MALAYSIA'S ECONOMY ON THE RIGHT TRACK, GERMAN EXPERTS SAY

By Manik Mehta

FRANKFURT, Aug 27 (Bernama) -- Not many Germans know the name of Malaysia's
currency except, of course, those who have visited Malaysia or have had
commercial dealings with that country.

However, forex traders in Frankfurt, Germany's economic capital, are not
only familiar with the ringgit but also know why the currency has become so
strong in recent weeks.

Forex analysts in Frankfurt closely monitor the developments in the home
countries of a number of currencies, including Malaysia, to find out how and why
the course of a particular currency is influenced.

The ringgit's current strong position is linked to the performance of the
Malaysian economy which, according to pundits here, has been doing very well,
resulting in transforming the ringgit into one of Asia's strongest currencies.

Some emerging economies still continue to groan under the pain of the credit
crisis. However, Malaysia's economy has, in fact, even surpassed the
expectations of many economists.

The Malaysian economy, as German experts say, is on the right track.

The first quarter of the current year, for example, provided a 10.1 per cent
growth while the second quarter clocked a growth rate of 8.9 per cent, the
strongest growth in a decade.

Malaysia is projected to achieve a gross domestic product (GDP) growth
exceeding 6.0 per cent for the entire year, according to Malaysia's central bank
Bank Negara Malaysia Governor Dr Zeti Akhtar Aziz.

This strong growth is having an impact on the forex market. The Malaysian
ringgit, which at the height of the credit crisis was under tremendous pressure,
has appreciated lately.

Of the Asian currencies, the ringgit looks the strongest this year, if one
excluded the Japanese yen.

At its current rate at US$0.3179, the ringgit has appreciated some 11.6 per
cent in relation to the greenback during the past 12 months.

Indeed, compared to the euro which presently fetches some 3.9863 ringgit,
the Malaysian currency has appreciated by 20.86 per cent in the same period.

In relation to the euro, the upsurge in the ringgit's value has not been
consistently maintained. However, the ringgit has certainly been able to assert
its strong position vis-à-vis the US dollar, reaching this week a stable 3.1238
ringgit to a dollar, the highest recorded value since October 1997.

Experts say that if the interest rate forecast made by Malaysia's central
bank is correct, the ringgit could appreciate even further in value,
particularly because speculators who envisage further rising rates of exchange,
do not expect any intervention against the ringgit.

The persons responsible in Malaysia have said several times that they are
striving to relax the currency restrictions and achieve a freer forex trade.

That can, indirectly, be interpreted as a tacit acknowledgement that the
recent hike in exchange rates would be tolerated.

German experts say that if one studied the strong performance of the ringgit
this year, compared to the currencies of the other Asian emerging countries,
then one could conclude that there was official approval of the gains made in
the rate of exchange.

The comments emanating from official sources and the bid to open the forex
markets are seen here as an "invitation to further increases in the rate of
exchange".

Many Germans also say that Malaysia's domestic economy is resilient and
capable of resisting pressure, giving rise to the impression that the planners
in Malaysia could live with the rise in the value of the ringgit.

Although short-term losses in the stock market would be inevitable, the
overall picture is of a depreciating dollar in its relationship to the ringgit.

A stronger ringgit would, also, have a negative impact on Malaysia's exports
which would become more expensive in the major markets of the world where almost
everything is quoted in dollar figures.

On the other hand, a stronger ringgit would make imports cheaper, including
oil imports and other essentials.

This could also have a "soothing effect" on the price development and
inflation within Malaysia.
-- BERNAMA