An introspective Malaysia ponders its economic future
Malaysian Insider: KUALA LUMPUR, Dec 29 — As the year draws to a close, there is a rare mood of introspection in Malaysia over its economic future.
The debate was sparked by senior officials, who highlighted in unusually blunt terms the country’s economic stagnation.
Leaders as diverse as Second Finance Minister Ahmad Husni Hanadzlah, former minister-in-charge of macro-economic development Effendi Norwawi and respected economists have aired highly critical views.
What’s more surprising is the prominence local newspapers have given to these unvarnished views. To Malaysia-watchers who track these things, the change in tone has been quite remarkable.
The government rarely highlights downbeat economic news.
Even as the world went into a tailspin last year, it put on a brave front. The ‘Malaysia Boleh’ (Malaysian Can) spirit of the boom years of the 1990s seemed hard to shake off.
The current debate was stirred by the government’s promise to create a “new economic model” to haul Malaysia out of the middle-income league in which it has been stuck for 15 years.
Prime Minister Najib Razak last week said the model would be disclosed by February next year, two months later than the original deadline.
It is intended to raise Malaysia to a high-income economy with a per capita income of at least US$15,000 (RM51,450). Malaysia is now classified as an upper middle-income economy with a per capita income of US$7,000.
Very little is known about this new model as the government has spoken about it only in vague terms so far. But the little that has emerged suggests that the government agrees with the expert views now being aired.
Economic experts say Malaysia’s rapid growth in the 1990s will not return without intensive reforms, for the growth was not driven by productivity gains, which would have made it sustainable.
Instead, it was driven by cheap foreign labour, with little effort made to move the country up the value chain to higher-level economic activities.
Malaysia lagged as the world raced ahead, and there is now fear that it may not be able to pull itself together.
Here is a sample of recent views:
Professor Mohamed Ariff, executive director of the Malaysian Institute of Economic Research: “Ironically, the long-term vision was undermined by a short-sighted growth strategy, which was pursued single-mindedly with a high premium on short-term growth at the expense of long-run goals. Malaysia had inadvertently shot itself in the foot.”
Former Cabinet minister Effendi Norwawi: “Our economic survival and competitiveness are at risk. We must try new ways to get new results and overcome the haunting problems of implementation with the same old people, systems and processes.”
Oxford-educated Umno Youth chief Khairy Jamaluddin: “We spent the last two decades of the last century piggybacking on growth in the region, benefiting from massive investments especially from Japan and created local conglomerates via privatisation. It created a solid base for us to take our economy to the next level, up the value chain and all that jazz. Except we didn’t.”
Recently-released economic data paints a bleak picture.
A paper published by the Economic Planning Unit shows a 26 per cent gap between Malaysia’s current national wealth and the set target. By next year, Malaysia should have a gross domestic product of RM694 billion, but it is estimated to come in at around RM514 billion.
Private sector participation has fallen to below 10 per cent of GDP, compared with 30 per cent before the Asian financial crisis in 1998.
The good news about such government-led pessimism is that it usually heralds the rollout of painful reforms. That is a time-tested way of preparing the ground, and was artfully utilised before fuel subsidies were slashed.
But the bad news, as Effendi noted, is that Malaysia has had too many “new ideas” that have never gone the distance.
“Our history is littered with glaring examples where great ideas just didn’t take off from the drawing board,” he said.
A major problem is the political risk that comes with economic reforms.
Rebuilding an economy based on competition, merit, transparency and productivity will mean cutting some of the cosy links between politics and the economy.
Malaysia’s economy is very closely tied to the government and politics. Reforms will, thus, be seen as a zero-sum game to some.
As Khairy noted in an article for the Edge weekly: “...reactionary voices dominate the debate with emotional blackmail and heightened racial rhetoric.
“Yet, this is the single most important transformation that needs to take place —for the Establishment, in its entirety, to embrace a new world view of competition, merit, transparency and diligence.”
So far, Datuk Seri Najib has been cautious. He has taken a big risk in abolishing quotas for Malay ownership of public-listed companies so as to encourage private firms to grow and to woo foreign investment. But transparency, including the lack of open tenders, is still lacking in vast sectors of the economy.
Many ideas have been floated about Malaysia’s comparative advantages — notably in oil and gas, and agriculture — and on what the new economy should focus.
We’ll have to wait till February for the details, but the government could seize on the country’s rare introspective mood to get its message across now. — The Straits Times
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