The ringgit dropped to a 24-year low of RM4.54 against the US dollar yesterday. However, the ringgit has also recently dipped to a historic low of RM3.26 against the Singapore dollar whilst the Indonesian rupiah has appreciated by more than 4% this year against the ringgit.
Whether this depreciation of the ringgit value against three of our major trading partners is considered by the government to be a crisis or not, the government must adopt structural economic reforms immediately to arrest the ringgit’s rapid descent or else there will be adverse repercussions on inflation to businesses, cost of living to the rakyat and our government debt denominated in US dollars. Let us examine how much more the government has to pay for its US dollar debts.
The government will have to pay an extra RM 7.7 billion to repay the principal of the three tranches of US dollar bonds totalling US$6.5 billion that Goldman Sachs had arranged for 1Malaysia Development Bhd (1MDB). The US$6.5 billion dollar bonds issued in 2012 (US$1.75 billion at 5.75% per year and US$1.75 billion at 5.99% per year) and 2013 (US$3 billion at 4.4% per year), are due in 2022 and 2023 when the strength of the US dollar is at its highest in 24 years.
At RM3.35 to the US dollar when the three 1MDB US$ bonds were issued, the principal amount of US$6.5 billion would come up to about RM21.8 billion. At the current exchange rate of RM4.54 to the US dollar, the principal amount due for the US$6.5 billion would be higher at RM29.5 billion — or RM7.7 billion more.
Cumulative interest would have totalled just over RM1 billion a year and RM10.5 billion in the past decade. A weaker ringgit this year means that the annual interest cost is around RM1.5 billion instead of RM1 billion.
In short, the weaker ringgit will cost the Federal government and Malaysians to fork out RM7.7 billion ringgit more just to repay the principal of the US$ 6.5 billion 1MDB bonds. Why do UMNO leaders and the Prime Minister Ismail Sabri choose to remain silent about these huge billion ringgit losses from the depreciating ringgit?