As political uncertainty keeps investors away, will Malaysia become like Brazil?
(Bloomberg/MMO) – Meet Malaysia, the new Brazil.
Nearly felled by the Asian financial crisis in the late 1990s, the Southeast Asian nation recovered to become a global commodities juggernaut, known for its stable government and investor-friendly policies. Now, with its premier enveloped by a multi million dollar funding scandal, Malaysia risks being infected with the kind of economic malaise that has struck its emerging market counterpart in South America.
Prime Minister Datuk Seri Najib Razak, 62, has denied any wrongdoing. But as investigations continue and opponents like previous premier Tun Dr Mahathir Mohamad call for his resignation, the danger is the leadership stays in fire-fighting mode. The economy is already hit by a slowdown in prices for oil and natural gas, and Najib is expected to make bigger handouts to the poor in the budget on October 23. Could Malaysia slide into a “lost decade”?
“Malaysia risks not just being left behind, but falling off the radar all together, especially with foreign investors,” said Jim Walker, managing director at Hong Kong-based Asianomics Ltd and former chief economist at CLSA Asia-Pacific Markets. “People are definitely shying away from Malaysia,” he said, and the politics of Malaysia is “by far the biggest threat”.
Foreign investors are noticing. They pulled US$4.6 billion (RM18.9 billion) from stocks and bonds last quarter and sent the currency to a 17-year low. While the ringgit has since recovered alongside emerging market currencies it’s still down about 15 per cent this year, the worst performer in the Asia Pacific region. Approved foreign direct investment fell about 42 per cent in the first half of 2015 to RM21.3 billion.
“The reforms are not taking place because Najib is preoccupied,” said Datuk Saifuddin Abdullah, a former deputy minister in Najib’s government and ex-member of his United Malays National Organisation (Umno) supreme council, who has now joined an opposition party. “It’s maintenance mode” for companies as they wait for an end to political uncertainty, he said.
