The economy, while serving fabulous wealth for a few, has also seen a capital flight, writes Martin Jalleh. Leaders remain in denial or indulge in flip-flops on economic policy as they tout farcical reforms.
- “The present PM has made some helpful gestures towards liberalising the economy…These initiatives, however, must do more than skim the surface of what must be done. (7 January 2010)
- “Malaysia is a sham democracy, one which existed only in name but grievously compromised in substance, reality and fact… Reforms could not be expected from the incumbents in power.” (8 February 2010)
“Our economy has stagnated. Productivity remains low. We now lag our regional competitors in the quality of our people, when we were once leaders in the developing world.” (23 March 2010)
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~ Tengku Razaleigh,
former Finance Minister and veteran leader of Umno
Below is a glance at the sad scenario of how the country’s once strong economy has fallen sick with the government putting up a big show (performance now!) of economic reforms in 2010 – full of sound and fury signifying nothing.
Flight in capital
The year 2010 began with the bad news that Bolehland had suffered disastrous capital flight in the previous year. The Asia Sentinel, an online news website, on 11 January 2010, quoted investment bank UBS as revealing that in 2009 foreign exchange reserves fell by close to 25 per cent even though the country continued to run a huge surplus on the current account of its balance of payments.
The USB described the situation as “bizarre” and contrasted Malaysia with other countries with large current account surpluses – Thailand, China, Taiwan, Singapore, and Hong Kong – which have seen their reserves increase – as should be expected.
AS suggested that the massive outflow could be partly due to the government’s state-controlled enterprises, headed by Petronas, which “has been spending its billions in profits around the world as it attempts to become a major global player – at the expense of Malaysian citizenry in general and the oil and gas producing states in particular.”
The newspaper added the capital flight was also due to “the outflow of local private capital (which) has been taking place on an unprecedented scale in response to political instability, massive official corruption and discrimination against non-Malays.”
“Often with the exodus of money goes an exodus of talent as highly skilled persons disadvantaged by race or, as in the case of some Malays, disgusted by local corruption or primitive religious authorities, take themselves and their capital to Australia, Canada, India, China, etc.”
(See story on “Damning Diaspora Data”)
In a report on Malaysia released at the end of January 2010, the Hong Kong-based Political and Economic Risk Consultancy (PERC) warned: “Events of the past month give the impression that pressures are building and the entire situation is becoming much more unstable” (Malaysian Insider, 10 Feb. 2010).
Since New Year’s Day (2010) “the situation in the country is becoming increasingly unstable; a group of elite minorities were dominating the national agenda to the extent that it was hurting Malaysia’s attractiveness to investors…”
Lim Kit Siang then asked for Najib’s response to the PERC’s “blistering” report and the prospect of Malaysia becoming even more uncompetitive internationally. Najib chose to be silent but his deputy Muhyiddin Yassin called the report “part of a hidden agenda to destabilise the country”.
Evidently, Muhyiddin chose to ignore Second Finance Minister Husni Ahmad Hanadzlah’s revelation made in December 2009 that the country’s economy “has been stagnating for the past decade (in the wake of the 1998 Asian financial crisis)”.
Flip-flopping on the NEP
On 30 March 2010, the PM unveiled the much-awaited New Economic Model (NEM) which will “transform the nation into a high-income economy that is sustainable and inclusive and will position the nation on the right path towards attaining developed nation status by 2020”.
Dr Jeyakumar Devaraj, an Aliran member and Sungai Siput MP, praised the NEM’s policy statement and in particular the “uncharacteristic honesty about the current situation of the Malaysian economy”. He added that “its policy thrusts have been lifted from the Pakatan Rakyat’s (PR) prescription for reform”.
He, however, argued that the NEM is “a deeply-flawed policy”, “essentially the recycling of policy prescriptions from the neoliberal school”. He warned that planning for the future must not be left to the PM and the NEAC who “are clearly still stuck inside the old and tired neo-liberal box”.
As the months passed, Najib backtracked on the “promising” NEM. He succumbed to strident objections from extremist right wing groups, such as Perkasa, to the NEM. He flip-flopped over the 30 per cent Bumiputera equity target and even called the NEM a “trial balloon”.
False alarm by Idris Jala?
On 27 May 2010, Idris Jala, Minister in the PM’s Department stunned the nation with his sudden and dramatic warning that we have a time bomb in our hands – we could go bankrupt by 2019. We either swallow subsidy cuts or risk having a “Greece” staring at us!
Some felt Idris’ doomsday scenario had a sobering effect. Others were sceptical. Some said it was just a scare tactic or just some stunt or drama by Idris – to sidetrack the nation from the real issues. Some Umno warlords told the PM to give Idris the sack; he was asking them to commit political suicide!
DAP supremo Lim Kit Siang was sharp enough to point at Idris’ failure to address the root causes of the national economic crisis instead of just dealing with its symptoms. Idris failed to focus on the big ticket items – corruption, mismanagement, extravagance and lack of accountability. (See sections on “A leap into greater losses” and “Malpractices, mismanagement and misuse of funds”.)
Idris proved that he was a typical politician, though he says he is not one, by claiming that his statement was taken out of context. The PM stayed far away from Idris’ apocalyptic speech. He made the CEO of Pemandu a sitting duck whilst he ran short of political will to seriously address the subsidy syndrome.
Things turned out the way DAP’s Tony Pua had predicted: “I don’t think the Najib administration has the courage to carry out the cuts…not across the board and not as Idris planned it. They’ll probably stagger the subsidy cuts, one every three to four months, as long as there is no by-election.”
Then came another slap on Idris’ face. His warning was based on the country’s total subsidy of RM74 billion, equivalent to RM12,900 per household last year. Najib’s Finance Ministry had the country’s total subsidy at only RM18.6 billion, equivalent to RM3,246 per household.
The contradictions between the PM and Idris would become more and more glaring. For example, three days after the dire warning that the country could become bankrupt by 2019, the PM declared: “Malaysia can be a developed nation by 2020, if the country registers a continuous six per cent annual growth”!
Foreign/local investors stay away
In mid-July the released UN’s World Foreign Investment Report (WIR) 2010 revealed the following:
- Malaysia’s FDI plunged 81 per cent from US$7.32 billion in 2008 to just US$1.38 billion in 2009, trailing behind neighbouring countries such as Thailand, Indonesia, Vietnam and Singapore.
- Malaysia was the only Asean country to experience negative FDI flow in 2009.
- The country’s 2009 FDI fell lower than the Philippines, which attracted US$1.95 billion, while Singapore raked in the most — more than US$16 billion. (It was the first time ever that Malaysia attracted less investment than the Philippines!)
Pas vice-president Mahfuz Omar said that the plunge in foreign investment in 2009 proved that Najib had failed miserably in his Key Performance Indicators (KPI) and National Key Results Area (NKRA) (meant to gauge governmental performance) as PM and Finance minister. He should resign gracefully.
According to Mahfuz, the main factors responsible for the dismal performance in attracting investors were:
- Rampant corruption, bureaucratic red-tape and money paid to middle men.
- Interference and a state of “lawlessness’ in the judiciary. The Lingamgate case, the BN’s power grab in Perak and Sodomy II gave the impression that Malaysia practised law of rule and not rule of law.
- Government’s mismanagement of giant government-linked-companies such as Sime Darby, Felda and Maybank had hurt investor confidence.
DAP’s chief economist Tony Pua had this to add: “Despite Datuk Seri Najib repeatedly insisting that the era where ‘the government knows best’ is over, his administration continues to crowd out private investments by directly awarding mega-projects to government-linked entities, such as the Sungai Buloh land to an EPF joint venture with the government, or the Sungai Besi airport redevelopment, to the 1Malaysia Development Fund.”
“Without these necessary and critical changes to the government’s economic policies, the Malaysian economy will only continue to drift away from the radar of both local and foreign investors,” he said.
Nothing really changed in spite of the warnings of the WIR in July 2010. One could see this clearly in a statement which came out in December 2010 by Ramon Navaratnam, who warned that the Najib administration would face continued investor scepticism until it became more explicit on how to make Malaysia a high-income nation.
The former senior civil servant who had helped Tun Abdul Razak draft the NEP said the second New Economic Model (NEM) report was filled with good intentions but “very short” on specific measures. He added: “And therein lies the problem… Investors, after waiting so long, find they’re back almost to square one in terms of the specifics and policy proposals they can act on.”
Fine performance by PR
According to Penang Chief Minister Lim Guan Eng, the combined four Pakatan Rakyat states of Penang, Selangor, Kedahand Kelantan beat the 9 BN states together in terms of investments in 2010.
They succeeded in attracting RM25 billion in investments comprising 53% of Malaysia’s total investments of RM47.2 billion in 2010. Despite the financial constraints and limitations imposed by BN, PR showed good governance.
For the first time in history, Penangwas the new champion of investments in Malaysia, replacing the previous 2009 champion Sarawak by recording RM 12.2 billion in 2010 as compared to Sarawak’s RM3.9 billion.
Lim took pride in saying that Penang’s success in drawing in RM12.2 billion was an extraordinary vote of confidence by both foreign and local investors in the PR state government of Penang. The No.2 state after Penang was another PR state of Selangor with RM 10.6 billion in investments.
2010 was a year which revealed how sick the country’s economy has become with the PM and his government trying to cure it by drowning it with acronym soup — GTP, NKRAs, NKEAs, SRIs, NEM, ETP, EPPs, SRIs and more.
Alas, Najib would end up looking so silly at times. When commenting on the Budget for 2011, Sakmongkol AK47, the pen-name of Mohd Ariff Sabri Abdul Aziz, a former state assembly member of Pahang who is an Umno member, said that Najib was “suffering from Acronymitis”.
“It’s a new disease I suppose which has become fashionable since Najib took over from Pak Lah. And we are seeing its deleterious effects when the PM/Finance Minister prepared the 2011 budget recently. He is suffering from an economics heatstroke I think.”
He provided an excellent example: What has the construction of a 100-storey tower got to do with the government budget? Or for that matter the construction of the RM43 billion MRT, the RM10 billion mixed development of Sungai Buluh, the RM26 billion construction of the KLIF hub, RM10 billion worth of highways?
Idris Jala will be remembered as the man who at one moment would shake the nation with his apocalyptic message and at the very next moment suffocate the nation with a slew of grandiose plans through his slick powerpoint presentations. He would be sadly accused of being an spin doctor for Umno.
The target for private investment set by Najib through the ETP, 10-MP and Budget 2011, stood at RM115 billion at an increase of 12 per cent every year until 2020. But in spite of the slew of acronyms, the showcase of plans, projections, and programmes, and the spate of privatised projects, there were no significant signs of foreign and domestic investor confidence.
On 24 December 2010, the Malaysia Chronicle reported that a survey showed Najib’s popularity dropping by a significant amount – from 72 per cent to 69 per cent cent, and this had his minders scrambling to spin away his loss of approval among Malaysians.
“The artificial public relations and false promises are starting to come unstuck. It is also highly likely the actual results are much worse because you can be sure the survey-takers would have tried their best to be kind to him,” commented PKR vice president Tian Chua.
The poll was conducted by the Merdeka Centre and suggested that the lower approval rating was due in part to a reduction in government subsidies for fuel and sugar. The poll also found that few Malaysians understood or appreciated his flashy RM1.4 trillion Economic Transformation Programme.
Many felt the government was refusing to do what was necessary to save the economy. As was plainly put by Tengku Razaleigh, who blamed the Najib administration for crippling the national economy by putting politics ahead of policy reforms, “only political change can bring economics reforms to Malaysia”.
The Umno veteran urged the PM to end race-based affirmative programmes in the NEP, drawn up 40 years ago, which he said was a cover for “corruption, crony capitalism and money politics”.
Before the year ended Opposition Leader Anwar Ibrahim accused the government of bullying the poor by failing to impose similar subsidy cuts on “subsidy monsters” like the Independent Power Producers The latest price hikes on daily essentials was clear proof of the BN’s “double standard” and “flagrant inconsistency”.
Martin Jalleh is a well known political commentator