Friday, April 30, 2010

Keep exchange rates open

It would appear that my pedestrian reading of greater monetary movements into Malaysia in a recent blog post has been proven to be accurate. I am not insane! There is "hot money" flowing in.

There are murmurs about re-instituting some form of capital control to regulate the influx of these speculative funds into Malaysia's economy.

Analysts are expressing concern about capital controls being imposed.

I am in agreement with this school of thought that no capital controls should be instituted.

Any form of capital control runs contrary to what the Malaysian government has being pronouncing on economic issues.

The challenge is whether Malaysians are nimble enough to parlay this influx of temporary largesse into high multiplier activities as opposed to the narcissism of fooling around with Bursa Malaysia-listed shares and, buying condo properties in Mont'Kiara.

As the mariners know, when the wind blows you set the sails.

The thing is, do we have the right compass directions?

And, by the way, the economic managers shouldn't worry too much about the exporters, especially the palm oil industry.

It's time that Malaysian exporters wean themselves off their own version of a "subsidy mentality". Don't keep baying for a cheap Ringgit. That is a decidedly Third World mindset.

6 comments:

donplaypuks® said...

I agree with you there should be no capital controls though our currency can be "overseen" with a managed float as S'pore, China, India and others do.

More than that, we should allow the ringgit to strengthen and not worry about the exporters. UK, Switzerland, pore have all sen good and acceptable economic grwoth despite strong currencies.

After all Sime Darby and the like have been in this biz for over a hundred years and should know how to hedge against a weakening dollar and re-strategise and re-align their biz modules.

As to compasses, there's no doubt we should start laying the foundation to widen and deepen our economic base. Rather than plunk for the mega and flavour of the day mega investment in biotech, pharmacy, IT et al, they should look at the SME's. Not for nothing is Britain known as "a nation o f shopkeepers!!"

dpp
we are all of 1 race, the Human Race

Baharudin said...

Tuan,
I'm afraid "history" will repeat itself... the masses will go with the "flow"... unless we have "leaders" in government who dare to buck the "popular trend"... as you said, its "hot money", inevitably some if not many will get "burned"... I believe there is a dire lack of will among even the developed economies to learn anything from the recent global financial crisis... looks like they are "parts" of the "game" to me!?

walla said...

Mida and BNM should come together and hybridize an initiative to tap the hot money inflow in a mechanism that positively back-to-backs hot money to bankroll investments in innovation executed by best-of-breed foreign technopreneurs.

In a nutshell, a new financially-sweet investment program to attract the best innovation entrepreneurs to come park and use that reformated capital to get their projects started here.

This hot money is going to flow out one day soon. Why waste it on another cycle of property and stock market plays?

This time transmute and re-channel it for investments in innovation that can build high-income earnings from export activities using brains from economies from which capital flight is taking place.

Such an initiative will pin down global standards needed, create viral networks into advanced markets, introduce fresh ways of thinking and doing, jump-start the MSC in the process, pave the foundation for a real venture capital industry, create high-income jobs for locals, change mindsets and develop the local retail as well as merchandise scenes.

The alternative is to just exacerbate the present situation of getting high in the evening when the cash register rings, and then feeling dry in the morning when it flows out. To imagine that, sit at the beach and look at how waves come and go. What happens as a result? Erosion.

de minimis said...

bro walla

That's the nimble thinking that I was talking about :D

hishamh said...

By definition, hot money is not investment funding in any economic sense - it's purely capital flows which go into financial assets, not real assets. There's no way to "tap" the money for longer term productive investment that would be of real benefit to the economy.

There's precious little evidence that a fully open capital account brings any economic benefits at all, as you balance increased financial asset prices against the increase in price volatility and instability in the banking system.

Let me put it this way - the increase in money flows into the economy changes nothing fundamental, except to increase the supply of money (and hence demand) relative to real and financial assets i.e. asset prices get inflated beyond their intrinsic value.

The idea that free-flow of capital results in efficient outcomes across national borders is theology, not economic fact.

Which is why I have always been in favour of capital controls.

hishamh said...

More on capital controls:

http://bilbo.economicoutlook.net/blog/?p=9401