Malaysia — Slaying the Tiger Economy

ARCHIVES 2013

By admin-s On May 29, 2013

Dr. Azeem Ibrahim, Huffington Post

The outcome of the recent election in Malaysia has been a huge disappointment to democratic economic reformers. Malaysia has been continuously running budget deficits since 1998 with government debt rising to US$164.6 billion in the third quarter of 2012, bringing Malaysia’s debt-to-revenue ratio to a level similar to that of Italy’s.

After 55 years of one-party administration by the ruling coalition, it was considered to be high time that Malaysia had an alternative new vision. However, not only does it look like more of the same, but the greatly reduced majority for the ruling party makes it likely that any reforms will be postponed until October or November. This is when new party leadership elections will take place and Prime Minister Najib Razak will have to answer to the traditionalists in his party for its poor electoral showing.

The ruling BN coalition lost the popular vote, gaining only 47%, and turned in its worst electoral result ever as it was largely abandoned by minority Chinese and rejected by voters of all races in urban areas. The result should be seen as a message from voters tired of corruption and patronage politics and also a rejection of the BN’s austerity plans for balancing the budget with a new consumption tax and lower food and fuel subsidies.

Malaysia has been recognized for its strong “tiger” economy, growing at 5% in 2013 and surprisingly resilient at a time of negative developments internationally. This is despite dismal export performance because of the recession and stagnation in Europe and the slow economic growth in the US. Consumer confidence is expected to continue holding up and the inflation rate is stable in spite of higher food prices and is expected to remain at between 2.3 percent and 2.8 percent until 2016. Unemployment figures are low and expected to remain around 3 percent.

However, the underlying structure of the Malaysian economy is based on its relationship with its international trading partners and the domestic economy needs to be backed by the more lucrative external market. A vulnerable domestic economy must be strengthened if it is to continue to withstand the current global economic downturn and the status quo will no longer serve Malaysia well.

Malaysia had hopes of economic reform with the emergence of a strong political opposition under the leadership of Anwar Ibrahim whose issues based campaign pointed to the need for ongoing reform. Institutional shortcomings that constrain the country’s prospects for long term economic expansion include the prevalence of corruption and lack of transparency and a judicial system that is vulnerable to political interference.

These are pressing issues that the government must address if it is to maintain competitiveness and achieve growth potential. The folly of reducing taxes has contributed to the budget deficit, and Malaysia’s rate of 26 percent seems reckless when compared with Thailand’s 37%, where the GDP has also been growing at a healthy rate.

The present government’s appetite for debt has been escalating since 2008, negating the effects of inward foreign investment. This has been justified as government spending on commercial enterprises to stimulate the economy, but too often has been seen as funding large-scale projects that reward political crony capitalists and support their companies. The strain of debt load inevitably becomes significant and falls on the wage-earning people.