The Guest Blog

By Nelly Stratieva, Project Coordinator at a management consultancy in Kuala Lumpur

Malaysia, one of the best performing Asian economies and an example for ethnic and religious tolerance, is poised for the most hotly contested elections in its history. For 56 years, since its independence from the British Empire, Malaysia has been ruled by one party – Barisan Nasional (BN). Throughout these decades Malaysia’s population blend of Malay, Chinese and Indian ethnicities has enjoyed impressive ethnic harmony. Malaysia has transformed into one of the Asian ‘tiger’ economies fueled by oil money, expansive public works projects, world class infrastructure and large government-linked companies. The country is in the world top 10 destinations for foreign direct investments (FDIs) and EU’s second largest trading partner in ASEAN. These achievements are mainly due to Malaysia’s long-lasting stability and the government’s pro-business policies.

Enter General Elections 2013, expected to be held this spring Corruption scandals and allegations of cronyism are threatening to topple long-standing BN rule, despite its outstanding economic track record. The opposition coalition, Pakatan Rakyat (PR), has a genuine shot at power but its patchwork of ideologies and unsustainable policy proposals make it an unpredictable contender. Should PR win, could political and racial tensions throw the country into upheaval? Foreign investors are already nervous by the mere threat of instability. Do they have reasons to worry about an opposition party win?

The Wildcard Contender Pakatan Rakyat

The opposition coalition PR is a curious political Frankenstein. It consists of three separate parties, the Malay-backed People’s Justice Party (PKR), the Democratic Action Party (DAP) – a left-leaning Chinese minority party, and the Pan-Malaysian Islamic party (PAS) which has a strong Islamist agenda. The stitches that bind these parties together is their mutual hatred of the ruling BN. Take away this uniting factor and the coalition is left with 3 widely different party ideologies, which calls into question their ability to govern Malaysia together.

Lack of internal cohesion is already visible. The core ideology of PAS is to turn Malaysia into a conservative Muslim state – a line that its two coalition partners have publicly opposed. Even the other two members of PR are not perfect partners. PKR is headed by the controversial Mr Anwar Ibrahim, a former deputy prime minister under BN, who spent the last 10 years in prison for corruption and sodomy (he was acquitted in 2012 on the second charge). He is the most visible and vocal opponent of Barisan Nasional. PKR and DAP agree on a policy platform that doesn’t discriminate between ethnicities but there has already been in-fighting between party leaders for the most powerful position in Malaysia – the seat of the prime minister.

Pakatan Rakyat recently released an election manifesto with its vision for Malaysia’s future. It reads as many election manifestos do. Spending, subsidies, and salaries will be dramatically increased while taxes, fees, and costs will be reduced. How this can be paid for is left unmentioned. While often populist programs are shelved once elections are won, it is currently unknown what PR realistically plans to replace them with if they come into power.

The Old Guard In A Tight Corner

Popular sentiment in favor of re-electing the ruling BN party is nicely summed up in the saying ‘better the devil you know than the devil you don’t’. For all its alleged faults of cronyism and corruption, BN must also be credited for creating one of the most vibrant economies in Asia. Strong GDP growth rates from independence onwards, averaging 6.5% percent, created a stable domestic consumption market that has helped the export-reliant country weather global downturns. Meanwhile, the government’s stake in key industries has helped distribute wealth to more layers of society.

Pressure from the opposition along with the stark realization that other similarly placed Asian neighbors are quickly closing the gap has forced BN to liberalize the economy. Reforms include rolling back affirmative actions towards the Malay majority and making it a priority to attract FDIs. For example, the requirement for minimum Malay ownership of companies in many sectors has been removed. Easing of equity caps and market access makes it easier for foreign businesses to set up shop in Malaysia. Another effort to facilitate international trade are the ongoing negotiations for a Free Trade Agreement (FTA) between Malaysia and the EU. Unfortunately, the FTA has stalled in recent months due to the uncertainty of elections.

In spite of these reforms and pro-business policies, Barisan Nasional has begun to wilt in recent years. Stories of corruption are an open secret. By admission of the government itself, Malaysia loses the equivalent of 2.5 billion euro every year due to corruption. Media freedom remains questionable. Ethnic tensions have not disappeared – the Chinese and Indian minorities are still frustrated with the remaining privileges for Malays. Then there is the electoral system. BN has been accused of many sins in relation to it. Many claim that BN designed the electoral system to work in its favor. For example, the prime minister can call elections whenever he chooses as there is no requirement for minimum campaign period. At General Elections 2008 the official election campaign was a mere 8 days. This puts opposition parties at a disadvantage because they can’t plan their campaign in advance. The opposition is also accusing BN of bribing voters with cash handouts, bonuses, subsidies and other monetary transfers, all using public money and disguised as government support. The authorities acted heavy-handedly against protests for electoral reform and got reproached at home and internationally for human rights violations.

What To Expect When You’re Expecting

Much like the actual date of the upcoming elections, the future after them is shrouded in mystery. The fog of uncertainty gets thicker if the opposition wins. Quite simply, no one knows what to expect with Pakatan Rakyat in power. Ideological tensions within PR could rip the coalition apart from the inside out, leading to political turmoil. Complete leadership overhaul can be expected in government administration and in government-linked companies – the engines of Malaysia’s economy. Would PR deliver its utopian campaign promises and if yes, how would the large bill for fulfilling them be paid? Is PR going to court international investors as actively as BN did? How successful would PR be in managing the tensions along ethnic fault lines?

There are too many questions and uncertainties which doesn’t inspire investor confidence. Due to election jitters Malaysia’s stock exchange index, the FBM KLCI, has already fallen sharply by 41 points since January. In a fluid global market uncertainty often means closing your wallet and looking for greener pastures somewhere else. There is certainly choice for investing elsewhere in the region with contenders like Indonesia, Cambodia and Thailand on the rise.

Business prefers stable, predicable countries with a strong rule of law. Barisan Nasional has proven it can maintain stability and create an environment attractive to both domestic and international investors. However, that may not be enough for ordinary Malaysian voters, many of whom are eager for change.

Nelly Stratieva is a project coordinator at a management consultancy in Kuala Lumpur.

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