SINGAPORE (Feb 28): Over the past week, Malaysians have once again been rocked by political turmoil. This time, it was an attempted coup to destabilise the ruling Pakatan Harapan (PH) government. The last 20 months since the PH coalition — made up of Parti Pribumi Bersatu Malaysia (Bersatu), Parti Keadilan Rakyat (PKR), Democratic Action Party (DAP) and Parti Amanah Rakyat (Amanah) — took over governing in Putrajaya has been marked by sluggish growth. They have also been trying to clean up the mess left behind by the previous Barisan Nasional (BN) administration (which comprised of United Malays National Organisation (Umno), Malaysian Chinese Association and Malaysian Indian Congress).
But the new government has borne the brunt of anger from Malaysians over slow reforms and perceived failure to live up to election promises. PH even lost four of nine by-elections to the BN. For awhile, this fragile coalition seemed to be hanging by a thread. Then, whispers of a plot to oust the government — initiated by a rebel faction consisting of Bersatu and several PKR MPs led by Azmin Ali, the former Economic Affairs Minister and PKR’s deputy president – surfaced. Azmin is said to be the key mover of the so-called National Alliance formed on Feb 23. The aim: To form a wider coalition with opposition parties Umno and Parti Islam SeMalaysia (PAS) thus creating a ‘backdoor government’.
All parties involved initially denied the rumours but it was no secret among political watchers that Azmin had fallen out with Anwar Ibrahim, PKR chief and Prime Minister-in-waiting. Azmin was recently implicated in a sex scandal allegedly instigated by Anwar. This led to Azmin openly defying his former mentor on several occasions.
On Feb 23, PH was dealt with a serious blow as Bersatu, Azmin, and 10 rebel Parti Keadilan Rakyat (PKR) MPs left the coalition. With 37 seats held between the defectors, their exit meant that PH has lost its majority in Parliament, leaving its remaining coalition members DAP and Amanah in the lurch with only 92 seats. This was not enough to command a majority of 112 out of 222 seats to retain power. Their exit also paved the way for the BN, PAS, and three BN-friendly, Sarawak-based parties to form a coalition with Bersatu and the rebel PKR MPs. BN has 42 seats in Parliament while PAS and the Sarawak-based parties both have 18 seats each. Altogether, this new coalition could have at least 115 MPs — enough to form a majority.
But then came another twist: Prime Minister Mahathir Mohamed handed in his resignation letter to Malaysia’s King or the Yang di-Pertuan Agong on Feb 24, and quit his post as Bersatu party chairman shortly after. Mahathir’s resignation essentially stalled the formation of the ‘backdoor’ government made up of BN, Bersatu, PAS and breakaway PKR MPs. This prompted observers to theorise that Mahathir was not the mastermind behind the attempted coup. PH component parties — DAP and Amanah — then threw their support behind Mahathir while Anwar met with the former premier in what was reported to be a “positive meeting”.
The idea of a ‘unity government’ comprising all political parties was also bandied about, but this was rejected by Umno and DAP who have refused to work together. A state of political limbo exists in Malaysia but there have been developments: Despite Mahathir’s resignation, the Yang di-Pertuan Agong allowed him to be interim Prime Minister until a new premier has been appointed and a new Cabinet formed. He is also the only one from the administration left after the Yang di-Pertuan Agong cancelled the appointments of all Cabinet Ministers and other members of the Government on Feb 24.
In a televised address made on Feb 26, Mahathir appeared to again float the idea of a unity government, appealing for all parties to put aside their differences and focus on the good of the nation. “Politicians have forgotten the economic and health threats facing the country. This needs to be put aside for now, and if possible, I will form a government that favours neither side, only the interests of the nation,” he said. He also said he could not accept forming a government with Umno, the once dominant party he led, abandoned and then defeated at the national polls. Conspicuously missing was any mention of his one time protégé Anwar or the pre-election promise to cede power before Mahathir’s five-year term ended in 2023.
Difficulties ahead
As the drama continues to unfold, uncertainty has led to a sharp drop in the Kuala Lumpur Stock Exchange (KLSE, or Bursa), as the market reacted negatively to the news of political turmoil. The Edge Financial Daily reported that the drama had triggered panic selling on Bursa. Many stocks were “gap down” at the opening bell in the absence of equity bulls on the local bourse. The selling wiped out MYR43.4 billion ($14.46 billion) in market capitalisation from Bursa in a single day.
There were 1,015 losers and 138 gainers while 222 counters traded unchanged. All indices on Bursa were also in negative territory. As of Feb 24, the Ringgit had depreciated to 4.2240 against the greenback from the Feb 21 close of 4.19. The FBM KLCI benchmark index also sank below the 1,500-level, skidding to an intraday low of 1,486.71 points — the lowest level since December 2011.
Moody’s Investors Services Sovereign Risk Group AVP-analyst Christian Fang says: “Such uncertainty weighs on private investment, and if prolonged, will compound growth challenges and add downside risks to the country’s credit profile, particularly if the new government changes the policy emphasis away from fiscal consolidation and institutional reforms.” Malaysia’s 2020 real GDP growth is set to slow to 4.2% from a 10-year low of 4.3% in 2019, with downside risks from ongoing global trade tensions and the coronavirus outbreak, he adds.
Prakash Sakpal, Asian economist at Dutch bank ING, believes the political turmoil has only exacerbated the weakening pressure on Malaysian assets, including the Malaysian ringgit. “Prolonged political uncertainty could see the ringgit depreciating towards 4.50 over the course of the year - a level last seen three years ago,” he adds. “The government was reportedly preparing a stimulus package to soften the impact of the Covid-19 virus but the resignation throws the economic plans into disarray, let alone the extra-budgetary stimulus.”
Prakash continues: “While the outbreak is taking a toll on both trade and tourism, the political risk will work to further depress investor confidence. Just recently, we slashed our growth forecast in 2020 to 3.5% from 4.5%, making it the worst year for growth since the 2009 global financial crisis.” OCBC Bank economist Wellian Wiranto says the bank has also shaved down its Malaysia Q1 growth forecast to 3.5% y-o-y and for the full-year GDP to grow at 4.0%, down from 4.2% previously.
“If the political situation does not improve in the coming week or two, we might have to take into account a greater hit on the investment and consumption fronts in particular,” he adds.
Still, managing director and head of Southeast Asia at risk consultancy Kroll Reshmi Khurana says she does not expect Malaysia’s troubles to have any long-term impact on its closest trade neighbours. “There may be a short term effect on Singapore in terms of trade volumes and investment agreements, but overall one hopes the fundamental direction of Malaysia’s relationship with Singapore will not be affected by the current political impasse,” she explains. “Both countries are mature economies with diversified supply chain and investment sources, and they have a historic, geographic and cultural proximity that is well-recognised and is beneficial to both countries.”
Dr Oh Ei Sun, a Senior Fellow from the Singapore Institute of International Affairs, echoed similar sentiments. Speaking to The Edge Singapore, he says that while investors are reacting negatively as expected, they are also pragmatic and realistic and will not be unduly alarmed. Many may even prefer to go back to the ‘old’ ways of business during the times of Umno and Mahathir, he notes. “Many, indeed, would prefer a return of those cosy collusion between corrupt officials and ingratiating businessmen as was the rule of the day during the old Mahathir period. After all, it saw a tremendous boom in the Malaysian economy,” says Dr Oh.
Political observer Hafidz Baharom also believes that it will be business-as-usual — regardless of the outcome of this unfolding drama. He also does not believe that the turmoil will impact Malaysia’s closest neighbours in any significant way. “While the Cabinet will change under a [possibly] new coalition with some familiar faces, everyone will still be dealing with a Mahathir-led government,” he explains. “However, there are many projects that Mahathir wanted to push through but couldn’t see happen. The Singapore-Malaysia ‘crooked bridge’ is one of them.”
More uncertainty
At press time, the ministers now ousted by Mahathir’s resignation are clearing their desks, their political fates uncertain. Former Deputy Minister of International Trade and Industry Ong Kian Ming even posted on his Instagram account that he was grateful to the officers in the ministry for their work over the past 20 months, and signed off with “OKM OUT!”. Meanwhile, former Health Minister Dr Dzulkefly Ahmad also tweeted an update on the Covid-19 situation in Malaysia before ending it with “my last tweet as Health Minister, thank you!”
Former Deputy Prime Minister Wan Azizah Wan Ismail was also spotted collecting her things from her office at the Women, Family and Community Development Ministry.
Mahathir, however, returned to work on Feb 25. He even tweeted “Just another day in the office” along with pictures of himself back at his desk in Putrajaya. But on Feb 27, the Yang di-Pertuan Agong — after meeting with Mahathir and the 221 MPs — concluded that no candidate has been able to gain a majority support and the matter will discussed in Parliament on March 2. Should that not produce any result, then snap elections will be called.
At the end of this week’s drama, one thing is clear — not only has Mahathir retained his premiership but he has also emerged from the chaos unscathed. The world’s oldest elected leader can, for now, remain in the job on his own terms — free from the pressure of ceding the role to Anwar.
