. It’s not specific to just Malaysia alone.

Scale and perspective is jugular here to make an informed decision.

Q: Do you think Najib has done anything that has exacerbated the fall of the ringgit?

A: This is my personal take. I think the recent Bank Negara warning to foreign banks to restrict trading in offshore non-deliverable forwards (NDFs) on the currency, was ill conceived.

As that will only serve to spook traders who are already nervous. When Bank Negara issues such an edict. What they don’t seem to realize is it bring back bad memories of capital controls which Mahathir once imposed in Malaysia twenty years ago.

Capital controls would make it difficult or impossible for investors to remove cash from the country, rendering it complicated for them to recognize revenue and as a result it would only make make Malaysia less desirable as an investment destination.

Bank Negara shouldn’t intervene. As disrupting the NDF market doesn’t make one ounce of business sense to me – after all firms need to hedge foreign-exchange flows, that’s what business is all about – so by being heavy handed my fear is all they would end up accomplishing is hurting exports, economic growth and the external balance.

Bear in mind always there will always be certain realities that the Malaysian economy cannot run away from – for instance the high foreign ownership of Malaysia’s government bond market – so that last thing hon want to do is precipitate capital outflows by spooking people who want to make money.

Malaysia is particularly vulnerable as 40 per cent of Malaysia’s government debt is held by foreigners or non-residents. I can’t recall the figure but it’s definitely over USD$50 billion – so I think there was definitely room for improvement in the planning over there.

Q: Do you see the depreciation of the ringgit affecting the local and surrounding economy?

A: In the short term. No. Infact this year the haze is going to be a no show because of La Niña – so the lower ringgit will definitely auger well for the tourism industry as a whole. As for exports – that’s a mix bag. As what you need to understand is even manufacturers that leverage on localized commodities such as for example latex to produce rubber gloves need to import nitrile and that means there will definitely be some winners and losers.

The problem as I see it is the industrial base in Malaysia is still very dependent on US pegged imports in the conversion process from raw material to finished goods – machinery, chemicals and even stuff like cables all need to be imported from either to EU and US – so to me there is no such thing as a hundred percent manufactured product that doesn’t need something from abroad. Even plastic coat hangers in the pasar malam need specialized steel for the moulds, plastic moulding machines parts and only a certain percentage of plastic resin can be recycled. All these come from abroad. And this is across the board from every sector ranging from fisheries that need parts to even my sort of business where fertilizer is imported from Canada to Germany.

That simply means in the long run – inflation will bite. The cost of living with ratchet up and I see this all as a function of two factors.

Firstly Malaysia has been too dependent on oil revenues. Secondly, the Chinese economy is definitely slowing down. And the causal factors for the slow down are at a systematic and structural level – so things are not going to improve in the short term.

Oil it seems. The price per barrel may go up. But I am not optimistic as OPEC is mired with so much disunity and each member state has it’s own agenda – so I don’t see any upsides at all. As all these problems I mentioned will take time to sort out.

Q: What do you think is one area that holds out the greatest revenue potential for Malaysia to ride out this economic storm?

A: I think foreign investment from specifically China is one area that should be aggressively encouraged. But unfortunately, in Malaysia it’s been politicized to such an extent that it’s hard to say where it might go – but there is plenty of potential in that area.

The other is tourism which in my opinion has been not really been given the priority it deserves and should be revitalized especially since the US travel ban will alter the tourist industry dramatically. Malaysia has a lot of potential there but the problem is the nexus between officialdom and the tourist providers are way to weak. For example I am trying to get the traders in Bukit Bintang to organize themselves so that they can be more strategic in the way they attract tourist at different times of the year – before Ramadan for example Arabs like to travel. So if the streets there are all lighted up and dressed up – that could be good. In my view too much emphasize has been placed on malls and shopping – and that is a very bad mistake as who in their right mind wants to come all the way to Malaysia just to visit another mall that they could just as well do in Sweden or for that matter Dubai.

There’s also the potential the kampung tourism which shouldn’t be underestimated as a serious revenue generator – I am not talking about beaches. But forest reserves. And even really everyday stuff that Malaysians would take for granted. You know recently I chanced on a few cyclist from Norway who were ridding from Singapore to Thailand and I showed them how oil palm and rubber is harvested – it was fascinating to them. It’s everydayness to me. But to these people who have never ever seen it been done before it’s was certainly an eye opening exercise. They stayed in some home stay in the kampung in one my harvesters house. They enjoyed it immensely. So far all these tourist activities are not really well organized – they could be better done.

Q: What do you think Najib should do to improve his perception with Malaysians to help him win?

A: 1MDB is a big stone that weights down not only Najib. But it also puts UMNO and the BN in a bad light as well – as by just being part of the system one is seen as condoning corruption or at least complicit. There is definitely a need a resolution here.

Now the question you have asked is – what should Najib do in to win?

The first is to manage the perception intelligently. Strategically. This is where I go back to my point – Najib has advisors who really have shit for brains! There is no way to soften this. As it is what it is.

Firstly. Forget the idea of trying to clear his name. He will never be exonerated from his involvement in 1MDB. That is a hard point that he can never hope to win decisively – it’s like hand to hand combat in Stalingrad. As there is really so much Fitna out there in the internet – that’s a battle that if he invest resources fighting in. The best case scenario is he will just reinforce failure. The worst case is that he will just sink deeper into the scandal.

What he needs to do is broadcast a very strong and unambiguous message that he and his team are against corruption. This is 101 psychology.

Look at it this way. How do I go about effectively convincing people who believe that I am corrupt that I am not corrupt? The best way to do this is to expose and bring the corrupt to book! I set a zero tolerance bar on corruption. Right across the board. I make it so widespread every single day that when average Malaysians flip their newspaper the first thing he reads about is the corrupt being brought to book on a regular basis.

Like I said this is psychological warfare 101 by using specifically reverse psychology – keep on doing this. And at some point public perception will certainly change – because it’s pointless to try to neutralize the internet. That to me is a lose lose proposition that pays out very little.

You know. People can be malicious. That’s a fact of life. Even in my case. Some people say I steal fruit that is why my yield beats the national average – so what do I do? Do I spend one hour talking to every small holder trying to convince him that I am not a wolf in the sheep’s clothes? That’s stupid. What I do is impose zero tolerance on stolen goods – I round out all the fruit thieves in the area. I organize villagers to patrol their fields on a rota basis. Soon that negative perception dies a natural death and all that everyone can remember is this guy is a straight as an arrow no nonsense fellow.

Whether that is factually true or not is immaterial – what I am trying to illustrate here is how malleable people’s perception can be and how it can be managed effectively.

The second strategy is leverage in soft instead of knuckle duster power – in my considered opinion the controversial Sedition Law should only be used sparingly. Better if it’s not activated at all. As it simply too authoritarian and out of synch with the times. Every time it’s invoked the average Malaysian’s discontent with Najib spikes dramatically – it’s like one those tools where every time it’s used the user suffers a self inflicted wound – the job gets done of course. But the nett result is a total loss.

The third is engage the Malaysian intelligentsia. If you read your history. You will find one constantly repeating leitmotif – leaders who don’t make an effort to reach out and engage the intelligentsia in meaningfully ways always end up in the garbage heap of history – as a leader one always needs the thinkers to be in your breast pocket. Because they are the people who can plant flags in the mind of the masses with just the power of words and ideas – it’s a very cheap and efficient weapon system that requires a lot of firepower to blunt.

The paradox is if you look at the goals and aspirations of most Malaysian intellectuals – what do they want? They want exactly the same thing that Najib & Co is working for – there is no divergence. But because knuckle duster tactics are used. These erudite group take up hardened positions and now it’s like trench warfare – this needs to all end.

There is a desperate need for a Mao and Nixon moment – where there is a dialogue to set aside the divisiveness, enmity and parochialism that is so prevalent these days in Malaysian politics.

Q: What do you see as the most serious long term problem that will afflict Malaysia if the economy gets worse?

A: Brain drain. This hardly requires any elaboration. Look at India, Africa and most countries that continue to haemorrsge the brightest – to me the idea of economic growth goes in tandem with intellectual capital – it’s like a bicycle with two riders – if guy in front is good, but the guy behind can’t pedal for nuts. It’s uphill. If it’s the other way round, they will both end up with tubes sticking out of their mouth in hospital – it’s axiomatic. Anecdotal. Factual. Growth prospects have a direct correlation with the capacity of a nation to grow and most importantly retain intellectual capital. That is why India and the entire continent of Africa continues to languish – having said that, there is silver lining – if the economy and political climate stabilizes in Malaysia – many of brightest and upwardly mobile may return. This was what makes Taiwan such a resilent and dynamic economy. As in the 70’s when the KMT was around. Most Taiwanese went to the US. Not all returned. But enough did to bring back the innovative and creative culture that allows them to create value added products and services. In Singapore. No one returned. Or at least not in sufficient numbers – so nothing happens. It’s still a rubber stamp FDI economy. Same thing with India. Today India is the Silicon Valley of Asia – this was only made possible in the past two decades exclusively by this repatriating Indian diaspora, which brought risk taking, capital, core competencies and a western corporate culture of approaching and solving problems.

Left to those who stayed back. Mumbai would still be cow powered by the bullocart.

Bear in mind brain drain is not only on an individual scale it is also at a corporate level. Why do you think Tata bought up Land Rover? Even state own ever greens like Hindustan motors are looking to relocate abroad. As many businessmen are disillusioned with India’s political sychozephia and seemingly ineradicable corruption and layer upon layer of red tape. Facts are brutal. They can’t find neither the quantity or quality of intellectual capital to make their businesses turn. Hence Tata, Mahindra, Birla – are all running from India.

Malaysia has a big problem – education standards are declining at an alarming rate because the Chinese want Chinese schools that only teach their circular in Chinese. The Tamils for the same reason and Malay schools do so for the very same reason – there is prioritizarion on English. Only the rich can send their kids to international school – so what you have is a polyglot society that is very ill equipped to plug into a globalized society.

You know recently when I was fixing my car I asked the mechanic to hand me a monkey wrench – he told me that they only have that in the zoo. I go to hotel and ask for a room with a double bed and they bill me for two rooms.

But again I am realistic – education in Malaysia has always been mired only because it comes encrusted with cultural pride, identity and perhaps even self interest on the part of those who rather keep the status quo even when it doesn’t produce the goods.

It’s uphill. I think the Malaysians should learn from Singapore. In just the last ten years a steady influx of wealthy businessmen and financiers has made Indians the highest-income ethnic group in Singapore – that speaks well.

As in a globalized society – intellectual capital is worth it’s weight in gold.

Nothing personal. Even I am thinking of going to the Ukraine to grow wine and ornamental flowers. Infact North Korea is also good for Pomelo’s.

In my assessment. The new power train of growth will only be intellectual capital in an increasingly globalized world. Don’t believe me just switch on the TV and watch how much truck loads of rotten tomatoes is dumped on Trump by corporate America.

Again all this is axiomatic, anecdotal and factual – I am not sitting in a hut writing all this with candle power…this is the inconvenient truth that has to be discussed if Malaysia is to remain sustainably at the top of the game.

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