PETALING JAYA: Prime Minister Anwar Ibrahim must exercise statesmanship by reaching out to powerful political and business elites to get the necessary buy-in for much needed reforms to restructure Malaysia’s economy, said an economist.
Monash University Malaysia economist Niaz Asadullah said nation-building is a “long journey and a collaborative process”.
“Malaysia’s legacy of the New Economic Policy (NEP) has created a complex web of vested interest groups and elites, and that too across ethnicities.
“We need these powerful groups to agree on the reform agenda. Without a broad coalition of political and business elites, who are willing to accept costly concessions, the status quo will prevail regardless of leadership at the top,” he told FMT Business.
Niaz said deep structural reforms – be it fixing the public education system or downsizing the bureaucracy – stall because either the potential losers hold too much power or because the state cannnot fiscally compensate them for the short-term losses.
Given that structural reforms involve both the state and society, the government of the day needs to understand that reforms are all about “managing trade-offs”.
“Some involve short-term pain for long-term gain. Often the pain is limited to certain social groups leaving others to profit from it. What is unpopular for the B40 (bottom 40%) may be popular for the T20.”
Niaz was commenting on former Umno Youth chief Khairy Jamaluddin’s recent statement that Malaysia needs a leader who is willing to risk his political career by taking unpopular measures to reform the economy and put it back on strong fiscal footing.
Khairy agreed with the view that the series of structural reforms the country needs was painful and could make the government of the day lose the support of the people.
The former health minister highlighted subsidy rationalisation, the goods and services tax (GST) and government pension reforms as the top three tasks that Putrajaya must carry out sooner rather than later.
The political instability that has been a feature of Malaysia’s political scene in recent years makes it more difficult for the government to undertake difficult reforms. The recent state elections which saw Perikatan Nasional (PN) make further inroads into states controlled by the unity government further compounds the problem.
KSI Strategic Institute for Asia Pacific research director Voon Zhen Yi agrees that this is certainly a problem for Malaysia as “we have had an unstable government since February 2020”.
“Any government which dares to undertake these measures will surely cause political movements that could see them being toppled,” he told FMT Business.
Voon noted that politicians generally avoid austerity measures when they are close to elections as such measures are always unpopular. However, there is a window of opportunity that astute political leaders can exploit.
“After they are given a fresh mandate of a few years, they will be less concerned about issues of popularity and political survival – that’s when austerity (and reform) measures can come,” he said.
He said the issue of accepting and “respecting the leader who takes the difficult path” depends on how the reform policy is implemented and how it affects the people.
“The upper and middle class and certainly the rich can handle these measures, but the B40 could be the ones feeling the pinch. It would also depend on how it is carried out,” he said, adding that the B40 could be exempted from these measures, and aid continued to be given to help them back on their feet.
“This strategy won’t be too unpopular and would be a middle path forward. Some of the easiest measures that won’t anger people are maintaining or increasing the budget for education, but cutting back on defence spending,” he said.
On the issue of GST, Voon opined that former prime minister Najib Razak’s move to implement the GST was the right decision, although it was highly unpopular, as it was necessary for the country’s fiscal position.
The GST came into effect on April 1, 2015, but was replaced by the sales and services tax (SST) regime in 2018 after the Pakatan Harapan coalition came to power.
While the GST was a political hot potato for Najib, it would be too simplistic to argue it was a key reason why his Barisan Nasional (BN) coalition was toppled in 2018 given that Najib’s fate was likely sealed by his involvement in the 1MDB scandal, according to many political analysts.
The elephant in the room
University of Tasmania professor of Asian studies James Chin said that in the past when BN was strong, the government would not fall from cutting subsidies or making difficult economic decisions.
“However, even at the height of BN’s power, they were not willing to deal with the elephant in the room – to reform the NEP.
“The issue now is completely different as the current unity government is politically weak because of the Malay vote,” he said, noting that there has been a succession of weak governments in recent years.
“This has been the case since 2018 and they (the government) can fall anytime, hence it is not possible for them to take difficult financial or economic decisions.
“Yes, they were more daring in certain things (in the past). However, on core fundamental changes, the difficult stuff to change the nature of the Malaysian economy, nobody dares touch it as it is seen as too toxic,” he told FMT Business.
“At the present moment, if you take unpopular economic decisions perceived by the Malay population as attacking their rice bowl, yes, you will lose power.”
That is not good news for Anwar but, more importantly, it is not good news for Malaysia as the country’s pressing economic problems such as its RM1.5 trillion national debt, crippling subsidies, huge civil service and pension burden will unlikely be resolved anytime soon.