Malaysia will be competitive even with stronger Ringgits, says Dr. M

Bernama – 22 March 2006
PUTRAJAYA - Tun Dr Mahathir Mohamad says a stronger ringgit would not jeopardise Malaysia 's competitiveness as it allows the country to cushion the impact of higher world oil prices. 

The former prime minister said when the ringgit is strengthened through a fixed exchange rate, it would enable the country to minimise the oil price hike domestically. 

He said if Malaysia strengthened the ringgit by 10 percent, then the price of imported goods should be reduced by 10 percent. 

"At the same time because the ringgit is strong, you don't have to raise the price of fuel, at least not as much, but may be a small rise so that it will not hurt the people," he told reporters after members of the Islamic Development Bank (IDB) Vision 1440H Commission visited the Perdana Leadership Foundation, here. 

He was asked on the mechanism that would have been necessary to cushion against the adverse impact of high world oil prices and in the process avoid the 30 sen rise in fuel prices announced by the government on Feb 28. 

The ringgit, whose RM3.80 peg to the US dollar was removed in July last year, has been appreciating, hitting a new high of 3.69 this week. 

Dr Mahathir said Malaysia would remain competitive against its neighbours despite the stronger ringgit as they would be more affected than Malaysia by the rise in global fuel price. 

This is because their increase in the price of fuel was much greater than Malaysia , he said. 

Dr Mahathir said input into Malaysian products for export would not increase very much as the result of a stronger ringgit. 

At the same time, a lot of Malaysian exports contain imported components, which means they would be cheaper with a stronger ringgit, he said. 

Therefore, he said, the cost of production would not increase much. 

"So we remain quite competitive. Their (the neighbours) currencies in terms of oil prices would have actually depreciated," he said. 

The neighbours have to spend more of their money to produce goods. 

So all this things can be computed and we can monitor the prices of goods and the cost of fuel and the burden borne by the government and the people will be lesser. 

Dr Mahathir said the government has the power and authority to fix the exchange rate. 

"If you allowed the exchange rate to strengthen through the market then the government doesn't know when this is going to happen and cannot make the necessary adjustment," he said. 

Malaysia removed its currency peg to the U.S. dollar and replaced it with a managed float against trade-weighted currencies in July last year. 

On Feb 28, the Government announced a 30-sen increase in the price for petrol to RM1.92 a litre, and in diesel to RM1.58. 
Source: Bernama | www.bernama.com