Challenging Year ahead for Malaysia

By Jed Yoong in Asia Sentinel 

The uncertain nexus between politics and the economy

Despite a relatively calm start compared to the political upheavals of 2008, the coming year looks set to be another booby-trapped obstacle course for Malaysia’s citizens and politicians.

The impact of a catatonic global economy, with sharply reduced commodity prices and sluggish demand amid a banking and credit apocalypse is already being felt. Factories have cut overtime and dropped contract workers.

Most recently, Western Digital, a hard-drive manufacturer listed on the New York Stock Exchange, announced just before Christmas that it would shut one of its plants in Sarawak, putting 1,500 jobs at risk.

The impact of these growing economic woes on the political process is becoming a major preoccupation of the country’s politicians and analysts, and not just for the general welfare. The widely held view is that Najib Tun Razak, having been nominated nearly unanimously to become the president of the United Malays National Organisation, will want to call national elections as soon as possible after the UMNO elections in March. He is seeking to legitimize his rule and rescue his battered reputation after having passed the first hurdle to replace Abdullah Ahmad Badawi, who is in effect being driven out by his own party as prime minister.

But given the growing economic problems, it is questionable whether Najib will want to take on an election. Although most factories have not laid off large numbers of workers, many have seen their incomes halved after factories cut overtime. Although Zeti Akhtar Aziz, the governor of Malaysia’s central bank, Bank Negara, said in November that domestic demand would continue to drive growth, forecast at 5-5.5 percent for 2009, it is hard to see how that figure can be met. According to the Malaysia Industrial Development Authority, exports of manufactured goods, particularly semiconductors, hard drives, audio and video products and air conditioners, make up 74.8 percent of total exports. The manufacturing sector accounted for 30.3 percent of the economy in 2007, according to MIDA.

And, if Singapore, just across the causeway, is any yardstick, Malaysia’s exports-driven economy faces trouble. Friday, the Singapore Ministry of trade and industry forecast that the island’s republic could contract by up to 2 percent, the worst performance in nearly 50 years. Singapore is Malaysia’s biggest export partner, taking RM84.3 billion (US$24.2 billion) in exports in the first nine months of 2008.

Malaysia’s exports fell year on year by 2.8% in October, after rising by 16 percent over the first nine months of the year. Industrial production also fell after September. Commodities, on which the country built decades of earlier prosperity, have cratered. Crude oil, now US$38.1 per barrel, is 73.8 percent down from its cyclical high. Palm oil, at US$1,553 per tonne, is down 63.1 percent down. Tin is 60.4 percent off its cyclical high, and rubber is down 54.1 percent.

However, inward foreign direct investment totaled a comfortable US$8.5 billion in 2007 and foreign currency reserves were near US$100 billion at the end of November, giving the government room to pump-prime

Nonetheless, “From working 7 days a week and 10 hours a day, we now just get our basic pay and allowances,” Sheila, a 29-year-old factory worker in Negeri Sembilan told Asia Sentinel. With much more free time on her hands, she started attending political talks at the Hindu temple in the Sime Darby estate where she lived. “Before this, where got time? By the time I am back, it’s already 8pm,” she said.

Estate workers with fixed salaries are much better off than smallholders as even with less overtime, they have a roof over their heads in the rather pleasant rustic countryside to enjoy poverty in a kind of bucolic paradise. Smallholders are more hard hit. “I used to get about RM1,000 or more, depending on the weather from my small lot of rubber trees. But now, the price is about RM1.20,” said Shahrizal from Rembau in Negeri Sembilan.

Crude palm oil prices have dived from a high of over RM4,000 per tonne early this year to RM1,800 per tonne. The price of Malaysian rubber has dropped by 62 per cent from RM10.51/kg on July 3 to RM3.98/kg in the middle of this month while the ex-farm price of coagulated rubber is at its lowest level now at RM1.39/kg, the state-owned Bernama national news service reported on Nov. 27.

Nevertheless, Kuala Lumpur celebrated the year end season with packed street parties. Bukit Bintang, the main shopping district, was dressed up in all things wintry and European “Christmasy” from giant Christmas trees to Santarinas grinning with glee.

But beneath the joviality, executives in multinationals (MNCs) try not to think about losing their jobs. Investment bankers in foreign banks are worried as jobs are slashed in Asia. “They just told (a head of department of a global investment bank in Singapore) that his services were not needed anymore and told him to go,” a banker who declined to be named told Asia Sentinel in December.

Civil servants probably have it better as their jobs are relatively secure — those on full-time employment at least. Cuepecs, a coalition that protects civil servants, reportedly said in October that 50,000 employees are facing retrenchment. But Public Services Department Director-General Ismail Adam denied the allegations to local media, saying that contracts would not be terminated “en masse”.

Acutely aware of which side their bread is buttered, the Barisan Nasional government led by UMNO is taking steps to curb inflation. Trade and Consumers Affairs Minister Shahrir Samad is working round the clock to reduce the prices of essentials like oil, rice, flour and sugar. He also capped retail petrol price at RM2.70, with a floor price of RM1.90.

Rubber and oil palm smallholders, however, are still on their own. Prime Minister Abdullah Ahmad Badawi told reporters on Dec 27 that the government has no concrete plans to help this group overcome the crisis but recognized that “the plight of rubber smallholder…is something that needs serious attention." Husam Musa, a vice-president of Parti Islam Se-Malaysia (PAS) and state executive councilor for Kelantan, suggested establishing a national rubber stockpile to stabilize smallholders’ incomes when prices fluctuate.

Political observers say that with greater uncertainty, the rakyat (people) would have less patience for opposition politicians like Anwar Ibrahim, the leader of the opposition coalition, Pakatan Rakyat, or People’s Alliance. The performance of Pakatan states will also be scrutinized as Malaysians compare Pakatan’s promise of a “new hope” with the old politics of Barisan.

The upcoming by-election on January 17 in Kuala Terengganu is said to be a barometer of sorts to gauge Malay support as the battle will be between PAS and UMNO, the traditional rivals for Malay affections. At the same time, local factors such as the oil royalty due to the state, development and the candidates will probably play a bigger factor. The by-election was called following the death of Deputy Education Minister Razali Ismail, who was also a Kuala Terengganu Member of Parliament.

Nonetheless, after Anwar, the head of the three-party Pakatan Rakyat opposition coalition, proved unable or unwilling in September to be able to drive the national ruling coalition from power, that has led to widespread conjecture that the opposition’s power has probably crested and that the Barisan is likely to retain power although the lesser component parties continue in complete disarray. Both the Malaysian Chinese Association and the Malaysian Indian Congress appear to have been almost fatally weakened after both parties were largely blown away in March elections.

Badawi attempted to go out on a high note, pushing two reform measures through the Dewan Rakyat in mid-December to attempt to reform the process of judicial appointments, and to widen the powers of the Anti-corruption agency.  Both measures were criticized strongly by the opposition as not going far enough, however.  He is hardly likely to be given a victory lap by a party that regards him as responsible for its diminution.

On a national level, Pakatan’s advantage may be Deputy Prime Minister Najib Razak, who has been severely tainted by allegations that continue to link him to the gruesome execution of 28-year-old Mongolian translator, Altantuya Shaariibuu in 2006, as well as for a long series of questionable defense acquisitions while he was Defense Minister that steered hundreds of millions of dollars in commissions to cronies

These questions have to be answered before the government can even think of another snap general election. The drawn-out UMNO polls campaign period that spans about six months till March is an eternity in political time. Despite the talk, few believe economic or even political questions can be dealt with in time for the Barisan to believe it can win convincingly enough to regain the two-thirds majority in Parliament that it lost in March last year.