How ‘cheap’ is destroying the ringgit

KUALA LUMPUR, 3 Oct 2023:

It is easy to see why Malaysians are complaining about coping with the cost of living, given that the ringgit’s value has plunged in recent years. The problem is our ‘cheap’ mindset, which has become so ingrained over the decades, that we don’t realise how that bad attitude is destroying the ringgit and our economy.

For comparison, take a look at the Thai baht – which used to be lower valued than the ringgit. Recent trends showed a change from 2014 onwards as the baht rose in value against the ringgit.

What makes the baht’s value rise especially puzzling is the lack of any clear triggers, since the GDP of both nations are pretty much on the same track over the past decade. Both neighbours have also been facing a number of tumultuous political changes – with Thailand seeing protests sometimes turning violent.

Even more telling is the per capita income, with Malaysians (US$11,972) earning on average almost double that of Thais (US$6,909) in 2022, according to World Bank figures.

So why is the ringgit tanking against the baht? The answer is because Malaysians don’t value ourselves properly. As a good example, take our minimum monthly wage of RM1,500. Isn’t it odd to see still so many jobs openly advertising salaries of below RM1,000 even today?

As the saying goes, if you pay peanuts, you’ll get monkeys. It’s no wonder then the best brains leave Malaysia for higher wages abroad. That’s not to say those who remain are lousy – there’s simply no incentive for them to do any better because even the lazy ones get paid the same – or even higher, sometimes!

That’s exactly why the ringgit is tanking. If our best brains cannot be spurred to be more innovative and productive, because the average consensus is to keep salaries cheap, how and when will our economy ever grow exponentially?

This cheap salary issue has been ongoing since the 1970s and after factoring for inflation, monthly salaries for Malaysians are on average LOWER than their parents and grandparents! There is a fix possible to get around the cheap salaries issue – which will be discussed in depth in forthcoming articles here.

What is more critical now, especially with the upcoming Madani Budget 2024 to be tabled on Oct 13, Prime Minister Datuk Seri Anwar Ibrahim is continuing to do Malaysians a disservice with the continued ‘cheap’ government policy.

The ‘Rahmah’ cheap goods campaign has set the country back another major step as corners are being cut to offer more ‘affordable’ options for lower-paid consumers. To understand why this short-term pursuit is so devastating, here’s an illustration.

A pair of ‘cheap’ RM10 pair of school shoes would last about 3 months of daily usage. The more expensive pair of RM40 shoes can last two years or 24 months of usage. So those who buy the cheaper RM10 shoes would  end up paying RM80 in total over two years – or spend double compared to those who buy the RM40 shoes.

Effectively, the poor – who are lured into buying ‘cheap’ shoes – are being fooled into spending a lot more! Foreign currency traders and economists clearly see this destructive policy in action within Malaysia – hence why they’re so downbeat on the ringgit.

The only way out of this hellish outlook is to start valuing our resources properly, including the output of our people and industries. Staying ‘cheap’ has already hurt us all so much, it’s time for the rot to stop.