The outcome of the recent election in Malaysia has been a huge disappointment to democratic economic reformers. Malaysia has been continuously running budget deficits since 1998 with government debt rising to US$164.6 billion in the third quarter of 2012, bringing Malaysia's debt-to-revenue ratio to a level similar to that of Italy's.
After 55 years of one-party administration by the ruling coalition, it was considered to be high time that Malaysia had an alternative new vision. However, not only does it look like more of the same, but the greatly reduced majority for the ruling party makes it likely that any reforms will be postponed until October or November. This is when new party leadership elections will take place and Prime Minister Najib Razak will have to answer to the traditionalists in his party for its poor electoral showing.
The ruling BN coalition lost the popular vote, gaining only 47%, and turned in its worst electoral result ever as it was largely abandoned by minority Chinese and rejected by voters of all races in urban areas. The result should be seen as a message from voters tired of corruption and patronage politics and also a rejection of the BN's austerity plans for balancing the budget with a new consumption tax and lower food and fuel subsidies.
Malaysia has been recognized for its strong "tiger" economy, growing at 5% in 2013 and surprisingly resilient at a time of negative developments internationally. This is despite dismal export performance because of the recession and stagnation in Europe and the slow economic growth in the US. Consumer confidence is expected to continue holding up and the inflation rate is stable in spite of higher food prices and is expected to remain at between 2.3 percent and 2.8 percent until 2016. Unemployment figures are low and expected to remain around 3 percent.
However, the underlying structure of the Malaysian economy is based on its relationship with its international trading partners and the domestic economy needs to be backed by the more lucrative external market. A vulnerable domestic economy must be strengthened if it is to continue to withstand the current global economic downturn and the status quo will no longer serve Malaysia well.
Malaysia had hopes of economic reform with the emergence of a strong political opposition under the leadership of Anwar Ibrahim whose issues based campaign pointed to the need for ongoing reform. Institutional shortcomings that constrain the country's prospects for long term economic expansion include the prevalence of corruption and lack of transparency and a judicial system that is vulnerable to political interference.
These are pressing issues that the government must address if it is to maintain competitiveness and achieve growth potential. The folly of reducing taxes has contributed to the budget deficit, and Malaysia's rate of 26 percent seems reckless when compared with Thailand's 37%, where the GDP has also been growing at a healthy rate.
The present government's appetite for debt has been escalating since 2008, negating the effects of inward foreign investment. This has been justified as government spending on commercial enterprises to stimulate the economy, but too often has been seen as funding large-scale projects that reward political crony capitalists and support their companies. The strain of debt load inevitably becomes significant and falls on the wage-earning people.
Austerity measures such as cutting public services like health care will be deeply unpopular and a lower standard of living will be seen as divisive and unjust in view of the wealth of the lightly taxed super rich bracket. Tackling debt should be a major subject of policy discourse in Malaysia but not on the backs of working families.
Chinese economists who have studied Malaysia have concluded that the country will be unable to move ahead into a higher income level while it remains held back by a lack of tertiary industry, an education system that is falling behind in technological expertise and a restrictive low-wage economic model. Malaysia's dependence on cheap uneducated foreign workers has depressed local wages and productivity growth.
The closely contested general election brought these issues to the forefront. An awareness across the political divide of the need for Malaysia to continue its economic expansion and attract further in¬vestment should play a key part in future policy-making.
The Inter¬national Monetary Fund (IMF), has forecast 5.1 per cent growth for 2013, although exter¬nal factors, such as slower than expected expansion in the US or China, along with the threat of continued recession in the euro¬zone, could affect the country's economy. The so-called New Economic Model proposed by the existing government will never produce the promised high-income status for Malaysians in 2020 unless there is a change in the management of Malaysia's resources based on the wellbeing of future generations.
Malaysia's rapid economic growth may well be coming to an end, as natural resources are being depleted and the workforce has reached a limit of productivity. A new era of social justice underpinning economic decisions was envisaged by the Pakatan Rakyat opposition coalition. Their failure to gain enough seats was particularly galling given that the election laws favour the ruling party and electoral fraud, abuse of power and control of the Elections Commission made it almost inevitable.
Opposition leader Anwar Ibrahim may have lost this election but he has certainly won the fight for change and social justice and he has a much stronger presence now to challenge the status quo, work for electoral reform, to put an end to corruption and to influence the restructuring of the economy for a more sustainable future for Malaysia's people.
Dr. Azeem Ibrahim is a Fellow at the Institute for Social Policy and Understanding and an International Advisor to Dr. Anwar Ibrahim.