PETALING JAYA: The government should study the recent fall of the ringgit against the US and Singaporean dollar and other ASEAN currencies, otherwise pegging the ringgit to the US dollar may not have much impact but could rather cause economic problems, said Universiti Malaya Asia-Europe Institute of Economics Professor Dr. Rajah Rasiah.

He was commenting on a suggestion by former Prime Minister Tun Dr Mahathir Mohamad that the government consider the currency peg used during the Asian financial crisis to deal with the current fluctuation of the ringgit in the foreign exchange market.

Rajah said the fall was a consequence of a decline in confidence in the ringgit, or capital flight (from the capital account), and was not due to current account deficits, as Malaysia’s international reserves increased, due to its current account surpluses.

“Malaysia’s international reserves topped US$107 billion (RM470 billion) in April, which can pay for seven months of imports. That’s strong, considering a five-month import equivalent is considered more than enough.

“Rising oil prices are a key cause of inflationary pressure, and although the poor have been shielded from them through RON95 gasoline and diesel subsidies, a significant portion of these fuels may have crossed our borders” , did he declare.

He added that an increase in imports of luxury goods could not have affected the fall of the ringgit.

“Total imports of transport equipment were only 3.4% in 2021, compared to 4.6% in 2020. However, even if I did not check the composition of luxury goods in the import basket of the Malaysia, I think it has not been a key determinant of trade issues that the country is facing.

Sunway University economics professor Dr. Yeah Kim Leng said that from the perspective of domestic demand and trade balance, importing luxury goods is not a major problem.

“Consumer goods represent only 11.1% of the country’s total retained imports. The rest is intermediate capital and imports needed for industrial production, capacity expansion, transportation and infrastructure development. In addition, nearly half of consumer imports are food products.

“Luxury goods meet the needs of those who can afford the purchase price, including those in low- and middle-income groups. Restricting these imports would only increase the price, encourage smuggling and create a black market,” Yeah said.

“As long as the importation of luxury goods for so-called ‘conspicuous consumption’ is not excessive or harmful and within people’s means without causing over-indebtedness, it does not destabilize the economy or society.”

Regarding the ringgit’s peg, Yeah said that since the country is not facing a financial or economic crisis, the currency’s weakening and fluctuations reflect economic health and its management and governance. macroeconomics.

“A flexible exchange rate is like a shock absorber. Otherwise, output, wages and employment may have to be reduced in response to changing economic and financial conditions if the ringgit were to be fixed.

Dr. K. Kuperan Viswanathan, a professor of economics at Universiti Utara Malaysia, said the value of a country’s currency is tied to its economic performance and pegging the value of the currency would not work. if the economic fundamentals are weak.

He also said Malaysia had spent reasonably well on infrastructure, but not necessarily in the most cost-effective way due to over-inflated project costs.

“Resources are limited and therefore it is important to spend on projects that would yield higher returns. Spending on projects that do not generate high returns would affect economic performance,” he added.