The ringgit (MYR, but more commonly referred to as RM), unofficially known as the Malaysian dollar, is the official currency of Malaysia. In 1837, Malaysia converted from the use of the Spanish silver dollar to the Indian rupee. This lasted for 30 years until 1867 when the country decided to re-implement the use of the silver dollar. In 1903 Malaysia changed currencies again, this time using the Straits dollar, which was pegged at two shillings to the British pound (GBP). It was not until 1975 that Malaysia officially adopted the ringgit, which is pegged at 3.46 RM to the U.S. dollar.
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Political Structure
The constitutional monarchy of Malaysia is divided into 13 states and two federal territories. The government is led by a paramount ruler who is elected along with a deputy paramount ruler to a five-year term by hereditary rulers of nine of the states. There is a bicameral parliament that consists of a 69-member Senate and a 193-member House of Representatives. A prime minister is elected by the House of Representatives to lead parliament. The judicial branch of the government is a Supreme Court whose justices are appointed by the paramount ruler under the advice of the prime minister.
Prominent Figures
The current Paramount Ruler of Malaysia is Sultan Mizan Zainal Abidin. The current Prime Minister of Malaysia is Abdullah Ahmad Badawi, who took office in 2003. The central bank of Malaysia is Bank Negara Malaysia. The bank is lead by the Chairman and Governor, Zeti Akhtar Aziz.
Unique Characteristics
Over many years the government has established a reputation for prudent fiscal policies, maintaining budgets close to balance. Prior to 1992, there has usually been a substantial surplus of revenue over current expenditures. Small deficits have risen occasionally, when development expenditures exceeded the current surplus. Bank Negara, the central bank, maintains strict management of the growth of internal liquidity, in the interests of limiting any inflationary pressures resulting from vigorous economic expansion. Bank Negara controls foreign currency exchange, but there are few restrictions on international transactions. When necessary the bank has imposed controls on non-resident accounts to rein in liquidity growth.
Key Economic Factors
Malaysia has been industrializing rapidly over the course of the past three decades. Previously, the economy relied on the production of mineral and agricultural export commodities-palm oil, natural rubber, tropical timber and other minor mineral, and agricultural products. It is now an economy dominated by manufacturing and services. In 2002 manufacturing accounted for 30.6% of nominal GDP, up from 30.5% in 2001, whereas the share of services fell to 50.7% from 51.8%.
A major change in economic structure in Malaysia during the last decade has been the decline in capital investment. Two economic downturns in the past six years have severely dented gross fixed investment, which fell from 43.1% of nominal GDP in 1997 to a low of 21.9% in 1999, to stand at 23.2% in 2002. The reduction has been caused by lower foreign direct investment (FDI) and lower private domestic investment. Fearing that a sustained level of lower investment will eventually lead to slower economic growth, the government introduced measures to stimulate private domestic investment in the 2003 budget, after boosting public investment for four consecutive years.
Because the ringgit, has been strong, ordinary market intervention by the central bank is limited to smoothing fluctuations, and has usually been concerned to hold the exchange rate down, rather than support it. However, early in 1996, in response to adverse movements, Bank Negara intervened briefly to support the ringgit and drew on foreign exchange reserves until higher interest rates restored stability to the exchange rate. However, the success of the government's economic policies has increased inflationary pressure both by increasing demands on national resources and by attracting speculative international hot money. In the early 1990s, the Kuala Lumpur Stock Exchange (KLSE) was a natural target for overseas fund managers eager to buy into emerging markets, as Malaysia offered political stability such as, a strong currency, sound economic fundamentals, low debt, fast growth, and moderate to low inflation.
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