UNIVERSITI TUNKU ABDUL RAHMAN

UALE1023 ENGLISH FOR BUSINESS

FACULTY: FACULTY OF BUSINESS AND FINANCE

COURSE: BACHELOR OF BANKING AND FINANCE

TUTOR: GLADYS KOH

TUTORIAL GROUP: T1

NO. STUDENT NAME: STUDENT I.D YEAR / SEM.

1 LEE TING ZHANG 1308154 Y1/S2

2 TENG SHI WEI 1307968 Y1/S2

3 CHUA SIAN RUI 1307672 Y1/S2

4 YEOW PENG QING 1308391 Y1/S2

5 YEOH ZYN GUAN 1305709 Y1/S3

Introduction

During the colonial and post-Independence period, Malaysias economy riding

high on a feel-good wave of optimism. The Kuala Lumpur Stock Exchange was one of

the most active in the world with the benchmark KLSE Composite Index (KLCI), trading

above 1200 point mark. After the mid-1980s recession, Malaysian economy underwent a

tremendous transition in the structure of economy. During 1987-1996, the Malaysian

economy grew at an average rate of 8.5 per cent.

However, Malaysia entered into one of its darkest period in contemporary history

when the ringgit came under attack by speculators. In May 1997, the ringgit has dropped

against major currencies and reached 15-years nadir against the Singapore dollar when it

fell to RM2.54 to S$1. The US dollar also reaching 3-year low of RM3.31 to US$1. By

July, all major Southeast Asian currencies were being sold off, flooding the market and

causing their value to drop. The result is banks started to recall loans which caused in

several companies filing for bankruptcy. The rating on Malaysian bonds also fell to junk

value as confidence plummeted, as did the KLCI which plunged to below 600 points.

Summary

By July, all major Southeast Asian currencies included the ringgit were being sold

off, flooding the market and causing their value to drop. The ratings on Malaysian bonds

also fell to junk value as confidence plummeted. Malaysia, under Tun Dr Mahathir

Mohamad, refused to acquiesce to the cure that prescribed by the International Monetary

Fund (IMF) which letting troubled assets go bust. Instead, the Malaysian government

created a scenario to help control the value of the national currency. The measures did
work. The economy and the currency were stabilized by a massive injection of public

funds. But, the massive injection of public money caused a Budget deficit which the

country has yet to manage to overcome. Today, Malaysia faces the prospects of the twin

terrors of current account and Budget deficits along with the lack of progress on reducing

spending. The Big 3 ratings agency Fitch had downgrading Malaysias sovereign credit

rating from Stable to Negative on the 30th of July. The downgrade was spook foreign

investors. The foreign investors have been reducing their holdings of Malaysian bonds in

June. Besides, the declining current account deficit was also a cause of concern with

regards to depreciating ringgit. A weaker ringgit makes Malaysian exports more attractive

in overseas markets. Depreciating ringgits also helps strengthen the price of palm oil and

palm oil futures as those are denominated in the Malaysian currency. The weaker ringgit

makes it more attractive for foreign visitors to come to Malaysia. Flexible currency

exchange rate and strong balance sheet of Malaysia help to avoid from the high risk amid

the current capital outflows. Regardless of the positive and negative consequences, the

depreciating ringgit is mostly bad news because it is a symptom of a lack of confidence in

the currency and in the Malaysian government by investors. Malaysia will not progress to

become a developed, high-income economy if it does nothing about the deficit. Malaysia

may be able to survive without significant foreign investment through domestic

consumption and trade, it will be a flat-lined economy. Fiscal reforms are needed fast if

Malaysia intends to change the status quo.

Strengths

Business students would find this article useful in their learning purpose. This is

because this article analyzed the reason happen of Malaysias deficit and depreciating

currency, which is the long-term consequences of short term cure used to solve the Asian

Financial Crisis, occurred in the 1997. Besides, this article also listed the foreign

investors have been reduced their holdings of Malaysian bonds and provided diagram to

show the authors research for more details purpose. Not only this, article also pointed the

government of Malaysia were lack of action in solving this crisis which cause this crisis

cannot solve in a short period. On the other hand, this article indirectly pointed out the

dangerous of holding the Malaysias currency and the dangerous of invest in Malaysia.

However, this article also analyzed the benefit of depreciating of Ringgit which can

attract more foreign investors invest in Malaysia since that this means a lower cost for

them. Through this article, readers can have an understanding in the actual happen of

crisis especially for those new generations which born after the 1997 Asian Financial

Crisis because they do not know what had happen at the past and the action taken by

government.

Weakness

This article talks about the depreciation and deficit of Malaysias currency. After a

glance at the article, it states out several points of why Malaysias currency facing the

problem of depreciation and benefits as well as disadvantages of the depreciating

currency of Malaysia. It provides a good reference to business students to get a better

understanding with Malaysias currency trend compare with other countries.

 However, there is flaw in the article. The internal problems of Malaysia that are

causing the declining of the value of Ringgit Malaysia were rarely mentioned throughout

the article. Instead, the article focused on differences between other countries currency

and Malaysias and how does other countries affect Malaysias currency. In other words,

the article presented a one-sided view on the causes of decreasing of Ringgit Malaysia.

The article revolved around the aftermath of declining of Ringgit Malaysia but

doesnt talks about how to minimize the particular effect and overcome it. It is important

to get an idea about the outcomes of the depreciating of the currency but also the

minimization of the particular effect as well as recover from it. Henceforth, the article

seems to be missing out something without briefing on how to overcome and minimizing

the effect of the aftermath of declining currency.

Conclusion

In conclusion, Malaysia government needs to do something to the deficit and

depreciating currency of the country to avoid the crisis of confidence from other country

and Malaysia citizen. Confidence from other country especially Malaysias main trading

partners is very important because the spike in imports and concurrent drop in exports are

cause by this problem. Malaysia government need to take action to increase Malaysias

economic because there are huge difference between the situation in 1990s and today. In

1990s Malaysias budget does not in the red but Malaysia faces the prospects of the

terrors of current account and budget deficit. On the other hand, the chief economist at

CIMB Investment Bank, Lee Heng Guie said that they do not see a high risk for Malaysia

amid the current capital outflows because Malaysia has a flexible currency exchange rate
and a strong balance sheet. Weaker ringgit makes Malaysian exports more attractive in

overseas market, even without the decline in exports, a falling ringgit creates the risk of

Malaysia falling back into the past when being cheap was a selling point but a

depreciating ringgit helps strengthen the price of palm oil and palm oil future as those are

denominated in Malaysia. Malaysia economy is a concern because Malaysias domestic

economy is not large enough to be self-sustaining. Moreover, Malaysias government

does nothing about the national debt and deficit does not help at all. The crisis of

confidence is because of the lack of action from the government, so, Malaysia

government need to take action to this problem immediately to solve the problem of crisis

of confidence.

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