Malaysia’s economic reform still caught in the baggage of the old politics | East Asia

When Anwar Ibrahim finally won the prime ministership, supporters might have been happy for his Pakatan Harapan coalition government to bring reform to Malaysian government and politics, even at the price of stability. Instead, Anwar has brought an unexpected stability — at the price of slow-pedalling economic and democratic reforms.

After the removal of the United Malays National Organisation (UMNO) party machine as the cornerstone of Malaysian politics in the historic 2018 elections, no single party was able to act as the dominant and disciplining force in the system. Powerbrokers competed for the support of blocs of parliamentarians, with factional defections causing the mid-term collapse of both Mahathir Mohamad’s government in 2020 and Muhyiddin Yassin’s in 2021.

When Anwar was appointed prime minister after his Pakatan Harapan coalition placed first in the November 2022 general election, the spectre of a similar parliamentary coup hung over him. But Anwar has defied those anxieties. Since coming to power, he has enlarged his buffer of parliamentary support, which remains above the crucial psychological — as well as legal — barrier of the two-thirds of parliamentary seats required to amend Malaysia’s constitution. The right-wing Perikatan Nasional opposition coalition has had no success in peeling off pro-Anwar parties into its camp, most recently in a meeting of opposition powerbrokers in Dubai.

It now seems completely plausible that Anwar will serve out a full term as prime minister, all the way to general elections that must be held by 2027.

Anwar’s unexpectedly secure standing isn’t born of a surge in his popularity. A poll on the first anniversary of Pakatan Harapan’s election in November 2023 showed he had a personal approval rating of just 50 per cent, down from 68 per cent in February that year. Cost of living challenges are weighing on the government’s support among lower-income voters, despite the World Bank tipping growth to accelerate to 4.3 per cent in 2024.

Anwar has built up a broad elite coalition even as his popularity has slumped thanks to his understanding — as a UMNO warlord in a previous political life — of the importance of brokering access to state power and patronage in bringing allies on board. He has been strategic in handing out big-budget cabinet portfolios to kingmakers in UMNO and parties representing the resource-rich but underdeveloped states of East Malaysia. Political parties linked to the government can also expect to have their friends appointed to positions in Malaysia’s state-owned enterprises, or to statutory appointments throughout the federal bureaucracy.

Loopholes in an anti-‘party hopping’ law, passed just before the last general election, have also allowed the government to expand its majority by peeling off individual members of the opposition. Malaysia has weak local and state governments, so parliamentarians seeking to steer pork-barrel projects to their constituents are well-advised to be on good terms with federal political leaders to ensure the flow of development funds — as opposition MPs who have pledged to support Anwar openly admit.

The politicisation of the justice system is part of the formula, too, despite government insistence that its efforts to bring accountability for historical misconduct is all above board. A new anti-corruption drive has conspicuously included the tycoon and former finance minister Daim Zainuddin, a key ally of former prime minister and now prominent opposition activist Mahathir Mohamad, as well as Mahathir’s son Mirzan. Anwar allies like UMNO chair Zahid Hamidi, meanwhile, have seen their own corruption charges conveniently dropped.

As Dan Slater observes in the first of this week’s lead articles, Anwar’s political consolidation, and the slow start his government has made on reform, are two sides of the same coin. Anwar’s government, he says, ‘still labours under a sword of Damocles — the threat that the authoritarian old guard will conspire to topple it before the next national election’.

Malaysia’s efforts to break out from the middle-income trap and ameliorate its significant socioeconomic inequalities will require a welfare state and productivity-raising public investments that the current tax system can’t support.

But as Francis Hutchinson argues in the second of our lead articles, Anwar’s government ‘has limited fiscal room for manoeuvre. Over the past decades, Malaysia’s oil reserves have accounted for a decreasing proportion of state revenue and the reimposition of a goods and services tax is politically taboo’. Tax revenues are just 12 per cent of GDP, well below the norm for a country at Malaysia’s development levels.

A glance over the Java Sea to a less wealthy but more mature multiparty democracy provides a clue to the future. In Indonesia, supporters of presidents Susilo Bambang Yudhoyono and Joko Widodo always reassured those barracking for institutional reforms that political consolidation came first, then bold policy action. In both cases deep reform never came, as the presidents grappling with a corrupt and fragmented political elite found they had a perverse interest in some of the problems that reforms sought to address. An over-regulated economy allows favours to be done for allies, after all, and a justice system susceptible to political influence allows protection from the law to be extended as a reward for support.

Despite all their differences, Southeast Asia’s middle-income electoral democracies — a club Malaysia has now clearly joined — face a situation where the goals of strengthening the rule of law, shrinking the role of the state in the economy, and combating patronage politics are in conflict with their leaders’ political authority, or even their political survival.

With his coalition stable for now, Anwar Ibrahim may have bought himself time to find a way out of this trap before elections are due. But a comparative view suggests that it might be best to revise down expectations of what a realistic reform agenda looks like for Malaysia.

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