Is Malaysian Economy Heading in Right Direction?

LONDON, 19 April 2004 — It is almost five years since Malaysia had a finance minister who was also not the prime minister. Indeed, former Prime Minister Dr. Mahathir Mohamad started the trend by assuming the portfolio in addition to that of Internal Security, following the resignation of Tun Daim Zainuddin in the aftermath of the Asian financial crisis in the late 1990s. Before Tun Daim, the finance minister was Anwar Ibrahim, Mahathir’s subsequent designated but controversial protege and successor.

Unfortunately, the Mahathir government became embroiled in one of its ugliest episodes in the ousting of Anwar Ibrahim. Tun Daim Zainuddin was brought out of retirement to save the Malaysian economy and financial sector. He together with Tan Sri Nor Mohammed Yakcop, then special economic adviser to Dr. Mahathir, planned the revival and structural reform of the financial sector and the economy. Malaysia imposed capital controls; pegged the Malaysian ringgit to the US dollar; imposed an exit tax on foreign funds; and banned trading in the Malaysian ringgit. They also launched a Financial Sector Master Plan which saw the financial sector being reorganized into ten major banking entities, all well capitalized and able to stand competition from foreign majors. They structured corporate debt and recapitalized troubled Malaysian corporates through two institutions Danaharta and Danamodal.

So why has Prime Minister Abdullah Badawi decided to hang on to the portfolio? Is it that he does not trust Tan Sri Nor Mohammed Yakcop; or does he believe that the Malaysian economy is not fully out of the woods, and therefore requires careful nurturing and monitoring? Some analysts argue that the prime minister could have shown more maturity by opening up the centers of power in Malaysia. Despite the massive victory of the Barisan Nasional (BN), the 14-party ruling coalition of which the United Malays National Organization (UMNO) is the dominant party, Malaysian democracy suffers, like some others even in the West, from a weak opposition. Neither the DAP nor Keadilan (the party sympathetic to Anwar Ibrahim) made any inroads into the BN stranglehold in Malaysian politics.

After all, reformasi (reform) is supposedly a watchword of the Badawi campaign — rooting out corruption; and alleviating poverty, especially among the hardcore poor. Other priorities are to develop the education system, and renew confidence among Muslims. The BN has a two-third parliamentary majority, and they can push through any reforms virtually with no opposition.

As such, the burden falls on to the Barisan Nasional MPs to effectively act as an opposition from within. Almost similar to Margaret Thatcher’s reign in the 1980s in the UK; and currently Tony Blair’s government with its huge majority.

The election victory is a personal triumph for prime minister and BN Chairman Abdullah Badawi. The BN not only won back the state of Terrenganu (lost to the Islamic party, PAS in the last election); but also drove PAS to the brink of defeat in its heartland of Kelantan state. At one stage the two parties were ties at 18 seats each in the 45-seat state parliament, with nine seats forced into a recount. Eventually PAS hung on to the state by winning 24 seats to the BN’s 21 seats. In the 1999 general election, the BN managed to win only two state seats.

In fact, underpinning his victory, is the current healthy state of the Malaysian economy. It is expected to grow by between 6 percent and 6.5 percent this year, substantially above the 5.2 percent gross domestic product (GDP) growth attained last year. The country’s manufacturing sector sales rose by 13.5 percent to RM29.4 billion at end February 2004, compared to RM25.9 billion a year ago, reflecting the ongoing recovery of Malaysia’s exports and strong domestic demand.

This growth in fact, according to some analysts, is stronger if seasonal factors are adjusted for. Analysts are also predicting a low interest-rate and low inflation environment for 2004. The latest consumer price index (COI) rose by 1 percent in March, but this rise was slower than in February. The CPI, according Commerce International Merchant Bank (CIMB), is expected to remain low at 1.6 percent in 2004. Adequate capacity, increased competition, says CIMB, are expected to keep domestic inflation moderate, although there could be upward pressures due to increasing raw material prices, a growing and expanding economy; and strong consumer demand and therefore spending.

Indeed, Dr. Zeti Akhtar Aziz, the governor of Bank Negara, (the central bank), was upbeat recently said at the release of the bank’s Annual Report 2003, stressing that the Malaysian economy, post-SARS and post the global downturn in the wake of the Gulf War, is on track to becoming one of the fastest growing in the Asia-Pacific region this year, expected to be surpassed by only China, India and Thailand.