A couple of problems here. Purchasing Power Parity (PPP) is no more than an academic curiosity these days, for the simple reason that it doesn't remotely describe currency movements even between advanced economies, much less for emerging markets. So there is no firm foundation for using it as a basis for evaluating currency misalignments.
It therefore follows that analysing currency policy based on PPP values is also a red herring.
In fact, based on current theories, it's possible to argue that the causality runs the other way from your analysis - an export-oriented strategy results in low relative incomes and a depressed exchange rate, rather than a weak currency being used to support export competitiveness. Which means that the MYR exchange rate is in fact market-determined, and there is no deliberate central bank policy to weaken the currency.
You make a few good points... herein lies the 64,000 dollar question... is Bank Negara deliberately suppressing the ringgit?
Considering that the ringgit is tightly controlled, and is not totally freely exchangeable overseas, BN exerts a lot of control over the ringgit. What I mean is that no hedge fund or trade would seriously dare to bet against BN's persuasions, they would rather bet alongside with BN's persuasions. When the currency is "limited" in its free trade and its circulation, that is tantamount to controlling the currency - not that that is a bad thing. For a small open economy like ours, we cannot seriously have a totally free floating currency, how do you think our exporters and services sector going to adjust if in January the ringgit is 3.6 to the USD and in May its 4.1 but by October its 3.1.
I am more concerned in the usage of the ringgit to shape the industries we have over the longer term. Yes, short term, fighting inflation is priority number one followed by maintaining a sustainable economy. But just look at where the ringgit has been over the past 20 years. I remember it was 2.7. What that tells me is that we are deliberately attracting FDI via such a mechanism.
The ringgit should be managed, but manged to appreciate so that we can flush out those industries that should not be here. We need to move up the value curve. Ifwe have an internal target of 3.2 average for 2010, 3.0 average by 2011 and 2.8 average by 2012, believe you me, we will see some industries being taken out naturally or indrectly. The kind of FDI we attract will be different for sure. We have the resources, don't short change ourselves, don't keep adding low cost foreign workers, it makes the substantial bottom rung of the industries stay manual and low value add.Yes, its easier said than done as industries will be displaced, jobs will be lost... in other words this is exactly the structural unemployment that we need to go through. Its tough, business wise and politically, but being in positions of leadership, we must make tough decisions or else we will lock ourselves into the same sandstorm. It is very sad to see the same sunset industries still operating in Malaysia 5 or 10 years from now.
... Oh, you want to do large scale manual soldering... go to Malaysia, there got plenty of cheap labour... Even if we keep bringing these labour intensive FDI, the best jobs that Malaysians can hope for is factory manager of a labour intensive factory looking after foreign workers. Get the ringgit to where our resources should be, and not cater and pander to the lowest common denominator.
p/s photo: Miwa Cocoa