Malaysia 2019: Economy, Politics and Australian Relations

The Malaysian economy registered strong growth of 5.9 per cent in 2017, but has eased to below 5 per cent in the past 18 months as political uncertainty and fiscal consolidation dampened expectations. Inflation has fallen dramatically as the government prioritises reduced cost of living pressures and lowering public debt, while unemployment remains low and monetary policy is used sparingly. Sound macroeconomic fundamentals and robust domestic consumption are helping to combat global headwinds — emerging economy crises and trade wars — despite Malaysia being among the most exposed countries as a highly integrated global value chain participant. The government has taken a slow and deliberate approach to crafting its economic agenda. It kept investors waiting on announcements following the Council of Economic Persons’ confidential reporting to the Prime Minister. The Mid-term Review of the Eleventh Malaysia Plan and the 2019 Budget expounded on PH’s vision of reduced living costs, public expenditure rationalisation, inclusiveness and regional development among the economic focal points. Such pursuits are worthwhile but dependent on redistributing scarce government funds into areas that will do little for productivity. Meanwhile education, innovation, infrastructure, privatisation and competition are among the policy areas requiring significant reform, but for which the government’s approach (beyond continuing existing measures) remains underdeveloped and unclear. In the absence of a robust medium-term structural reform agenda and a clear vision for encouraging economic growth, the government is vulnerable to a downturn in economic indicators. These risks are compounded by critical impediments to future sustainability including an unhealthy aversion to tax, transfers and debt-financed investment. PH’s early focus on governance reforms was well received by commentators and ordinary Malaysians, whose confidence in government will take some effort to restore. Prime Minister Mahathir Mohamad has made it clear to his ministers that elected officials are expected to act in the people’s interests. The pursuit of former prime minister Najib Razak and associates on corruption charges, the separation of powers for key agencies, erosions into the Prime Minister’s Department empire and promises to end the most egregious political appointments were among the promising early reforms. But greater challenges will test the capability and resolve of the new leadership, including unravelling the complex web of political patronage, revitalising democratic institutions and restoring confidence in government. Slow reform progress and rising ethnic politicking is eroding the considerable initial optimism in the ability of the charismatic Mahathir and his fresh-faced but capable ministers to revitalise Malaysia after years of policy and political stagnation. Developments in the cultural sphere are intrinsically linked to Malaysia’s economic and political prospects. Past affirmative action policies having left a legacy of extensive government ownership of industry, associated corruption, low levels of entrepreneurship and a floundering education system. There have been mixed signals from the government on the cultural front as it is hesitant to reward its supporters after promising to end divisive racial politics. Mahathir’s instinctive desire to look after the Bumiputera and his coalition’s more diverse membership and supporter base appear increasingly conflicted. The new government enjoys almost universal support among ethnic Chinese, significant majority support among ethnic Indians, but only 20-30 per cent of the ethnic Malay vote. Government statements have alternated between increasing support for the Bumiputera and emphasising the need to embrace Malaysia’s multicultural and multireligious society. The Mid-term review provided affirmation that divisive Bumiputera policies would continue alongside multicultural inclusiveness measures. Malaysia and Australia form natural partners across a broad suite of international engagement as leading regional advocates of prosperous open economies, a rules-based order, peace and stability, multicultural values and cooperation among global powers. They already boast robust trade relations, deepening investment ties, close security cooperation and a history of people connectivity. Yet a wealth of opportunities exist where greater coordination and experience sharing would deliver benefits to both parties, elevating the bilateral relationship to greater heights. Australia’s experiences provide valuable insights for Malaysia as it embarks on substantial reform efforts.