US DOLLAR MUST DEPRECIATE FOR SPEEDIER GLOBAL ECONOMIC RECOVERY, SAYS MIER

By Tengku Noor Shamsiah Tengku Abdullah

KUALA LUMPUR, Aug 17 (Bernama) -- A strong US currency is a hindrance to
the global economy to return to normalcy, says a senior economist.

Therefore, the United States must allow the greenback to depreciate for a
speedier recovery of the world economy.

"The current world economic crisis itself has a solution in it but
unfortunately the crisis is very painful," says Prof Emeritus Dr Mohammed Ariff
Abdul Kareem, Executive Director of the Malaysia Institute of Economic Research
(MIER).

He said contraction of the US economy had lasted longer than it should,
resulting in the economic imbalances to remain unresolved.

"The problem is also due to the dollar. The greenback is too strong for the
recovery to take place. Hence, the US must allow the dollar to depreciate.

"It is unfortunate the greenback has remained too strong as it is actually
beyond the US control. The dollar has been globalised, internationalised and it
is not the US that determines the value of the currency.

"It is countries like China, Japan, South Korea and many other East Asian
nations holding a huge dollar-denominated papers that don't want to see a weak
dollar.

"A weak dollar means a huge capital loss for them. A weak dollar will also
mean exports to the US will become uncompetitive. So for a variety of reasons,
other countries want to see a strong dollar, but a strong dollar stands in the
way of global economic recovery," he told BERNAMA in an exclusive interview.

Mohammed Ariff said: "A strong dollar stands in the way of the global
economic recovery. So this is why I think China's growth is much...much largely
internalise. It is not externalise like in the case of the US.

"So this is why we have to wait until the US economy recovers but the
recovery is only partial since the US will not go back to pre-crisis growth
trajectory.

"If it does, by accident, by fluke, it will not last long because the
problem with the US is that it is consuming too much and saving too little,"
he said, adding that the adjustment would have to begin.

"So I think the US will not return to its old consumption behaviour. If the
world's largest economy cannot afford to go back to the old consumption
behaviour, it is not going to import as much as before.

"This means we are not going to export to the US as much as before. In other
words, they may be settling at a lower growth path compared to the pre-crisis.

"I think we have to brace ourselves not only for slow recovery but also
the recovery that is not going to take us back exactly as we were before the
crisis.

"We may have to settle for the growth that is slightly lower than what we
were used to in the past," he said.

Mohammed Ariff said he did not see the recovery would take place anytime
soon so long the dollar stayed as strong as it is.

The dollar must depreciate by at least 20 per cent for real correction could
possibly take place but unfortunately the US' hands may be tied, he said.

On stimulus packages, Mohammed Ariff said he was worried over many countries
coming up with such packages to expedite recovery.

"This is artificial insemination. It is actually sowing the seed for the
next crisis as these countries are incurring huge debt.

"They have raised taxes or they have to print money in order to tide over
with the sluggish economy. Printing money is the thing that many countries are
doing.

"This will have potentially dangerous consequences. Once recovery takes
place and consumption resumes, these will translate into very high inflation
rate.

"This is a serious worry that we must not lose sight of. There are problems
and these problems are complex, it is not easy to undo them," he added.
-- BERNAMA