Diminished in 2016, what lies ahead for Malaysia?

REVIEW 2016

PAULINE NG
Business Times Singapore
Tuesday, January 3, 2017

Kuala Lumpur

TO many, 2016 was a year of diminishment for Malaysia.

Not only has the ringgit’s value declined considerably, public confidence and consumer sentiment have waned noticeably. Meanwhile, the 1MDB financial scandal has also diminished Malaysia in the eyes of the international community.

Unless credibility is restored, the regression is expected to continue in 2017 amid great uncertainties – one of which are the policies of the mercurial Donald Trump who will be sworn in as US president later this month.

New leaders could also emerge in Europe as Germany and France head to the polls in the coming months.

Domestically, even though Prime Minister Najib Razak’s mandate expires in 2018, the smart money is on him dissolving Parliament this year, likely after an electoral re-delineation exercise has been completed.

Mr Najib has had a tumultuous year wrestling with the damaging revelations from the various international probes into 1MDB and its global trail of transactions, particularly the civil forfeiture suits filed by the US Department of Justice to recover more than US$1 billion in assets that is allegedly associated with an international conspiracy to launder funds misappropriated from the state-owned development fund.

Closer to home, Singapore has pursued criminal charges against individuals found to have breached the city-state’s laws.

Upwards of US$3.5 billion of 1MDB funds remain unaccounted for, according to some estimates. Both 1MDB and Mr Najib, who established the fund and chaired its advisory panel, deny any wrongdoing.

Thus far, Mr Najib’s party Umno and the ruling Barisan Nasional (BN) coalition, which it helms, have stood behind him.

In the absence of a united opposition, Deputy Home Minister Nur Jazlan Mohamed believes BN, which won 133 parliamentary seats in 2013, may retain a comfortable majority in the 222-seat chamber.

He does not expect Umno’s dominance to be significantly dented and believes Malaysia’s biggest political party can clinch 75 to 80 seats (88 in 2013) and its component parties in Sabah and Sarawak may notch up another 50-plus seats.

“Plus-minus, I expect 120-135 seats as the rural areas remain an Umno stronghold,” he declared.

Voter disillusionment with the Islamic party PAS could see it decimated. Conservatives in the party, which holds about 14 seats, are trying to get new laws through that “upgrade the Syariah courts” but many fear the moves are a backdoor attempt at the eventual implementation of hudud laws.

A less conservative splinter group from PAS has gone on to form Amanah which has aligned itself with the opposition coalition Pakatan Harapan.

Mr Nur Jazlan reckons Bersatu – another new party helmed by former prime minister Mahathir Mohamad and erstwhile deputy prime minister Muhyiddin Yassin – could pick up a handful of seats.

But he conceded that the impact of a deteriorating economy and rising unemployment is hard to quantify. So too the fallout from 1MDB.

Not only is the political scene more fragmented, Sabah and Sarawak-based parties are no longer prepared to play second fiddle to peninsula-based parties because they realise their role as king-makers.

“Local sentiment in the two states is getting stronger and peninsula parties will have to play a less prominent role if they want to work with new political forces in both states,” said independent political analyst Khoo Kay Peng. “Malay politics is going to be more fragmented than ever. Even BN has to realign its strategy.”

A media practitioner who did not want to be named reckons Mr Najib is playing off PAS against its former coalition partners in Pakatan Harapan. At the same time Dr Mahathir is trying to split Umno voters. “This game is totally a mess,” he sighed.

For BN’s non-Malay coalition partners – already perceived to be riding on Umno’s coat-tails – Mr Khoo predicts “greater marginalisation”.

The media practitioner believes the 14th General Election is not likely to see significant changes. “It will probably be status quo, but the government will be even weaker as Najib will be beholden to so many people for his survival. He will owe them even more favours,” he said, bemoaning the quality of the cabinet.

He expects some political skulduggery after lawmakers have secured their seats – especially if the ringgit and the economy continue to decline.

“It’s all relative. Investors still need to be in Malaysia because of its weightage in the indices,” insisted Mr Nur Jazlan. He maintains that the ringgit’s collapse to 4.48 to the US dollar, a 19-year low, is due to “a mixture of factors but mainly because of portfolio rebalancing”.

Dispirited businesses and individuals are bracing for leaner times as the ringgit continues to shrink and daily expenses and unemployment creep up. The economy is stalling but Treasury is constrained by a near 20-year deficit and cutting spending in many areas including healthcare and education.

Businessmen complain about the lack of focus on real issues affecting the economy; one glaring issue is corruption. “The government hasn’t shown its interest in solving some of these issues,” said Mr Khoo, who believes consumer confidence and government credibility have to be restored if conditions are to improve in 2017.

“This government is so profoundly debilitated by the 1MDB scandal and the considerations of political survival that it is not about to undertake the bold initiatives which are needed,” economist Jomo Sundaram said in an interview with The Star newspaper.

Buttressed by the institutions of the state, Mr Najib remains resilient and seems impervious to public opinion, including a rally in November attended by tens of thousands of people urging him to step down.

Mr Khoo said the events of 2016 drove home the lack of accountability and institutional independence in the country. “The excessive power of the executive branch can easily curtail the rule of law and separation of powers in the country.”

At 91, Dr Mahathir is perceived to be too frail to pose a real threat to Mr Najib although this is belied by the resources employed to rebut his many allegations.

“The past year has shown the PM is very strong,” Mr Nur Jazlan observed, noting that Mr Muhyiddin, whom Mr Najib sacked for publicly questioning him about 1MDB, could do little to dislodge him from Umno’s top position.

He also appears to have received cabinet backing for a costly and possibly unfeasible project which had been on the back-burner for over a decade: the RM55 billion (S$17.7 billion) East Coast Rail Line which the Chinese have agreed to fund.