Malaysia’s crisis has lessons for Asia

IFR Asia 904 - August 1, 2015
5 min read

Malaysia is experiencing a huge political crisis, with allegations of fraud at the highest levels of government. Extraordinary events are afoot in the country, to the extent that some commentators have started to describe Malaysia as a failed state.

Much has been said in local and social media in Malaysia on the topic of this week’s cabinet reshuffle by Prime Minister Najib Razak. In the face of mounting pressure surrounding the ongoing investigation into state investment vehicle 1MDB, Mr Najib last Tuesday removed his deputy, Muhyiddin Yassin, as well as attorney general Abdul Gani Patail.

Muhyiddin recently gave an unexpectedly vocal speech about 1MDB while the attorney general was helming an investigation into the company. Allegations swirl that the sacking of the two men was a desperate attempt to tone down the heat facing Najib, who has denied taking any money for personal gain.

Meanwhile four members of the Public Accounts Committee tasked with investigating 1MDB were appointed to the cabinet. This apparently means the committee’s investigation will be shut down until replacements are elected in October.

Another casualty of the 1MDB noise is Badlisyah Abdul Ghani, who resigned as CEO of CIMB Islamic the week before last after having posted remarks on Facebook concerning the embattled sovereign fund.

As if this weren’t enough, to add to the flavour of an Evelyn Waugh novel (or is it a Frederick Forsyth thriller?) fire broke out last Wednesday in the Kuala Lumpur police headquarters where the branch of the police investigating white collar crime is based.

NONE OF THIS is a good look for Malaysia. To call it a failed state might be going too far, although the collapsing ringgit – at a 17-year low against the US dollar – tells you that something is really not quite right.

The idea that a Malaysian government entity could at this moment access the international debt markets is utterly unthinkable. This means there is an economic cost to the people of Malaysia the longer the 1MDB narrative continues.

But perhaps the real question is whether the 1MDB imbroglio tells a more profound story about politics in Asia.

If there is one thing that defines the power elites in Asia and the way in which they go about their business, it is the concept of patronage.

Favours are dispensed from on high in return for loyalty in the face of storms. That model has worked for generations in Asia – and elsewhere, of course.

I recall many years ago when I was a wet-behind-the-ears politics undergraduate being particularly taken by the late Tony Benn’s staunch opposition to patronage in the British parliamentary political system.

Benn, the far-left firebrand member of parliament (who never reached the high office he craved) argued vocally for much of his political life against the prime minister’s power to wield influence by offering peerages.

Benn had a point and certainly Britain has not been immune from high level political scandals involving patronage and large amounts of money, although I can’t recall one that involved an incumbent prime minister.

With all the drama of last week, the reams of copy from local and international media, the swathes of speculation, it’s clear that Malaysia’s political system is going to be stretched to the limit unless a clear line is drawn under 1MDB.

A mass rally in Kuala Lumpur is planned for later this month in protest at the government’s handling of the topic, although somehow I doubt this will have too much bearing on politics in a country where the prime minister is prepared to remove politicians who question him.

I’M INCLINED NOT to see these events in Malaysia as idiosyncratic to that country, but more to place them in the context of Asia’s declining economic fortunes.

China apparently has begun to accept in the words of president Xi Jinping “the new normal” of a more moribund economic growth rate than the country has enjoyed for over three decades.

All well and good, and the Chinese government still has some firepower left to massage growth rates if required, in the form of vast land ownership, huge foreign exchange reserves, total control of almost 160,000 SOEs, room to move on interest rates and no political opposition.

However, for the rest of Asia, which derives a big slug of GDP growth from China, the situation is more challenging.

And so while China may be able to confront the “new normal” in a stable political environment, Asian countries where the political elite have relied on consistently high growth rates to control their electorates may have a harder time. Malaysia is shaping up as the first big test of that hypothesis.

Jonathan Rogers_ifraweb