Malaysia's central bank chief Zeti Akhtar Aziz was the usual picture of composure at last Thursday's press conference to announce second-quarter GDP figures.
Besides dismissing rumours of her resignation, Tan Sri Dr Zeti "categorically emphasised" there was no need to impose capital controls or a currency peg as happened during the Asian financial crisis in the late 1990s. Stronger fundamentals and a diversified economy would see Malaysia through, she said.
But her remarks still could not stop the ringgit sell-off. Trading at just below RM4 to the US dollar during the press conference, it was RM4.01 (S$1.37) at the market's close.
While Dr Zeti's calm was clearly not contagious, Prime Minister Najib Razak's political jitters have spread - if not magnified - like wildfire. The same night, Datuk Seri Najib tried to dismiss the ringgit's sharp decline, citing among four key factors "excessive political speculation (as) causing uncertainty in sentiments towards the administration". The ringgit opened the next morning at RM4.07. Herein lies his Achilles' heel.
His July 28 spring cleaning of potential threats and critics of his handling of debt-laden state investor 1Malaysia Development Berhad (1MDB) entrenched his political position, but the friendly fire he endured in recent months has eroded confidence in Malaysia's economy.
"With the Prime Minister more focused on 1MDB and survival, the economy is in danger of slipping into another crisis," wrote Bank of America Merrill Lynch's ASEAN economist Chua Hak Bin last week.
This could pull the rug from under Mr Najib, who has, since taking power in 2009, sold his leadership on bright economic growth by liberalising business and boosting consumption with billions in cash handouts to the poor.
In the past year, he has faced a barrage of criticism from both the opposition and his own Barisan Nasional (BN) coalition - attacks that grew louder still after reports on July 3 alleged that nearly US$700 million (S$984 million) linked to 1MDB was deposited into the Prime Minister's private bank accounts. But he does have a right to moan about investors being unduly worried about the stability of his government.
Ironically, in narrow political terms, Mr Najib is stronger than ever after July 28. The sweeping changes he made saw critics, including his deputy prime minister, ejected from the Cabinet. Two parallel probes into 1MDB were also suspended after one lost the attorney-general, who was heading investigations by a high-level task force, and the other saw the chairman and three members of a bipartisan parliamentary committee co-opted into the Najib administration.
The effective dismantling of the two probes displayed a ruthless streak and surprised many who had thought of Mr Najib as a timid and indecisive leader whose days were numbered.
With his new government now dismissing calls to charge him with corruption or for a no-confidence vote as "undemocratic" plots to topple an elected leader, the Prime Minister appears unimpeachable.
Mr Najib's approval ratings may have plunged as a result of the 1MDB saga and, more recently, the introduction of the unpopular goods and services tax, but he does not need to face a general election until 2018.
The ruling Umno's Constitution also makes it prohibitively difficult to remove Mr Najib as president outside of a party election, which has been delayed until after voters go to the polls.
But what may yet bring the Prime Minister to his knees is the continued flight of investors.
Up to Wednesday, the ringgit has dived 6.3 per cent while the Kuala Lumpur stock index has shed 9.4 per cent since Malaysia's anti-corruption agency announced on Aug 3 that it found no 1MDB link to the US$681 million that Mr Najib had received just weeks prior to the 2013 General Election.
But the anti-graft agency has said it is still investigating the funds that BN claims were political donations from unspecified Middle Eastern donors, as well as a sum of RM42 million (S$14.3 million) that was placed in Mr Najib's account earlier this year via a money trail involving a former 1MDB subsidiary.
Sovereign bond risk is at a four-year high. In the week since the announcement that Malaysia grew 4.9 per cent in the second quarter, the slowest in two years, yields for 10-year government bonds rose a whopping 30 basis points to 4.31 per cent - the highest since January 2010 - with outflows seen across all Malaysian debt instruments.
And the worst is yet to come.
According to Bloomberg's polling of forecasts, an exchange rate of RM4.27 to US$1 is expected next year. At least one lender has told clients that it cannot rule out a new all-time high, surpassing RM4.71 in 1998. At least two foreign banks have refused to take positions on the ringgit, expecting forex losses to eat heavily into interest or investment gains.
This is in spite of all the strong fundamentals and indicators that Dr Zeti took pains to point out: growing private-sector consumption, a trade surplus, enough reserves to cover six months of imports and an ample supply of financing.
What all this points to is that the sell-off is not just about the things that Mr Najib had complained about last week.
Besides excessive politicking, the three other factors he mentioned were the linkage of Asian currencies to the yuan, which China devalued recently; the fall in the prices of commodities that Malaysia exports; and money flowing towards the strengthening US dollar, against which even relatively healthy currencies such as the British pound and Singapore dollar have lost ground.
As Bank of America Merrill Lynch's Dr Chua noted, "this political crisis is probably the worst in Malaysia's history, with no resolution in sight over the 1MDB scandal and a growing 'trust deficit' with PM Najib".
The Prime Minister's fiercest opponent, Tun Dr Mahathir Mohamad, has shown no sign of holding his fire, describing the July 28 clearout as proving "there is substance in the allegations made against him (Najib)".
"The government he leads will not be able to borrow. The country's economy will collapse. And the people will suffer. This is the grim picture that lies in store for Malaysians because Najib has basically stolen the government," the long-serving former premier wrote in his blog on Monday.
Waning investor confidence is not so much about whether Mr Najib can remain in power but that his political battles look certain to continue. And as he fights his political opponents, more doubts about his leadership may fester.
Should the market turn increasingly bearish against Malaysia, BN leaders, especially those in Umno, must decide: Does the good Mr Najib has done and can do for his colleagues, including claims of disbursing massive political funds, outweigh the daunting task of explaining a tanking economy to voters?
This article was first published on August 21, 2015.
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