Why It Matters

Economic woes weigh on Najib

Malaysia's Prime Minister Najib Razak speaks at the World Capital Market Symposium in Kuala Lumpur, Malaysia on Sept 3, 2015.
Malaysia's Prime Minister Najib Razak speaks at the World Capital Market Symposium in Kuala Lumpur, Malaysia on Sept 3, 2015. PHOTO: REUTERS

The ebbing confidence in Malaysia's economy, with the ringgit sliding to 18-year lows against the United States dollar, has forced Prime Minister Najib Razak to take emergency measures.

The embattled Malaysian leader will announce these steps today, just weeks after forming a "Special Economic Committee" that includes his brother and CIMB chief Nazir Razak, as well as Tan Sri Nor Mohamed Yakcop, famed for the currency peg and capital controls that were put in place following the 1997 Asian financial crisis.

But the Najib administration has vowed not to return to those measures. It insists economic fundamentals are solid but external forces are being felt more deeply because the the market is more liberalised than before.

The ringgit - Asia's worst-performing currency this year - traded at over 4.3 to the greenback all of last week and ended last Friday at 3.05 to the Singdollar, with analysts expecting it to slip further.

The net outflow of foreign funds from Malaysian equities for the first eight months of the year stood at RM16 billion (S$5.3 billion), more than twice the RM6.9 billion for the whole of last year. Malaysia's central bank last Friday kept its benchmark interest rate unchanged at 3.25 per cent, as was widely expected with the ringgit continuing to slide and the global economic outlook remaining uncertain.

Datuk Seri Najib has often sold his leadership on sound economic growth and desperately needs a turnaround amid growing political uncertainty.

The controversy surrounding political funding and continued doubts over state investor 1Malaysia Development Berhad's RM42 billion debt pile have resulted in growing calls for him to step down, even from within the ruling party. He has so far weathered the storm largely by using his executive power to eliminate threats from within the government. But an increasingly bearish market may force his colleagues and allies to turn against him instead of having to explain a tanking economy to voters.

A version of this article appeared in the print edition of The Straits Times on September 14, 2015, with the headline 'Economic woes weigh on Najib'. Print Edition | Subscribe