The Age, Austalia: Malaysia stumbling,,, by Eric Ellis

Malaysia stumbling

Eric Ellis
TheAge
Australia September 23, 2010

ONE of Australia’s key partners in Asia is struggling. Given the way its leaders have taunted Australia over the years, schadenfreude at its plight would be understandable. But this should be resisted, for if Malaysia stumbles, the effects may ripple across the region.

Erstwhile sponsor of the Carlton Football Club, a cash cow for the Australian education sector, Australia’s 10th largest trading partner and a champion of ”Asian values” – whatever they are – Malaysia seems to be brimming with sky-is-falling Chicken Littles. And their analyses are alarmist; ”failed state”, ”deep pit”, ”national decay”, ”ocean-going corruption”, ”useless mega-projects”.

While some of these could be used to describe the Delhi Commonwealth Games – a massive undertaking Malaysia successfully pulled off 12 years ago by the way – it is about a country oft-regarded as an Asian success, whose rampant economy inspired a cockiness among its leaders to take racially tinged potshots at the ”decadent and immoral” West, and at Australia in particular.

And then there was the International Monetary Fund and the World Bank to demonise, indeed anyone its mercurial then prime minister Mahathir Mohamad didn’t like on any given day. And there was 23 years of it, the Mahathir monopoly on Malaysian power.

So what’s prompted such painful hand-wringing from a tigerish economy that likes to boast how it ditched traditional models to virtually promise endless riches? The answer is some of the nastiest foreign direct investment (FDI) statistics an Asian economy has served up in a generation.

FDI into Malaysia slumped dramatically last year, falling a whopping 81 per cent. In 2009, Malaysia took in just $1.38 billion of new investment, barely enough to build a half-decent bridge in a land where pork-barrelling infrastructure projects are de rigueur. By contrast, India averaged almost double that in any given month. Malaysia’s FDI take was even less than that lured by the Philippines, long the region’s economic basket case.

This worries Malaysians greatly. For all of Mahathir’s bluster, he was careful to suck up to big business, and his less-poisonous successors since 2003 have done much the same. Foreign investment underpinned the Malaysian ”miracle”, transforming sleepy Penang into an Asian Silicon Valley and industrialising the Klang Valley that surrounds Kuala Lumpur to OECD levels, with $40,000 a year average incomes to match.

So has the sky fallen in? Some of the fall can be explained by the 2008 ”trans-Atlantic financial crisis”, as many like to call it in Asia. Malaysia’s reliance on foreign investment made it one of Asia’s most globally connected countries. So when Europe and North America tightened their belts after the subprime meltdown, Malaysia naturally was jolted. But the same external dramas affected just as connected Thailand – which endured a crippling political crisis to boot – and more so globalised Singapore, and both far outperformed Malaysia in ongoing FDI, as did Indonesia.

Malaysian fingers point at Prime Minister Najib Tun Razak and his on-again, off-again will to reform a lop-sided economy Mahathir tilted to favour his bumiputra franchise, the ethnic Malays who comprise about half Malaysia’s 28 million people.

Mahathir advantaged Malays with an aggressive ”new economic policy (NEP)”. Mahathir’s thinking went that Malays were less commercially inclined than their compatriot Chinese and Indian Malaysians and thus needed the state’s help. The NEP’s affirmative action aimed to lift Malays out of poverty, but many analysts have likened it to economic apartheid, a meal ticket that many Malays have got too used to.

The NEP anchored Mahathirism and helped keep him in power for two decades. Malays were lifted but NEP side effects are many and cancerous; corruption, cronyism and an oversized sense of entitlement. Much of Malaysia’s economy is controlled by ethnic Chinese, who pragmatically chummed up to Mahathir. To some, the NEP meant simply installing well-paid and influential Malay placemen on boards to fulfil quotas.

Anti-NEP rancour has been building for years and in 2008, five years after Mahathir retired, voters registered disgust by handing his Malay-centric United Malay National Organisation-led coalition its worst result in history, losing its two-thirds parliamentary majority in a gerrymandered assembly. The UMNO faithful toppled Mahathir’s successor, Abdullah Badawi, and now, as support wavers, his successor, Najib, says he wants to replace the NEP with a ”new economic model”, which he pledges to ”execute or be executed”.

There’s a rising fin de regime tint about the UMNO empire, which has never been out of office and has absorbed Malaysia’s critical facilities of state; the civil service, military, media and the education system. Abolishing the NEP is a particular cross for the aristocratic Najib to bear; it was conceived in the early 1970s by his then prime minister father Tun Abdul Razak.

Najib has a big problem, and it is not just the allegations of corruption and even murder that swirl around his circle. Like Julia Gillard, Najib doesn’t have a popular mandate to govern. Also like Gillard, he got handed office when his party’s faceless men knifed an elected PM, Badawi, in office. Malaysians expect Najib to go to the polls soon to get that mandate, but he doesn’t seem sure it’s a good idea, as a confident opposition calls him to account.

In shades of Gillard’s Labor still, party hardliners are in revolt. While most moderate Malays accept the NEP needs tweaking, if only to keep UMNO breathing and in power, a virulent core of party heavies has organised under the banner of a movement called Perkasa, which means ”mighty” in Malay.

Perkasa claims to be defending the Malaysian constitution, which guarantees Malay ethnic primacy. It says it is fighting for Malay rights against the rising challenge of minorities. But Perkasa feels like a supremacist movement, something a Pauline Hanson might recognise. A former US ambassador to Kuala Lumpur has described Perkasa as ”militant”, while non-Malays condemn it for racial divisiveness. That’s emotive language in a country where people still define themselves by ethnicity over nationality and where the deadly race riots of the 1960s are never far away in thinking and policy – not just in Malaysia but among neighbours alert to ethnic tension.

As he dithers over rolling back the NEP and over an election timetable, Najib seems to think he can spend his way to popularity. Last week, he outlined a Mahathir-esque $500 billion investment plan to transform the economy with mega-projects. He appealed to foreign investors to help. But as China, India and Indonesia boom, they will need convincing it is money well spent.