Malaysia’s Dilemma: Economic Reforms but Politics Stay the Same

Introduction

Malaysia’s 13th general election in May 2013 was touted by many as the “mother of all battles”. Many held the belief that the election would see the end of the Barisan Nasional’s (BN) fifty-six years of uninterrupted rule. In BN’s place would be the resolute and determined opposition coalition, the Pakatan Rakyat (PR), a coalition of three major parties: the Islamic party (Parti Islam SeMalaysia or PAS), the Democratic Action Party (DAP) and the Parti Keadilan Rakyat (PKR) led by its charismatic leader Anwar Ibrahim. Public optimism for a PR win came largely from the PR’s impressive publicity machinery. Using multiple media platforms, the PR machinery wooed Malaysians to ride on its reform agenda. Its election campaign left Malaysians hooked on the slogan: “Ubah” (Change) and “Inikalillah” (Time for change).

The election result however was a letdown for the PR. Despite the political calls for “ubah”, the BN was returned to rule for another five years. BN’s victory however was no walk in the park. For the first time in its fifty-six-year rule the party lost the popular vote.¹ It now rules with a smaller number of parliamentary seats winning only 133 seats in the 222-seat Dewan Rakyat, 5 seats less than it garnered in the 2008 elections. The PR, on the other hand, improved on their election performance taking 89 seats compared to 84 seats in 2008. It also won sizeable numbers of seats in 12 of the 13 state legislatures it contested. The PR now controls 3 state legislatures (Selangor, Penang and Kelantan), one less than the 4 states won in the last election.²

Despite the political mood sweeping the country, the markets gave a thumbs-up to the election results. The newly installed Najib government seemed to promise what the market wanted. But if the new administration seems ready to adopt market friendly policies, the same cannot be said of Malaysia’s readiness to forego its brand of politics. This essay will describe how Malaysia’s attempt at economic reform is not matched by political reform. In fact, the election result could see law-makers from both sides of the political divide promoting populist policies that can do more damage to ethnic relations.

Much Needed Economic Reform

The results removed a huge uncertainty. Months before the May election, trading of shares on the Kuala Lumpur Stock Exchange was lackluster with many investors preferring to adopt a wait-and-see attitude. The day after the election, the stock markets closed to a record high with the index crossing the 1,720 level. The Malaysian ringgit also posted its highest gain against the US dollar since September 2011.³ The BN win signalled to the market not only continuity of policies but also that Malaysia would embark on fiscal reform.⁴

In the first few months after the May poll results, the Najib administration did not disappoint. The mandate to rule for another five years gave the BN-led government the gumption to push through unpopular but necessary economic reform. The first major task that the newly formed government took was to reduce subsidies. Subsidies on goods such as fuel, sugar and cooking oil had cost the government some RM42.4 billion in 2012 — a huge amount that is equivalent to Malaysia’s budget deficit.⁵ In early September the government announced a 20-sen rise for RON95 petrol and diesel fuel, the first increase since 2010. A few days later, it announced an increase of 15-sen for RON97 petrol. Amid concerns of potential inflation, Najib defended the government’s decision stressing that reducing state subsidy was necessary given the challenging external environment. Not doing so, he said, would mean a growing fiscal deficit that could pose greater medium term risks.

Despite the cut, the government is still facing huge subsidy bills. Retail petrol prices in Malaysia are still the lowest in the region. RON95 petrol in Malaysia costs RM2.10, much lower than Singapore (RM5.56) or even Indonesia (RM3.05), another state that subsidizes petrol. In fact, Najib...