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Reform the Loser in Malaysia's Coming Elections
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Reform the Loser in Malaysia's Coming Elections

 
 

Malaysians are heading to the polls in an election seen as likely to extend the Barisan National (BN) ruling coalition’s six-decade-long grip on power. However, a win for Malaysian Prime Minister Najib Razak’s coalition is unlikely to deliver the reforms needed to drive the Southeast Asian nation toward ‘high income’ status, analysts say.

On Friday, Najib announced the dissolution of parliament, paving the way for general elections to be held within two months, likely before May 15. Nearly 15 million voters, or around half the population, will decide the contest between scandal-hit Najib and his main rival, 92-year-old former leader Mahathir Mohamad, who quit Najib’s United Malays National Organization (UMNO) party in 2016.

Najib can point to an improved economic outlook for the world’s 39th largest economy, with the central bank expecting gross domestic product (GDP) growth to reach a three-year high of 6 percent this year following last year’s 5.9 percent gain. A government report released last month said Malaysia’s estimated per capita gross national income of $9,660 in 2017 was approaching the World Bank’s high-income threshold of $12,087.

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The 64-year-old Najib has also survived a scandal over state investment fund 1MDB, under which an estimated $1 billion of the $3.5 billion allegedly misappropriated is reported to have flowed into the prime minister’s bank accounts. Najib has denied any wrongdoing, and a survey conducted last year found only 6 percent of young Malaysians cited it as a top concern.

In its election manifesto released Saturday, the BN coalition pledged to create 3 million new jobs, raise the minimum wage, increase annual cash handouts to as high as 2,000 Malaysian ringgit ($517), and waive ethnic Malay farmers’ debts.

Other measures in the manifesto, entitled “Bersama BN Hebatkan Negaraku” (“Make My Country Great With BN”) included building more affordable housing for the police and military and equalizing the cost of goods for those living in Borneo compared to Peninsular Malaysia. Tax incentives are planned for women returning to the workforce, along with introduction of universal childcare to further lift female workforce participation.

“I and my colleagues vow to develop this country from Perlis to Sarawak and on to Sabah,” Najib said at the launch event in Kuala Lumpur, attended by a reported 40,000 supporters.

The handouts, which are aimed at key voter constituencies, follow earlier moves to entrench the ruling coalition’s benefits from incumbency, including its control over mainstream media. New electoral boundaries and a law aimed at combating “fake news” were fast-tracked through parliament, while the government promised 1.5 billion ringgit for the nation’s 1.6 million bureaucrats.

Mahathir’s party, the Parti Pribumi Bersatu Malaysia (PPBM) was also “temporarily” disbanded by government order Thursday, with the opposition party prohibited from conducting any political activity for 30 days.

However, Mahathir told reporters that “as far as we are concerned, we are still a functioning party,” indicating he and other party members would stand as independent candidates if necessary.

Pakatan Harapan, the four-party opposition alliance led by Mahathir, has sought to win votes by highlighting rising cost of living pressures following Najib’s introduction of a 6 percent consumption tax in 2017. As well as abolishing the new tax, Pakatan Harapan has pledged to prevent future prime ministers from serving more than two terms.

Yet despite Mahathir’s presence, Najib is still expected to secure his second election victory since becoming prime minister in 2009.

In 2013, Najib’s coalition retained power despite losing the popular vote for the first time since 1969. A December survey pointed to BN securing a two-thirds majority in parliament with even a lower share of the vote this time, due to changes in electoral boundaries.

At Saturday’s rally, Najib described the opposition’s manifesto as “a formula for disaster,” saying it would increase government debt to more than 1 trillion ringgits.

“Up to now, not a single rating agency has approved or praised the opposition manifesto. Let us not wake up the next morning to a Malaysia we no longer recognize,” he said.

‘Institutional Problems’

Yet analysts suggest an extension of BN’s lengthy rule will not promote economic reform, despite its benefits for investor certainty.

In an April 6 report, Capital Economics suggested that continuity of governance “would provide certainty for investors and consumers” unlike in the Philippines and Thailand, where an uncertain political environment represents “a major downside risk to growth.”

“In particular, a number of key large-scale Chinese investment projects, including the upgrading of some sea ports, as well as the East Coast Rail Link, are expected to be a key driver of the economy over the next couple of years. The future of these projects would be at risk in the unlikely event that Mahathir wins the election,” Capital Economics’ Asia economist Alex Holmes said.

“However, a victory for UMNO would reduce the chances of Malaysia tackling its institutional problems. Faced with a resurgent opposition, Najib has increased handouts to his mainly ethnic Malay supporter base. His victory would likely further entrench the system of affirmative action which grants privileges to ethnic Malays in areas such as housing, education, and finance, and damages the economy by preventing the most able from rising to the top,” Holmes said.

Even worse, “there seems little hope that widespread corruption throughout the economy will be tackled” should the ruling coalition retain power.

“The upshot is that trend growth is likely to languish at around 4.5 percent [year-on-year],” he said.

“To put that into context, when Hong Kong reached the same GDP per capita as Malaysia today it grew by an average of over 9 percent [year-on-year] over the following five years. The equivalent figure for Singapore was 8 percent and for [South] Korea it was 6 percent.”

The International Monetary Fund (IMF) has called on more efforts to boost female participation in the labor force, with data showing women’s participation at just 54 percent compared to 80 percent for Malaysian men. In its latest economic assessment, the Washington-based institution suggested economic growth would slip to 5.3 percent in 2018, converging to its “potential rate” of 5 percent “in the medium term.”

Pointing to risks including high household debt, the real estate sector and more broadly a potential slowdown in China, the IMF urged further reform including measures to “encourage female labor force participation, improve the quality of education, reduce skills mismatches, and bolster public infrastructure and the regulatory framework to further encourage private investment.”

BMI Research sees Malaysia’s GDP growth slowing from 5.5 percent this year to 5 percent in 2019 and 4.7 percent in 2020, with the budget balance also remaining in negative territory at around 2.8 percent of GDP this year.

In a February 28 report, the consultancy suggested neighboring Singapore had “superior macroeconomic and political stability, and little corruption” compared to Malaysia, where “starting a business is cumbersome.”

Hwok-Aun Lee, a senior fellow at the Institute of Southeast Asian Studies in Singapore, has also accused Najib’s reforms of being “too timid to achieve real change.”

“A program of systematic restructuring is needed to raise productivity, boost wages and help Malaysia avoid the so-called middle-income trap,” Lee wrote in the Nikkei Asian Review.

He pointed to a low minimum wage, large proportion of undocumented migrant workers, and enforcement of “unsatisfactory laws” as holding back government efforts to improve wages and working conditions. Knee-jerk reactions to certain issues, such as hotels discriminating against workers wearing Islamic headscarves, had only “made matters worse.”

“Malaysia’s economic aspirations call for more wide-ranging and coordinated change than the government has put forward. More fundamental shifts are needed — much higher hourly wages, higher productivity, fewer working hours, and more balanced lifestyles,” Lee said.

Can the ruling coalition reform itself? Having ruled since independence, a larger opposition vote might help erase any sense of complacency. In the meantime, Malaysia’s push to join the ranks of “high-income” nations could be delayed a while longer.

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