The defeat of incumbent Prime Minister Najib Razak and his party, the United Malays National Organization (UMNO), on May 9 was unexpected and unprecedented in Malaysian history. Mahathir – a former UMNO prime minister from 1981-2003 – led the Pakatan Harapan (PH) alliance to victory, kicking off the “Mahathir 2.0” era.
The win appears to have also surprised Mahathir himself, who admitted this week that the PH alliance may have overpromised during the campaign on the assumption that it would not gain power. Mahathir began managing expectations in July that not all the election pledges – “10 promises in 100 days” – would be delivered on time. This is hardly surprising given the ambition of the plan and the fact that his cabinet had only been finalized that month.
However, the new government has made substantial progress on its promises, which range from more populist policies targeted at lower-income groups to major strategic initiatives with geopolitical implications. The developments are playing well with the public, with a poll published this week giving Mahathir a 71 percent approval rating. It remains to be seen how long this euphoria lasts; the swell of popular support that resulted in the alliance’s victory may also be a public awakening from the disillusionment of the Najib years.
The Long Road Ahead for Corruption Crackdown
Mahathir’s victory represents a major shift away from what seemed to be a polity veering toward kleptocracy.
The 1MDB scandal has dominated the global view of Malaysia for the past few years, keeping the electorate frustrated and investors cautious. In his first 100 days, Mahathir has made good on his promise to clean up public life by overseeing a proactive investigation. Scalps have already been taken, including the high-profile arrest of Najib and several other 1MDB officials; over 400 bank accounts have been frozen.
The government is also keen to plug the hole in the nation’s finances by clawing back public funds that went missing. However, that will be a long road ahead, investigating a complex web of transactions and relying on the interest and cooperation of foreign jurisdictions. The United States’ SEC may already be primed for involvement. The SEC settled a lawsuit in March for $60 million with a movie production company linked to 1MDB that – somewhat ironically – produced Wolf of Wall Street, and Dumb and Dumber To [sic]. Singapore and Indonesia are also cooperating.
It is not yet clear if the new government’s commitment to tackling corruption will extend beyond the alliance’s political opponents. Furthermore, institutional reform and cultural change are long-term projects. In the short-term, while the high-profile arrests will assuage the domestic audience, a tightening of government tender and procurement processes would be a positive sign to international partners and investors.
Tough on Corruption, or Tough on China?
At the geopolitical level, much has been made of the proposed review of major infrastructure deals mired in corruption allegations and anxiety over foreign involvement. Projects worth a total of $50 billion, mostly financed by Singaporean and Chinese money, are under review. While Singapore may be more inclined to forgive and forget, given the symbiotic relationship between the neighbors, there is always a collective intake of breath when a country dares to challenge China.
In a recent interview, PH alliance leader Anwar Ibrahim indicated that both suspicions of corruption and strategic overreliance on China were driving the review. Observers have noted that several of the projects were questionable deals for Malaysia, lopsided in favor of foreign lenders, suppliers, and labor. This narrative also helps placate jitters in the investment community about further reviews.
Malaysia hopes that the Chinese will understand this. Mahathir will be meeting Premier Li Keqiang and President Xi Jinping on Monday and envoys have softened the ground over the past couple of weeks. This is one area where Mahathir’s experience as an elder statesman will help. He is a familiar face in Beijing with regular visits when he was previously prime minister.
Ultimately, both sides are looking for cordial and productive relations, especially given Malaysia’s position on the geostrategically important Straits of Malacca.
The review will not inevitably be the death-knell of all the projects, given the public appetite and economic need for better infrastructure. Investors expect some projects to be retendered, especially more strategic projects such as the Kuala Lumpur-Singapore high-speed rail link.
A (More) Federal Malaysia?
One promise has (perhaps) been overlooked among the high-profile corruption investigations and the populist economic policies playing to lower-income groups, such as the scrapping of the Goods and Services Tax (GST).
The government has set up a cabinet committee to properly enforce the Malaysia Agreement 1963 (MA63), as some terms of the agreement, which governs the federated structure of Malaysia, have been eroded. The pledge won the alliance votes outside peninsular Malaysia and will bolster the self-governing powers of Sarawak and Sabah.
This policy exists in the context of a more ethnically diverse approach by Mahathir. The new cabinet contains more ethnic Chinese and East Malaysians, including the first ethnic Chinese finance minister, Lim Guan Eng.
Outlook for Malaysia
The new government is widely seen, both domestically and internationally, as a welcome change after years of dissatisfaction in Malaysian politics.
The domestic policy agenda proposes a broad challenge for the new government that will test their ability to balance the books while funding welfare and the need for continued infrastructure development. The infrastructure review and the corruption investigations present opportunities to balance the books, while also repairing Malaysia’s image on the world stage with investors – especially if followed by broader institutional reform.
However, the new government will also need to focus on enhancing the economy’s attractiveness to foreign direct investment, on which its success is dependent.
Mahathir will be seeking to reposition Malaysia internationally, which may have downstream implications for ASEAN’s global role. He is already carefully engaging the Chinese, and there are indications of a revival of his Look East policy of the 1980s and 1990s in which Japan played a major role with investment and technology transfer. The relationship with ASEAN will also be important, though Mahathir may take a harder stance toward Singapore.
In contrast to his first 22-year stint as prime minister, Mahathir 2.0 will likely only last a couple of years before the 93-year-old hands the reins over to Anwar Ibrahim, currently leader of the PH alliance. But this transfer of power is on the distant horizon in comparison to what the government has on its plate now. Monday’s meetings in Beijing are of great importance as they may set the tone for the future relationship between Malaysia and China.
Ed Ratcliffe is Head of Research and Advisory at Asia House, the London-based center of expertise on trade, investment and public policy.