Alternative Views: Politics needs new faces for economic reforms

This article first appeared in Forum, The Edge Malaysia Weekly, on July 18, 2022 - July 24, 2022.
Alternative Views: Politics needs new faces for economic reforms
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Based on the vetting exercise so far, the UK’s next prime minister will be under the age of 50. After the initial rounds of short-listing, members of parliament from the ruling Conservative Party have narrowed down their choice to six candidates. The oldest candidate is 49 and the youngest is 42.

By July 21, the number of candidates will be reduced to two for the party to vote on. The reason for the change in prime minister can be summed up in one sentence — a lack of integrity in governance.

Outgoing Prime Minister Boris Johnson failed the test of truthfulness when it came to running the government. His failure only added to the party’s challenges in managing the country’s economic turmoil.

The ruling Conservative Party has been losing local council elections of late, suggesting that voters are not in favour of the government’s policies to rein in the cost of living and its standards of governance.

Inflation in the UK is at an all-time high of 9%. The economy is slowing down due to rising interest rates as well as shocks to the system resulting from the ongoing war between Russia and Ukraine. The conflict has caused a slowdown in Europe, which is the UK’s biggest trading partner.

Britain is also facing labour issues, partly due to Brexit, which prevents the free movement of labour from Europe. Amid the economic problems, the Conservative Party is looking at fresh faces to shore up its sagging support among voters and to address the country’s economic woes, hence the race to choose the next prime minister.

Malaysia is also having more than its fair share of problems in steering the economy as inflation rears its ugly head. Bank Negara Malaysia has started raising interest rates, a move that will eventually impact the property market. Meanwhile, commodity prices are on a downward trend.

The latest problem to hit the commodity sector is Indonesia’s suspension of the movement of its workers to Malaysia. The immediate reaction to this announcement was a further drop in the price of plantation stocks as the sector is highly dependent on labour from our neighbour.

The plantation sector contributes about 7% to the economy and is in dire need of labour to improve production. The labour shortage further accentuates the problem that the sector currently faces due to the steep fall in commodity prices.

The Malaysian economy is expected to grow between 5.5% and 6.5% this year with services and manufacturing being the key drivers. However, the US and Europe are poised to go into a recession and it does not bode well for these sectors.

That leaves the construction sector, which is expected to grow 11.5% this year, to spearhead the economy. But the government’s finances are already stretched and it cannot afford to splurge.

The federal government budget was in a deficit of 6.5% last year and the shortfall in spending against revenue is expected to improve a little to -6% this year. Like many other countries, Malaysia loosened its financial discipline in the past two years due to the pandemic.

It is difficult for the government to cut spending, especially when the next general election has to be held by the third quarter of next year. The government needs strong political resolve to resist the demands of certain politicians, who want to ride on populist policies and seek more handouts.

The populist stance is a problem. For instance, even Bank Negara raising interest rates to tame inflation has drawn opposition from the Youth wing of Umno. All it takes is more voices from the party to cast doubt on the central bank’s independence. The political situation leaves much to be desired because those at the helm tend to pander to every demand of the people.

Prime Minister Datuk Seri Ismail Sabri Yaakob — who is from Umno, the anchor party of Barisan Nasional — is the fourth to hold the position since January 2018. He took on the mantle when the country was coming out of two years of movement restrictions due to the Covid-19 pandemic.

In an unprecedented move, Ismail Sabri stabilised his position in parliament by forming a pact with the opposition. It keeps him in power without the need to call for a general election until next year.

Unlike the situation in the UK, Ismail Sabri’s Barisan Nasional is well prepared to face the next general election. However, he needs to firm up his position within his party to be the only candidate for prime minister from the party after the next general election.

On the economic front, Ismail Sabri does not have time on his side. That is because the global economy is slowing faster than many had predicted and he needs to make some tough decisions on how public funds are utilised.

Apart from a slowing economy, inflationary pressures are building up, which is the common grouse among voters. Ironically, the complaints about the rising cost of living come when Malaysia is already a heavily subsidised society.

Electricity, petrol, diesel and key food products are cheaper than in neighbouring countries because of government subsidies. The subsidy bill is poised to hit an all-time high of RM77.7 billion this year, of which almost 40% goes to keeping petrol and diesel at their current prices.

The government cannot afford to keep increasing the subsidy bill. However, it can be more efficient at handling public finances, starting with the way it handles subsidy programmes.

For instance, the fuel subsidy programme helps the rich more than the deserving bottom 40% of society. A Bank Negara study revealed that for every RM1 of fuel subsidy, 53 sen goes to those in the top 20% income bracket while only 15 sen reaches the bottom 40%.

For the past 15 years, prime ministers have been talking about targeted fuel subsidies and there have been several proposals on it. But it has not taken off, partly because of the intense lobbying by several parties aligned to the leadership at Putrajaya.

Now, the Ismail Sabri administration is looking at several proposals on targeted fuel subsidies. But will there be the political resolve to pick the right system to implement the fuel subsidy without fear or favour?

The 1Malaysia Development Bhd (1MDB) debacle has caused a big dent in the credibility of the Barisan Nasional government and its governance standards. The testimonies of several witnesses firmly established that even top civil servants dared not say “no” to the prime minister.

1MDB’s problems were discussed at cabinet meetings and its audited figures were doctored. But few dared to voice their concerns at these developments, and those who did were sacked. It showed a complete breakdown in the integrity of officials who were entrusted with great responsibility.

If we are to strictly follow the British standards, all those in the Najib administration that did not object to the misappropriation of funds in 1MDB should be excluded from current and future administrations. But that is not possible for Malaysia because the list is simply too long.

However, it should be a reminder that a government intent on real reforms needs a fair number of new faces. One that is composed of old names cannot resolve the stubbornly sticky issues holding back the reforms of the Malaysian economy.

The cry for fresh faces also seems to be ringing within the opposition. A survey by Invoke, a data-driven think tank headed by Parti Keadilan Rakyat deputy president Rafizi Ramli, revealed that Nurul Izzah was more popular than her father, Datuk Seri Anwar Ibrahim.

The outcome of the survey does not necessarily mean Anwar has to make way for Nurul Izzah to lead the party in the next general election. The subtle message is that Malaysia is in need of new faces in politics for voters to have some hope of real reforms.

M Shanmugam is a contributing editor at The Edge

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