[Premium] Chairman’s Note (03/2018) – The Path Ahead for Malaysia after its 14th General Election

May 2018 |
After 60 years of rule under the Barisan Nasional (BN), Malaysians elected a new coalition, Pakatan Harapan (PH) to lead the country. The outcome was unexpected; most observers had judged that BN’s tricks – especially the use of gerrymandering, money politics and postal voters, and engineering the defection of Parti Islam Se-Malaysia (PAS) from the previous Opposition alliance – gave them an overwhelming advantage. But we did not rule it as impossible in view of the broad based anger and momentum the Opposition components had shown in the past when it won the majority of the vote in the last GE. The “tsunami” that swept PH was aided in no small part by the figure of Dr Mahathir Mohamad, the iconic former PM who campaigned cannily and relentlessly. The PH victory has instilled a sense of elation in Malaysia that persists even now.

Yet, there is a great deal of uncertainty over Malaysia’s future. The PH’s constituent parties are an alliance of different views and personalities, many of whom have been sworn enemies. The anti-Najib motivation overcame their differences during electioneering – but this may not automatically create a new political consensus in Malaysia on the path forward regardless of the government. Some will pull towards a reformist path and others will hope to see a return to the stability of the past, like a second coming of BN. There are also questions about how it will manage the economy, and how ties with countries such as China and Singapore will be affected. Given the importance of Malaysia to Singapore, we are writing to share our views on a confidential basis with you as our member and friend. May I share the following points with you, briefly:

1. The New Parliamentary Balance: While elation evokes the feeling of a new dawn in Malaysia, the political reality is not so clear cut. As it stands, UMNO is still the largest party in the Dewan Rakyat with 54 seats. Parti Keadilan Rakyat (PKR) and the Democratic Action Party (DAP) are next in line with 48 and 42 seats respectively, while PAS controls 18 seats. Dr Mahathir’s Parti Pribumi Bersatu Malaysia (PPBM) currently controls a mere 12 seats. It is conceivable that the PPBM presence in parliament can grow by attracting UMNO MPs to defect. This potential can be seen in defections to the Parti Warisan Sabah. What happens within UMNO will be something to watch.

2. Fissures in PH: PH now has to contend with the difficult job of forming a government from an unlikely alliance of personalities and sworn enemies who were only united in their opposition to Former-Prime Minister Najib Razak. To this end, Dr Mahathir has entered negotiations with other PH parties on the distribution of cabinet positions. At present, three of the 10 core cabinet appointments have been made: Lim Guan Eng (DAP) as Finance Minister, Muhyiddin Yassin (PPBM) as Home Affairs Minister, and Mohamad Sabu (AMANAH) as Defence Minister.

However, even this has shown some cracks in the alliance. PKR Vice President Rafizi Ramli reportedly complained that Dr Mahathir had “bulldozed” the three appointments without consulting PKR. This set off a separate row within PKR as de facto leader Anwar Ibrahim affirmed his support for Dr Mahathir’s leadership, and Deputy President Mohamed Azmin Ali said that Rafizi’s views were his own. In addition, doubts about the role of the DAP in the new cabinet have emerged with the news that Lim Guan Eng has to be cleared of his ongoing corruption case to be eligible for the post of Finance Minister. As cabinet is formed and policies are ironed out and implemented, we will found out if the “Alliance” of Hope can unify, remain cohesive and gauge the balance of power between different parties in the Alliance. While Dr Mahathir had earlier promised to divide the posts equally among PH’s constituent parties, he clarified on Monday that they would be allocated based on percentage of seats won during the election.

3. Reform or Return to the Past: A strong presence of DAP and PKR cabinet ministers can indicate a commitment to reform. In contrast, if the cabinet’s main roles are taken up by the former ex-UMNO stalwarts – whether as ministers or through the advisors appointed – this may indicate that PM Mahathir intends not to steer forward to reform but instead for a “return to the past”. Anwar’s release and pardon, one of the first major steps for the Alliance, has already been accomplished. The timing of his return to politics, however, is less certain and will not be immediate. Even his wife and current Deputy Prime Minister Dr Wan Azizah Wan Ismail said that Anwar would need some time to recuperate.

4. Creating a New UMNO: Despite being defeated by the Alliance, UMNO won the largest share of parliamentary seats of any single party. Will the party reform? At the very top, Najib has stepped down as Party President for both BN and UMNO. But otherwise, the party has followed the usual succession protocol with Former-Deputy Prime Minister Ahmad Zahid Hamidi stepping in as Acting UMNO President. Other voices have emerged to discuss the future of the organisation, like UMNO Youth Chief Khairy Jamaluddin who has pledged to reform the organisation, remarking that “everything is on the table”. It remains to be seen if UMNO members will keep to established paths, heed Khairy’s calls for reform, or defect to PH.

5. Short run Program: In the short term, PH will focus its efforts on fulfilling 10 core promises in 100 days. These include political promises such as reopening an investigation into 1Malaysia Development Berhad (1MDB), as well as economic promises such as the substitution of the goods and service tax (GST) with a sales and service tax (SST) and the reintroduction of targeted fuel subsidies. Dr Mahathir has appointed experienced leaders to lead the implementation efforts most notably a Team of Eminent Persons – Daim Zainuddin, Zeti Akhtar Azia, Jomo Kwama Sundaram, Robert Kuok and Hassan Marican (ex Petronas CEO). The Team has a mandate to help shape policies and programmes, as well as conduct investigations for the first 100 days of PH’s tenure.

6. Market Reactions: These appointments have apparently boosted investor confidence, and the ringgit returned to its pre-election level of 3.948 at the close of Monday. Steep drops in Malaysian stocks such as CIMB Group Holdings Berhad, which fell 12 percent, were reversed as well, and the benchmark FTSE Bursa Malaysia KLCI closed 0.21 percent higher. However, there are still doubts surrounding PH’s promises, and Moody’s has described replacing GST and fuel subsidies as “credit negative” for Malaysia’s sovereign rating. Even with experienced leadership, it remains to be seen if Malaysia’s long term fiscal budget can be balanced amidst such populist policies.

7. Middle Term Markers: Beyond 100 days, the path is uncertain, and branches into several directions. Dr Mahathir could reprise his ruling style from his last tenure, consolidating power by appointing allies to key political posts and turning PPBM into “UMNO 2000” by incorporating ex-UMNO leaders. In this scenario, he would delay or try to dictate terms to Anwar before ceding the Prime-ministership. A different path forward would be for PH to adopt the reformist path, forging an inclusive political consensus between PH constituent parties while making key changes to Malaysia’s institutions and society. The eventual objective of these paths, however, is also uncertain. At present, despite statements, we feel there is no guarantee that Dr Mahathir will hand over power to Anwar in two years’ time, given his turbulent relationship with his former protégé.

8. The Rocky Future of Chinese Investments in Malaysia: Prior to the election, Malaysia had been one of the most enthusiastic participants in China’s Belt and Road Initiative. To date, it has secured over US$34.2 billion worth of Chinese infrastructure projects, including the East-Coast Rail Line (ECRL) and numerous ports on both coasts. However, Dr Mahathir has been outspoken in his opposition to Chinese projects on grounds such as sovereignty and feasibility. Speaking with regards to Forest City in December 2017, Dr Mahathir remarked that Chinese investors “coming in here, buying land, developing luxurious towns, is not beneficial for us”. He also criticised the ECRL’s expensive RM55 billion price tag and practicality in April 2018, promising to scrap the project if he came to power. Granted, Dr Mahathir has lessened his criticisms since the election, proclaiming that Malaysia has “no problem” with BRI projects. Anwar expressed a similar sentiment when he said he was “not against Chinese investments” at a press conference following his release. However, since Dr Mahathir followed up this assurance with a statement that Malaysia reserved the right to renegotiate terms for the projects, Chinese companies now have to consider that their investments in Malaysia are not as sound as they were under Najib. Some projects will be renegotiated, while others may not go forward at all. Regardless, the ball is in China’s court to alter the terms of the deal to suit the new government’s needs. In addition, this offers non-Chinese firms an opportunity to offer better deals.

9. The Return of the Bad Old Days? – The Future of Singapore-Malaysia Relations: There is some apprehension for the return of Dr Mahathir in relation to bilateral Singapore-Malaysia relations. Ties were often strained when he was previously Prime Minister. While Dr Mahathir has not made any explicit statements regarding Singapore since the PH victory, he is preoccupied with domestic issues, and there is no indication that he is satisfied with the status quo. Instead, judging by the PH manifesto, what is likely is that certain bilateral projects, such as the Kuala Lumpur-Singapore High Speed Rail and the Rapid Transit System Link between Johor Bahru and Singapore, may be placed under review pending renegotiation. There is a possibility that they may be cancelled if the terms are deemed to favour Singapore at the expense of Malaysia. Certainly, they are likely to face delays. In addition, Singapore businesses in Malaysia may find their practices being reviewed to assess the benefits they bring to the local community. As Prime Minister Lee Hsien Loong makes a visit to Malaysia this weekend, we should recall that the return of Dr Mahathir does not herald a slump in Singapore-Malaysia relations, but does suggest that new parameters must be applied to the relationship.

Expectations surrounding the new government are high, and there is great anticipation that PH will lead Malaysia down a path of reform and institutional revival that will strengthen and stabilise it. While doing so will be challenging, it will also be a true litmus test for the “Alliance of Hope”.

I hope this is of interest to you. I would be happy to hear your views on a matter that concerns many of us.

Yours sincerely,

Simon Tay
Chairman