(Mar 13): The new Malay Muslim-majority ruling coalition — Perikatan Nasional (PN) — was forged on the shifting sands of political turmoil after the break-up of the Pakatan Harapan (PH) government after 22 months in power. In his first televised speech as the eighth prime minister of Malaysia, Muhyiddin Yassin — who led the group that broke ranks with its PH partners — pledged to be prime minister for all Malaysians despite his new coalition being dominated by Malay Muslim political parties.
On March 9, Muhyiddin made the unexpected move of appointing a new Cabinet without a deputy prime minister. In the place of DPM, he appointed four senior ministers to help him to carry out his tasks as prime minister.
The senior ministers are: Mohamed Azmin Ali, former Parti Keadilan Rakyat (PKR) deputy president, who is named Minister of International Trade and Industry; United Malays National Organisation (Umno) vice-president Ismail Sabri Yaakob (Minister of Defence); Parti Pesaka Bumiputera Bersatu senior vice-president Fadillah Yusof (Minister of Works); as well as Bersatu information chief Mohd Radzi Md Jidin (Minister of Education).
Muhyiddin’s Cabinet comprises 31 ministers. His Bersatu party has 10 ministers in the Cabinet, while Umno has nine ministers. The political crisis of the past weeks has shaken the country to its core, leaving many Malaysians who had voted in the PH coalition on promises of reform disillusioned by the electoral and political process of the country.
But while many are angered by the way the new government was formed — “through the back door” — it was nonetheless done within the law as the Yang di-Pertuan Agong has the discretion to appoint a member of parliament who, in his view, commands the support of the majority of MPs. The constitution is silent on how the King is to arrive at his opinion, which means he has absolute discretion.
Of course, the legitimacy of the PN government under Muhyiddin’s leadership will be tested when the Dewan Rakyat reconvenes on May 18, which means he has two months to get a stronger grip on things.
But it will not be easy as Umno and Parti Islam Se-Malaysia (PAS) will be the leading force in the new coalition because collectively, they will have more seats in parliament than Muhyiddin’s Bersatu.
This has caused uneasiness among Malaysians, especially the non-Malays. Some of the apprehension stems from the experience of having been ruled by the Umno-led Barisan Nasional (BN) for 60 years, when socioeconomic policies aimed at empowering the Malays and bumiputra community were abused by those in power to enrich themselves.
Malaysians still remember the reports of the Auditor-General in recent years that highlighted the millions of ringgit worth of contracts awarded by the government that went to waste because the winning bidders did not have the competence to undertake the jobs.
It is an open secret that a cosy relationship between businesses and those in power back then was the prerequisite to winning government contracts. Such relationships fuelled the leakage and wastage of resources that should have been effectively allocated for the benefit of the nation.
So, what must Muhyiddin do?
Establish political legitimacy and institute reforms
The new government ought to establish its political legitimacy through the parliamentary process, says Yeah Kim Leng, professor of economics at Sunway University Business School.
The fact that the new government was formed through political horse-trading rather than the ballot box means that it will have to somehow acquire legitimacy in the eyes of the people for it to push through its agenda.
Pump-priming needed
While the politicians were busy horse-trading in an effort to form a new government in the last few weeks, the country was — and still is — reeling from the effects of the Covid-19 outbreak, which are weighing down an economy already weakened by the US-China trade war.
In the still-fragile political landscape, the country needs a clear direction politically and economically in order to move forward.
Malaysia’s economy has been decelerating. After growing at 6.1% y-o-y in the third quarter of 2017, the country’s gross domestic product (GDP) growth has languished at between 4% and 6% on a quarterly basis.
However, in the final quarter of last year, GDP grew 3.6% y-o-y, the lowest since the 2008/09 global financial crisis. This was before the Covid-19 outbreak in late January this year, which crippled the tourism sector and further dampened trade.
The country’s exports slipped 1.5% y-o-y to RM84.1 billion ($27.7 billion) in January while imports fell 2.4% y-o-y to RM72.1 billion. Besides trade and travel disruptions due to the novel coronavirus, January was also a short working month due to the early Lunar New Year celebrations in most Asian countries.
In the first two months of the year, the benchmark FBM KLCI lost 7.5% and closed at 1,482.64 points on Feb 28.
Adding to all the bad economic news is the uncertainty brought about by the emergence of a new coalition in power — one whose economic policies and direction remain unclear at this juncture.
On top of that, the new government might also have to review and recalibrate Budget 2020, which was formulated on the assumption that Brent crude oil prices would average US$62 ($85.80) per barrel this year.
“We foresee the new government closely monitoring the state of the economy in the context of the Covid-19 outbreak,” says Afzanizam Abdul Rashid, chief economist at Bank Islam Malaysia.
He adds that the new government would be more open to prescribing additional fiscal stimulus, should the threat from Covid-19 to the Malaysian economy become more serious. In 2008 and 2009, the BN government introduced two stimuli to withstand the global financial crisis.
With consumer and business sentiment worsening, it is imperative that the government pump-prime the economy. A RM20 billion stimulus package was announced by the then interim prime minister Mahathir Mohamad on Feb 27.
However, given the government’s high debt level, can it afford to spend more to jumpstart the economy? With the economic slowdown, tax revenue is also expected to decrease, further restricting the government’s ability to revive the economy.
On this, Yeah of Sunway University Business School says it is likely that the government will seek additional revenue from government-linked institutions, such as Khazanah Nasional, or through the sale of assets and increased borrowings to offset the expected decline in tax income.
“It will, however, need to tread carefully as its current fiscal position, especially the debt level and debt-servicing burden, is close to the threshold that could trigger sovereign rating downgrades by international rating agencies,” he comments.
On whether the Goods and Services Tax (GST) should be brought back by the new government, Lee Heng Guie, executive director of the Socio-Economic Research Centre of the Associated Chinese Chambers of Commerce and Industry of Malaysia, says it should not be ruled out. “The revenue enhancement would come in handy to fill the gap in the budget coffers, which may have to be recalibrated based on lower crude oil prices compared with Budget 2020’s assumption of US$62 per barrel.”
Should GST be reintroduced, the proposed rate must be set at a fiscally tenable level, given the huge expenditure commitments.
Indications are that any rate markedly below 6% is likely to be fiscally untenable while 4% would be revenue-neutral, says Lee.
The GST should also be regressive in nature to help ease the burden on the low-income households; be simpler and easier to administer to reduce compliance cost; set a higher annual sales threshold so that small businesses will not be affected; and have a smooth rollout of the new return-filing system and quick processing of tax refunds, he adds.
“Also, the implementing agencies must have in place auxiliary measures to minimise price effects such as price-monitoring mechanisms, education campaigns and penalties for unjustified price increases,” Lee explains.
Race relations need to be strengthened
While the immediate challenge that the new government needs to tackle head-on is the economy, it must also look at race relations, which have worsened since the 14th general election, in which, for the first time, a non-Malay-based party won the most number of seats in parliament.
Issues were rampantly racialised throughout PH’s two-year rule of the country — from the death of Muhammad Adib Kassim, the firefighter who was on duty during a protest by Hindus against the demolition of a temple in Subang Jaya, to the PH government’s non-recognition of the United Examination Certificate.
Racial disunity is a ticking time bomb that the new government will have to diffuse even though the coalition will be Malay-dominated.
One of the ways to strengthen unity among the rakyat is through inclusive growth and development programmes regardless of race, ethnicity, religion and background, says Wan Ya Shin, research and publications division manager of the Institute for Democracy and Economic Affairs.
“Ensuring that policies prioritise the well-being of all Malaysians would be fundamental in rebuilding the trust of Malaysians towards the government and one another,” says Wan in an email response to questions from The Edge Malaysia.
Weiss of SUNY Albany says while there is the likelihood that the new government will focus on policies for the benefit of Malay Muslims, no Malaysian government can afford to only concentrate on about 70% of the population.
“Malaysia’s economy is substantially industrialised and globalised, which facilitates growth but requires, for instance, that the government not starve urban areas at the core of the industrial and service economy — but with significantly non-Malay (or less communally oriented) populations — of support,” she tells The Edge Malaysia.
While PN might benefit electoral-wise by pursuing just the 70% of the population by implementing socioeconomic policies favourable to the bumiputra community, such an approach is probably not in the longterm interest of Malaysia in terms of social cohesion and economic growth, Weiss adds.
However, she concedes that the government might want to do something to place greater emphasis on the needs of the Malay Muslim and bumiputra community, even if these policies are more symbolic than substantive.
“I would expect instead new social policies aimed at symbolically affirming the Malay Muslims’ sociocultural dominance.
“And yet policies likely to accelerate brain drain, and that may also run at odds with education-system changes necessary to enhance global competitiveness, are likely to be counterproductive economically,” she says.
The bumiputra empowerment agenda has always been one of the key pillars of Malaysia’s socioeconomic development over the past years, regardless of which coalition governs the country, says Lee of SERC.
However, he stresses that the allocation of funds for the development of the bumiputra community must be based on the principle of income and needs as well as geography.
Although it is still early days in the era of PN, the new government does not have the luxury of “honeymoon years” since it was formed during a period of great challenges to the economy and social fabric of the country.
Therefore, it is imperative that PN does not reinvent the wheel but continue with the good policies of previous administrations and enhance them to make them more impactful, says Lee.
He adds that public engagement is a must before the implementation of public policies to avoid policy flip-flops that hurt businesses and worry investors.
“Ultimately, strong political will is needed to undertake economic, political and institutional reforms to move Malaysia forward in a highly competitive and disruptive regional and global environment,” he says.
Without a doubt, Muhyiddin faces many challenges, made more difficult by the continuing political jockeying and horse-trading amid the Covid-19 scare. As it is, his new partner Umno has already wrested two chief ministers’ posts from his party Bersatu in Johor and Melaka. He has many weeks before parliament sits on May 18 to show he is in charge and in control.
Can he pull it off? Or are more twists and turns around the corner?
