How the Pandemic Is Keeping Malaysia’s Politics Messy
(Bloomberg) -- Malaysia’s first transfer of power in six decades was hailed as a milestone for transparency, free speech and racial tolerance in the multiethnic Southeast Asian state. Two years later, in 2020, the young coalition collapsed amid an all-too-familiar mix of political intrigue and horse trading that stems in part from an entrenched system of affirmative-action policies that critics say fosters cronyism and identity-based politics. The political upheaval brought back elements of the old regime into a shaky new government, while a state of emergency declared in 2021 over the coronavirus pandemic has hampered plans for fresh elections.
1. Why did tensions boil over?
Two veteran politicians, Mahathir Mohamad and Anwar Ibrahim, pulled off a shocking election victory in 2018 that ousted then-Prime Minister Najib Razak, who was enmeshed in a massive money-laundering scandal linked to the state investment firm 1MDB. Mahathir, now 95, became prime minister again (he held the post from 1981 to 2003), with the understanding that he would hand over to Anwar at some point. Delays in setting a date -- as well as policy disputes within the unwieldy coalition -- led to tension that boiled over in late February 2020. Mahathir abruptly stepped down and became interim prime minister. He then sought to strengthen his hand by forming a unity government outside party politics. But the king pre-empted his efforts by naming Mahathir’s erstwhile right-hand man, Muhyiddin Yassin, as Malaysia’s eighth prime minister since independence from the U.K. in 1957. Mahathir formed a new party to take on the government but has failed to get it registered. Anwar, meanwhile, failed in his bid to persuade the king to let him form a new government.
2. There’s a king?
Malaysia is a parliamentary democracy along the lines of the U.K., except instead of one constitutional monarch the title rotates every five years among the rulers of nine Malay states. The king, known as the Yang di-Pertuan Agong, usually stays on the sidelines performing ceremonial duties, but is involved in major appointments like that of prime minister. He also is the one who declared the national state of emergency on Jan. 12 “as a proactive measure” to help contain a new surge in Covid-19 cases. The decree, which also suspends parliament, was the first since deadly ethnic rioting in 1969.
3. What’s the political impact?
Najib’s United Malays National Organisation, the largest party in the ruling coalition, had been debating whether to call for a snap election, possibly by March. But Muhyiddin, who left UNMO years ago, announced that no elections will be held until the emergency is over. Opposition politicians criticized the move, accusing Muhyiddin of using the pandemic as an excuse to stay in power. (The king had rebuffed his request to declare an emergency last year ahead of a confidence test in parliament, which the government survived.) The emergency is set to expire Aug. 1 but could be called off sooner if the outbreak abates. Muhyiddin said elections would be held when an independent committee declares that it’s safe to proceed.
4. Who is Muhyiddin?
A 73-year-old career politician, he was Najib’s deputy for six years before he was sacked in July 2015 after calling for greater clarity in the 1MDB investigations. He later joined forces with Mahathir to set up the new Bersatu party, and became home affairs minister in his government. A cancer survivor who’s generally low profile, he’s perhaps best known for quipping in 2010 that he considers himself “Malay first” and Malaysian second.
5. What does ‘Malay first’ mean?
Some 56% of the country’s 31 million people are ethnic Malay (defined in the constitution as Muslim), and another 13% belong to other indigenous groups, according to 2019 estimates from the Department of Statistics Malaysia. Collectively they are known as bumiputera, or “sons of the soil.” There are also large ethnic Chinese and Indian minorities who are Christian, Buddhist and Hindu. Government policies give preferential treatment to bumiputera, traditionally seen as disenfranchised, in such areas as public-sector jobs, housing and higher education. Critics say the preferences have fostered cronyism and a dependence on state handouts and have prompted many educated minorities to look for work overseas, draining the economy of talent. But they are something of a “third rail” in Malaysia’s polarized politics. Mahathir’s appointment of Lim Guan Eng as finance minister, the first ethnic Chinese to hold the post in over four decades, sowed suspicion among Malay nationalists that their benefits would be eroded, costing the coalition support.
6. So how’s it gone?
Muhyiddin’s coalition has held on, even winning an election in September in a state that was a viral hotspot. (Covid-19 cases exploded afterward.) Despite being backed by UMNO, his administration has seen progress in resolving the 1MDB scandal, including a conviction for Najib, which has caused some UMNO members to grow discontented with Muhyiddin and push for a bigger role. UMNO threatened to pull out of the coalition in October, but has been split internally. It and other parties in the new government support a more conservative agenda favoring Malays, including measures to promote a stricter version of Islam. Muhyiddin has pledged to be prime minister for all races and to strengthen government integrity. The emergency decree gives Muhyiddin some breathing room as the pandemic worsens: Daily new infections were above 2,000 in early January and the government projected the number to reach 8,000 new cases a day by late March or May. But critics such as Bridget Welsh, Honorary Research Associate with the University of Nottingham Asia Research Institute Malaysia, questioned whether a nationwide state of emergency was necessary to flatten the curve or relieve the strained health system.
7. What about the economy?
Already sputtering before the pandemic, it went into a tailspin as trade and tourism suffered and lockdowns dampened consumption and investment. The Finance Ministry has estimated the 2020 contraction in gross domestic product at 5.5% -- the worst since the 1998 financial crisis. (A pre-pandemic forecast was for 4.8% growth.) This year, it’s targeting 6.5%-7.5% growth. The government’s 322.5 billion ringgit (about $80 billion) budget for 2021 is the country’s biggest ever. It includes a cut in personal income taxes, monetary aid for businesses and breaks for first-time home buyers, and follows a $73 billion stimulus budget in 2020. But oil-related earnings remain in decline amid volatile crude prices, adding headwinds for exports and potentially undermining the government’s capacity to boost infrastructure spending, lift incomes and rein in government debt. Fitch Ratings cut Malaysia’s sovereign rating in early December. Even before the pandemic, surveys found rising living costs and a lack of jobs had replaced corruption and abuse of power as voters’ top concerns.
8. What does it mean for investors?
The key stock index, which has been one of the world’s worst-performers since the 2018 election, slumped to its lowest since 2011 a day after Muhyiddin’s appointment, though by late September it had recouped most of the loss and ended the year (2020) with its first annual gain since 2017. The ringgit dropped to a one-month low after declaration of emergency on Jan. 12.
The Reference Shelf
- A closer look at how a $7 billion dispute helped sink Mahathir’s “New Malaysia.”
- Bloomberg Opinion’s Daniel Moss examines Malaysia’s crucial role regionally in reopening after lockdowns, as well as its deep divisions, and Andy Mukherjee writes on short-cycle politics.
- QuickTake explainers on the 1MDB scandal and the problems with palm oil.
- The BBC explains Malaysia’s monarchy.
- A report by the Lowy Institute on decentralization in Malaysian politics
- The Economist on Malaysia’s system of racial preferences.
©2021 Bloomberg L.P.