The "New Malaysia" - how much has really changed and where is it going?

  • Politics
  • 8 minute read
  • 29 May 2019

This month marked the one-year anniversary in Malaysia of the ruling Pakatan Harapan (PH) coalition’s election victory, on 9 May 2018, which ended the Barisan Nasional (BN) government’s 61-year grip on power. The PH won the elections on the back of public frustration over the rising cost of living, and corruption under the BN, as demonstrated most clearly by the 1Malaysia Development Berhad (1MDB) scandal involving the former prime minister and BN leader Najib Razak. The coalition came to power with promises to curb rising living costs, combat corruption and introduce economic, political and multi-racial reforms into a “New Malaysia”. It also returned Mahathir Mohamad to the role of prime minister (as the world’s oldest at 93) – a highly-respected if controversial figure. A year into its term, however, the euphoria has worn off and there is growing disappointment at the PH’s slow delivery of its manifesto promises and reforms.

How has the first year gone?

While the PH has made some inroads in terms of multi-racial diversity in cabinet appointments, fighting corruption and reducing national debt, the government has been much criticised for the stagnant economy, slow reforms and racial politics. The independent pollster Merdeka Centre’s survey in April showed a decline in Mahathir’s approval rating to 46% (compared to 71% in August 2018) and an increase in dissatisfaction at PH’s economic management to 46% from 24%, combined with a fall in the government approval rating to 39% from 79% (in May 2018).

To start with the more positive points: the PH was applauded for appointing ethnic minority candidates - including the ethnic-Chinese Lim Guan Eng as the finance minister and the ethnic-Indian Tommy Thomas as attorney-general – to critical posts that were in the past held only by ethnic Malays. Unfortunately, however, this proved to be divisive among the Malay-Muslim majority and reduced the PH’s popularity. Mahathir wasted no time in renewing investigations into 1MDB and Najib, which helped to restore investor and financial market confidence, but the PH was still criticised as being slow to fix the wider corruption entrenched under the BN’s longstanding rule, including that affecting government procurements and businesses. In terms of economic policy, the PH promptly replaced the BN-initiated goods and service tax (GST) with its promised sales and services tax (SST), but this has clearly affected revenue as the latter is less effective at raising funds.

The PH has also made some attempts to remove controversial laws and to deliver its legal reform pledges: these include attempts to repeal the Anti-Fake News Act in August, to ratify the International Covenant Against All Forms of Racial Discrimination (ICERD) in November and the Rome Statute of the International Criminal Court (ICC) in April, as well as amending the Malaysia Agreement 1963 (MA63) in the same month. All these PH-initiated legal reform plans, however, withered under pressure from the opposition United Malays National Organisation (UMNO, BN’s key component) and Malaysian Islamic Party (PAS). Despite pledging reforms, the PH remains sensitive to Malay concerns, especially after losing three local by-elections in Malay-majority constituencies due to the UMNO-PAS pact. Ultimately, therefore, there has been little progress in implementing its planned reforms so far.

Alongside these half-hearted attempts at reform, the government has given investors a worrying sense of uncertainty over its policies. Citing the need to fix the deteriorating fiscal situation, stemming in part from the BN’s secret deals to bail out 1MDB, Mahathir in late 2018 cancelled a string of foreign-backed infrastructure investments. Some key projects include the East Coast Rail Link (ECRL), multi-product pipeline (MPP), Trans-Sabah Gas pipeline and Melaka-Johor refinery pipeline – all of which are China-backed. The PH’s suspension of these projects created diplomatic and commercial tensions, before the ECRL was resumed in April after a 10-month negotiation with Beijing to reduce cost by 30% to MYR 30bn. Meanwhile, the High-Speed Rail (HSR) and Rapid Transit System (RTS) with Singapore are temporarily suspended. The suspensions and renegotiations of these foreign-backed projects will continue to cause investment uncertainty, albeit the government will claim success in reducing the costs of such projects to the state.

Why has PH only been able to enact limited reforms?

Since the government took power the PH has faced significant political constraints. Unlike in his first period in office (1981-2003), Mahathir does not have the support of a strong political vehicle; in the four-member PH his Bersatu party needs to continue accommodating its allies in government (namely the secular PKR, pro-Chinese DAP and Amanah). Perhaps more importantly, the PH’s ability to deliver reforms is largely constrained by a bloated bureaucracy (with a remnant still loyal to the previous UMNO-led regime) and the ongoing problem with the 3Rs (racial issues, religion and royalty) that passively or directly undermine the PH’s programmes. The racial and religion tensions are becoming particularly acute, triggered by the UMNO-PAS alliance and politicised pro-Malay Muslim rhetoric against the PH’s reform policies, and exacerbated by the November Seafield riot to relocate a Hindu temple which led to the death of fireman Muhammad Adib, sparking anger among the Malays.

A renewed dispute between Mahathir and the Johor sultanate (which is politically influential and respected among Malays in Johor) will also further complicate the racial and religious tensions. The Johor Sultan had already made a show of power, when the royal family in April blocked Mahathir’s PH Rome Statute treaty ratification. The Johor sultanate will continue to hold influence over Johor’s state affairs, including commercial and investment decisions.

Economic, political, policy and security outlook

To be fair, even without these political constraints, there is only so much the PH could do in one year to unravel and reform the bureaucracy and institutions, and to fix the manipulated or corrupt systems that developed under the BN’s six-decade rule. Nonetheless, PH will likely demonstrate greater resolve to increase its credibility in the remains of the first term in order to pre-empt a sense that it is a “one-term” government (this, though, remains unlikely given UMNO’s current weak state and assuming the PH avoids any major strategic blunders). Following Merdeka’s April survey, global market research Ipsos Group on 2 May also released a similar survey. While Ipsos’s findings are mostly aligned with Merdeka’s survey, its May survey shows that more than half of Malaysians (57%) remain confident that “the country is on the right track” and while public excitement is subsiding, the Malaysians remain positive under the PH government leadership.

The widely-discussed infighting within the PH has also been overplayed, including the focus on disagreements among PH allies and the prime ministerial transition from Mahathir to PKR leader Anwar Ibrahim. The PH is more stable than most foreign observers have claimed. It is true that there have been tensions among PKR factions and within the PH (caused previously by UMNO-Bersatu defections and Bersatu’s political entrance into eastern Sabah state headed by PH-affiliated Warisan party), but such tensions are unlikely to destabilise the PH or cause national political instability. Most importantly one critical pact unanimously agreed by all PH coalition members is the Anwar-Mahathir transition, which is currently scheduled for the second half of 2020, according to credible Kuala Lumpur-based government sources. This would maintain political stability in Malaysia till 2023.

Regarding cabinet composition and policymaking, there were rumours in February of a reshuffle –Mahathir continues to be worried about his current inexperienced cabinet but has held off changes in the cabinet, primarily because he does not see any credible alternatives to the current PH ministers. He also wants to avoid further hurting investor sentiment amid stagnating economy growth and the weakening ringgit (Asia’s worst currency performer in April). Nonetheless, there is an increased likelihood of a reshuffle when Anwar succeeds in 2020-21 amid growing unhappiness with the performance of several controversial ministers holding education, national unity and social well-being and labour portfolios - the last post continues to impact businesses, particularly with decisions made about the minimum wage.

In the coming four years, Mahathir will balance introducing reforms and projecting public perception that PH continues to protect Malay Bumiputera policies. As such, affirmative action policies will remain, evident in the ongoing controversy sparked by racial quotas linked to pre-university matriculation programmes, but Mahathir will try to gradually gear it towards the “needs” (namely Bottom 40 income group, B40). The PH’s immediate policy priorities are curbing rising living costs and reducing youth unemployment to ease Malays’ insecurity and - thereby - racial and religious tensions. The PH acknowledge the importance because unresolved racial tensions will indirectly lead to security risks from further unrest or terrorism – evident in this month’s foiled terrorist attack on entertainment venues, houses of worship and prominent figures.

At present, the PH’s cornerstone “shared prosperity” economic policy is targeted at closing income and wealth gaps and will focus on seven key points, including enhancing local business and industry, exploring new growth markets, reforming human capital, improving labour market and wages - underscoring the successive governments’ consistent pro-FDI and business-friendly stance. This will be the PH’s focus until the next general elections in 2023. Only if the PH successfully achieves these policy priorities will Mahathir - and his expected successor Anwar - have a stronger mandate to push through greater reforms on other economic, political and racial fronts, even including tackling affirmative action policy and promoting more equal economic opportunities for all races.