by MOHAMED ARIFF
As winds of change sweep the Malaysian political scenario, MOHAMED ARIFF stresses the need to ensure that domestic uncertainties do not compound the problems being faced by the economy
Those who choose to ignore such changes do so at their own peril, as the ruling coalition found out to its chagrin in the March 2008 general election.
The dramatic reduction in the size of the majority in parliament and loss of five states to the opposition has been a traumatic experience for the ruling Barisan Nasional, especially Umno, the dominant member of the coalition. The five states now in the hands of the opposition account for well over half of the economy in terms of gross domestic product.
What does all this mean for the Malaysian economy? The tumble the Malaysian stocks took immediately after the election results was only partially attributable to the knee-jerk reactions of investors. Although all bourses in the region also took a dive on March 10, the sharp fall in the Kuala Lumpur Composite Index was clearly out of sync with the regional trend. Anecdotal evidence shows that investors in Malaysia were unnerved more by the calls on Prime Minister Datuk Seri Abdullah Ahmad Badawi to resign than by the election outcomes.
The opposition, like the ruling coalition, had promised to work with market forces with business-friendly policies that would ensure a dynamic and resilient economy. What made the election results all the more exciting for investors was the new prospect for better governance, enhanced openness, increased transparency and greater accountability through institutional reforms.
A two-party system is generally viewed as a positive development by investors, as it would provide not only checks and balances but also healthy competition in the political arena in terms of policies aimed at maximising economic welfare.
However, there are concerns among investors relating mainly to "adjustment problems" on both sides of the divide and the "inexperience" of the opposition in governing the states and the nation. Upon closer scrutiny, these concerns are overblown. For one thing, the transition has been fairly smooth judging by the progress thus far. For another, lack of experience is not really an insurmountable hurdle for the opposition, as it can count on the experience and expertise available in the civil service.
Political change does not necessarily imply political instability, if the experience of countries that have enjoyed continued political stability amid political change is any indicator. There is certainly a need to ensure that Malaysia remains politically stable despite political change, as there can be no economic progress without political stability.
What would undermine the Malaysian economy at present is the relentless pressure on Abdullah to step down, which threatens to destabilise the system. There are no valid reasons for him to throw in the towel. He has been given a strong mandate to form the federal government, with a very comfortable 13 per cent margin, which is respectable by international standards.
What is more, he is not to be blamed solely for the electoral losses, as if others in the coalition had nothing to do with the outcomes. That he could not deliver his earlier election promises is not good enough as a reason for him to step down, as it is extremely difficult for any one to walk the talk carrying the heavy baggage of the predecessor.
Investors are worried that a forced change in the country's leadership at this point in time would set in motion forces that would cause an implosion, which would bode ill for the economy. The Malaysian economy is already in the throes of growing external challenges arising from global imbalances, the US credit crunch, soaring price of oil and rising food prices.
Domestic political uncertainties would only compound the problems currently faced by the economy. A smooth transition of power would enable the Malaysian economy to cope with external threats.
It is not difficult to argue why Abdullah should continue to be at the helm for some time to come. Contrary to what his detractors may have to say, Abdullah already has much to his credit since he became prime minister. His leadership differed from that of his predecessor not only in terms of style but also in substance. He decentralised the administration, delegated decision-making, tolerated dissent, loosened controls on the press and created space for civil society, all of which would constitute his legacy in no uncertain terms.
Indications are that history will not judge him harshly and recognise his iconic contributions to the democratic heritage of the nation. Democracy is not about having elections every four or five years. It is about institutional integrity, freedom of expression, rights to have information, best practices, transparency, accountability, etc. He has made some interesting beginnings in this direction and needs more time to move forward. And, he has no other choice, given the country's new political landscape.
Reportedly, there are some 4.9 million unregistered voters in the country. Presumably, they chose not to register as they had given up on the system thinking that their votes would not make a difference. The recent electoral outcomes have shown them that their votes can make a difference and the chances are that they will register and exercise their rights the next time around.
Now that the fear of change has given way to thirst for change, a smart government would respond positively to the new challenge by addressing the real issues, instead of sulking in a state of denial or playing the blame game. A leadership change for the sake of it within Umno will not be a wise move as it cannot solve the problem but would only increase political uncertainties, which investors would be loathe to see.
Emeritus Professor Datuk Dr Mohamed Ariff is executive director of the Malaysian Institute of Economic Research
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