This week, Malaysia celebrates one year since the Pakatan Harapan government swept to power after it dislodged former Prime Minister Najib Razak in a tight electoral race.
The new regime under the leadership of Tun Dr Mahathir Mohamad set out to fix the broken economy and corruption, but has since found that fixing the economy is not as hard as fighting kleptocracy.
A recent massive land transfer in the state of Johor shows the extent of the rot, while the 1MDB debacle and the billions transferred from pension funds and the alleged mismanagement of a pilgrimage fund pinpoints the depth of corrupt practices.
It does not end there. The coming of the Pakatan Harapan to power exposes a wider network of wrongdoings, not only by the accused political figures but also by international agencies.
It is quite unbelievable how these masterminds duped Goldman Sachs and other international banks in the 1MDB saga and how the shares of Felda’s international arm FGV were battered in the markets.
Not forgetting the FGV-Rajawali Group’s lopsided deal, the billions in commission for the middlemen in the ECRL project and so on.
A year ago, financial and economic experts joined stock market guru’s saying Malaysia’s lingering political and economic uncertainty led them to revise the country’s forecast. They did not like Dr Mahathir’s return to power saying the market wanted to see Najib Razak back in the PM seat instead.
They underestimated Dr Mahathir. A year later, the country’s economic growth is projected at 5.2 percent for 2019.
The ringgit is still the poor man of Asean, sliding this week after the Monetary Policy Committee (MPC) of Bank Negara Malaysia reduced the Overnight Policy Rate (OPR) to 3 percent from 3.25 percent. But external factors is also an element to consider, including the Norwegian sovereign wealth fund’s (SWF) decision to reduce exposure to emerging markets including Malaysia.
The rise in the cost of living under Dr Mahathir – inherited from Najib’s failure to address this issue with cash handouts and the corrections of the ringgit’s trajectory – is here to stay, at least for the time being.
It is obvious Pakatan is struggling to get rid of this stigma which has impacted the government’s popularity mainly among those below 40.
But it is Pakatan’s economic policy to address the burden on the B40 that will determine if Dr Mahathir’s government will win the economic battle. Experts believe this is not the problem.
While we believe the rise in the cost of living is a stigma that started after the slide in oil prices 5 years ago, the government is on the right track and is saving billions that they can use to fund the much needed economic policies to tackle the rise in cost of living.
As mentioned earlier, the markets were hoping for the return of Najib to power to see a continuation of the perceived economic and political stability.
Instead, Dr Mahathir came back to power. The market punished Malaysia severely during the last one year. The question is whether they will correct their views of the PH government once Dr Mahathir cleans up the marsh? Or will they continue to punish the Pakatan regime for tackling corruption?
There is still a greater political and economic risk that will weigh on investor confidence and on the local markets performance.
Persistent rumours of attempts to prevent Anwar Ibrahim from taking power when Dr Mahathir resigns in the foreseeable future is negative for the country’s economy.
It sets a precedent of uncertainty the country could do without, but the absence of a clear political transition timeline between Dr Mahathir and Anwar is feeding the rumour mill.
It puts PH in a weaker position, fuelling talks of political uncertainty in the country and pathetic political rivalry among the PH leadership.
But it is the success or failure rate of the clean-up of the corrupt practices that proliferated under the previous regime that will decide whether Dr Mahathir’s government survives.