By Wong Choon Mei, Malaysia Chronicle
In 2019, Malaysia would be 62 years old. If that is all it takes – just 62 years – for a nation to go bankrupt, then it only shows how grossly mismanaged the country has been.
Of the six prime ministers who have led Malaysia since 1957, the leader who must take the greatest blame for the sorry state the economy is now in is Mahathir Mohamad, whose 22-year rule alone accounts for nearly half of the nation’s post-independence history.
Thanks to his chase for mega projects, political opportunists and cronies were able to benefit from massive overpricing in almost all of the major deals that framed his career. From the North-South Expressway to Perwaja Steel, 1st Silicon to Proton, Bakun Dam to PKFZ, few of his projects have not ended up requiring some form of bailout from taxpayers at one time or another.
Smell of bankruptcy clearly in the air
It was also during his tenure that high-level government corruption in Malaysia really took off in a big way, and running parallel to this was his use of racial and religious politicking to divide and rule the multiracial country. Twin blows, double whammies for the economic future of the country. Didn’t anyone warn the Malaysian people then?
Yes, there were countless reports by research analysts and economic experts forecasting gloom and doom through the decades – from 70s to 80s, 90s and even now. But Mahathir chose to do it his way and no one dared to counter him.
The problem is that by now the gloom and doom is already a distinct possibility rather than a prophecy. Experts are talking about how and is it possible to reverse this trend rather than argue will it really happen. Even the Prime Minister’s Department has spoken – the smell of bankruptcy is clearly in the air.
Prime Minister Najib Razak’s minders have begun warning Malaysians if they refuse to allow the government to slash subsidies on a range of essential goods, then the government won’t have enough money to churn economic activity and a fate similar to Greece, Dubai and even Thailand 13 years ago will be unavoidable.
Inviting junk bond status for Malaysian debt
At the same time, there is cross-talk from these same officials, who say the economy needs to grow an average 6 percent each year to reach developed nation status by 2020. How does this reconcile with the bankruptcy warning? Will Malaysia become a developed nation or will it be bankrupt? Surely it can’t declare bankruptcy in 2019, and a year later, become a developed nation. Which is it to be.?
By World Bank’s definition, developed nation status would mean achieving a minimum per capita income of US$14,800. In 2008, Malaysia’s per capital income was US$7,733.
This means Najib, who is also finance minister, needs to roughly double the income per person in the population within the next 10 years. But can he do so? His hands are already severely tied by record-high national debt. Malaysia’s gearing or debt to national gross domestic product is 52 percent or about RM405 billion.
This level may not be disastrously high yet but it is enough to makes the government’s ability to pump-prime the economy extremely difficult. Hence, the absence of large-scale projects so far by the Najib administration. To continue borrowing would invite reduced bond ratings and even junk status for Malaysian debt.
The government’s annual cash flow is also affected as it has to set aside large sums to pay for the interest charged on the loans. This again bites into the amount it can spend on projects and other activities to raise the economic pace.
Driven out by Mahathir
What other way is there when you can’t borrow your way out of trouble and cash flow is tight? The answer is of course – other people’s money. These would come in the form of investments from Malaysians themselves and from foreigners as FDI.
But the big Malaysian investors are no longer so sure about their country. This is not a recent development. As far back as the 80s, Malaysian Chinese tycoons began diversifying their fortunes and investing in serious amounts in Hong Kong, China, Australia and more recently Vietnam.
At that time, Mahathir was in his prime. Brain drain, flight of talent and Malaysian capital didn’t bother him. The Singaporeans, Americans, Canadians and the British would come in and their wealth would more than compensate for these ‘disloyal people’, so went his rhetoric. Never did he once acknowledge that he was the one who drove them away with unequal opportunities, race-based policies and sheer arrogance.
Because the economy is a large animal, it takes time for trends to show. Thirty years ago, as long as Mahathir was in power and he suppressed costs, foreign investors didn’t mind about the country’s human rights record. Malaysia was still a good place to make money – many things including rent and wages were cheap, and the people could speak English relatively well.
But 1997 blew in. Foreign investors lost their shirts. The Singapore parallel trading system of Malaysian shares was shut down overnight to prevent their investors from selling their Malaysian stock. A large British investment bank was said to have lost US$3 billion in Malaysian assets within a week.
The nightmare stories are countless and this was when short-term portfolio investors first began falling out of love with Malaysia. Though they have since returned after boycotting the country for years, the amounts they bring in are much smaller and their investment horizon or the time they keep the money in the country much shorter.
The FDI players – and these include U.S. chip makers like Intel, Motorola and AMD – were shocked but saw no reason to suddenly shut down their plants. But even so, they were happy to go when a few years later, Vietnam, China and India beckoned with even lower-cost facilities and superior tax packages.
Najib destroyed confidence in the Malaysian system
Meanwhile, the Malaysian tycoons, including Mahathir’s own coterie of cronies, began feeling uncomfortable when he started to tear at his successor Abdullah Badawi and tried to bring his administration down. That’s when it dawned on them that perhaps ‘stability’ – as in how they always been allowed to carry out their money-making schemes without question or trouble – may no longer be taken for granted.
Slowly they began channeling to other countries more of their money – and many say this also includes the money they held on behalf of corrupt top leaders. Even the profits they made in other countries, they repatriated less and less of it home to Malaysia.
Then came the 2008 general elections and in blew a new political dimension Pakatan Rakyat. Worse still in 2009, in came Najib as Badawi’s successor. Not that they had anything against him – he seemed pro-business. But then he signaled ‘civil war’.
With the Perak coup d’etat, Najib single-handedly triggered the down spiral of the entire Malaysian system. In his insistence to annihilate Opposition Leader Anwar Ibrahim, he abused his power to such an extent that few people have any trust left in the Malaysian judiciary. They never had much faith in the police and the MACC to begin with.
Corruption, racial and religious politicking still rule
And so they began to step on the pedal to divest in Malaysia and invest elsewhere in the region. The foreign investors were not slow to catch on either. They too rushed to join the exodus. And this how in 2009, Malaysia recorded an 81 percent plunge in FDI – due to a combination of falling inward foreign investments and increasing reverse or outbound Malaysian investments.
Can Malaysia still achieved developed status by 2020? Only if these investors changed their minds and poured back their funds will the country of 28 million have a chance to raise its per capita income. This is the only way for Malaysians to break out from the middle-income trap into a high-income or developed status nation.
But for that to happen, it would require a miracle from Najib. Judging from his latest corruption battle that many have described as a charade with the arrest of former Transport Minister Ling Liong Sik over the PKFZ debacle, corruption is here to stay for so long as he is the prime minister.
As for a system of meritocracy, healthy competition and non-racial politics, again Liong Sik is a fine indication that racism will reign in Malaysia during his rule.
And judging from the way his Umno party is going hell-for-leather to beat PAS for the championship title of who is the No. 1 protector of Islam – even to the extent of minority bashing – it looks religion will continue to be a weapon of economic destruction in this country. Rather than a sanctuary for the spirit and the soul.