Malaysia General Election: First Change in Power in the Country’s History
May 12, 2018
by Takashi Kawabata - SPEEDA Chief Asia Economist, Translated by Kenneth Bresson
| Basic Policies Expected to Be Maintained, but Revisions to Large-Scale Projects and the Abolishment of GST Call for Attention. |
| In Malaysia’s 14th General Election held on 9 May, the country experienced its first change of government since its independence from the UK in 1957, with former prime minister Mahathir Mohamad being reelected for the position 15 years after he was last in office. |
| The new ruling party is Pakatan Harapan (PH), which is referred to as “Alliance of Hope” in English as per the meaning of the words in Malay. PH is a coalition of political parties that have been active in the opposition party up to this point. The party that lost power, and the ruling party up until now, was Barisan Nasional (BN; “National Front” in English). |
| In this general election, out of the 222 seats in the Lower House of Malaysia’s Parliament, the results showed 79 seats for BN, 113 for PH, 18 for the Parti Islam Se-Malaysia (PAS; “Malaysia Islamic Party”), and 12 for independent/other parties, with PH achieving a change in administration through the simple majority. However, even when PAS and other members of Parliament are factored in, the total does not reach the two-thirds required for amendment to the constitution. |
| Effects on Malaysia’s Macroeconomic Policy |
| There are no major changes expected for Malaysia’s basic macroeconomic and monetary policies. Within PH, there are politicians who have been involved at the core of economic policy in the former ruling party for many years, including the new prime minister Mahathir and former deputy prime minister Muhyiddin Yassin. Former deputy prime minister and finance minister Anwar Ibrahim, who has been the central figure of PH for the past 20 years, is currently serving a prison sentence for abnormal sexual acts, but his prison term will end in June. While his civil rights will be suspended for five years thereafter, in practicality, Anwar will likely be providing advice on policy to the new administration. |
| When a government change occurs in an emerging nation, there are cases where extreme policy changes are made, but this will most likely not be the case for Malaysia. Regarding monetary policy, the Central Bank of Malaysia has been consistently maintaining a high level of independence; it has been evaluated highly on the global stage for its steady policy management, with a high sense of stability. |
| However, individual policies call for attention. As a commitment to the public upon election, PH announced several disseminating political agendas, such as the abolishment of Goods and Services Tax (GST), the expansion of housing for middle- and low-income citizens, the abolishment of toll-road fees, and the provision of subsidies for petrol. In particular, GST was introduced by the Najib administration for fiscal consolidation despite strong public opposition. |
| In addition to the abolition of GST by the new administration, financial resources present a problem for implementing various support and subsidy policies. During the election period, the new administration claimed that the wasteful use of government finances would be eliminated, and that the budget would be covered by reviewing mega projects in which there are doubts over their effect. There have also been questions over the transparency of some of the mega projects that were being carried out by the Najib administration, and if the new administration undergoes reviews of such projects, it is assumed that they will be canceled or postponed for a long period of time. |
| Impact on Financial Market |
| Financial market officials came to a consensus that while the election would be a close battle, the result would involve BN maintaining power. Contrary to that expectation, when the ruling and opposition parties reversed, the Malaysian ringgit temporarily declined against dollar futures by 7% compared with the previous day and marked the lowest level since November 2017. In addition, Malaysian ETFs listed on the New York Stock Exchange also experienced a decline by 6%, the lowest level since December 2017. |
| In the financial market, this has been regarded as a “surprise”, prompting many to start selling shares. Such an occurrence is not limited to Malaysia’s General Election, but is rather a common phenomenon, which is likely to occur when unknown risks or movements that are perceived as negative take place. |
| Meanwhile, as the situation after the election has been calming down for Malaysian ETFs, many have been purchasing ETFs at low prices for the time being. Prior to the announcement of the new administration’s cabinet and specific policies, there was a sense of caution within the financial market, with expectations that prices will fluctuate, but at a low range. |
| Relations with China Call for Attention |
| During the Najib administration, relations between Malaysia and China became closer. Trade and investment between the two countries increased, but such a phenomenon has also been seen in other countries, and is not specific to Malaysia alone. |
| However, Mahathir criticised Najib for attracting excessive capital from China. At a press conference after the election, Mahathir stated that he supports the “One Belt One Road” initiative, but suggested the possibility of reviewing part of the agreement with the Chinese government. Even if there are no issues with conducting business purely on a private basis, there is a possibility that some reviews and course corrections may take place for projects involving the government. |
| In addition, Alibaba was involved in the establishment of Malaysia’s Digital Free Trade Zone, and Alibaba Cloud plays an important role in Kuala Lumpur’s plan for becoming a smart city. Furthermore, Tencent is heavily involved in terms of data with the “Smart Tourism 4.0” initiative promoted by Malaysia’s Ministry of Tourism and Culture. |
| In the upcoming years, a focus point will be how the new administration will steer the relationship with China, which has been deepening at a rapid pace. |
| Governing System by Coalition Party |
| Malaysia is a constitutional monarchy with the king at its peak, below which is a bicameral system consisting of upper and lower houses, with the adoption of a parliamentary cabinet system. The lower house is important for the election, and there are no specific customs for nominations, with the candidate from the majority party appointed as the prime minister. |
| Malaysia is a federation consisting of 13 states and 3 federal jurisdictions as a its national system, and there are state councils in 13 provinces. As such, the government would be divided should the central government and the government party of a state’s government be different. |
| The political parties that have been responsible up to this point have operated an integrated central government. These parties are the Unified Malay National Organization (UMNO), the Malaysian Chinese Association, and the Malaysia-Indian Conference, which represent three major Malaysian ethnic groups, and BN, which is a coalition party composed of the local Sabah and Sarawak states on the island of Borneo. Adjustments to BN are made by ethnic groups and representatives of regional interests. |
| BN Was in a Critical Moment |
| Until the 2004 election, BN won 70%–90% of the seats in the Lower House, but in 2008 and 2013, the opposition party made a leap forward, with the BN’s share decreasing to around 60%. In terms of percentage of votes, however, the opposition party has acquired more than 50% within the Malay Peninsula (where the capital city of Kuala Lumpur is located) in 22 elections up to this point. It should be noted, though, that there are many wasted votes due to the small constituency system, which can easily result in a separation between the percentage of votes and the seating occupancy rate. |
| The states of Sabah and Sarawak have been the supporters of BN, which was in a critical situation. Although the opposition party is somewhat powerful in Sabah, BN has had the overwhelming lead in these two states. In addition, BN has also had strong support in the state of Johor, just north of Singapore. This state is also the founding place of the largest ruling party, UMNO, and has a strong election foundation. |
| In other words, if the opposition party seized a significant number of seats in these three states in this general election, especially Sabah and Sarawak, then there was a possibility of change of government. In actuality, there have been major movements occurring in these three provinces, and BN only acquired 29 out of 56 seats in Sabah and Sarawak, and suffered a severe defeat in Johor with 8 out of 26 seats. |
| Of the 13 states in Malaysia’s legislature, BN won the administration in only three states. In past elections, the opposition party had victories in some states, but even when it made its highest breakthroughs, BN maintained the administration in ten states. |
| Therefore, this election not only resulted in a downfall for the central government, but also for most of the state-level administrations. |
| Anger of the People Is Cause of Defeat for BN |
| Why did BN lose its strength? The largest factor was that the people had a strong distrust of Prime Minister Najib. |
| In 2015, there were allegations of a financial scandal surrounding the government-affiliated investment company 1MDB. In this scandal, it was revealed that Prime Minister Najib and his wife Rosmah Mansor, as well as business cronies close to the prime minister, had gained profits illegally. Prime Minister Najib made an early announcement stating that a sufficient investigation was carried out and declared that the case is closed. However, there have been strong criticisms from the ruling party and NGOs, and the general public has also raised awareness of their distrust through social networking services. |
| From within the cabinet party, then deputy prime minister Muhyiddin criticised Najib and was dismissed, withdrawing from the ruling party and forming the new Malaysian United Indigenous Party. Although not initially expected, former prime minister Mahathir himself withdrew from the ruling party and joined Muhyiddin, thus realizing a collaboration with the existing opposition party as PH. In this way, there was an increase in anticipation amongst electorates, which led to the first change of government in Malaysia’s history. |
| Mahathir Takes Office Again |
| Mahathir was Malaysia’s prime minister from 1981 to 2003, and a leading figure that led the country to high growth. He is a well-known politician across the globe, but has been retired for 15 years. |
| Mahathir implemented such mega projects as the Look East policy, improvement of the investment system, reform for government workers, reform for state enterprises, the establishment of a new administrative centre in Putrajaya and the IT industrial park Cyberjaya, and construction of Kuala Lumpur’s new international airport (designed by Japanese architect Kisho Kurokawa). Despite issues that were left after some projects, represented by domestic automobile manufacturer Proton, Mahathir’s achievement is comprehensive. |
| Meanwhile, the later years of the Mahathir administration were a period when politics shook, which was actually a factor behind this current change of government. |
| In the face of the Asian financial crisis in 1997, the opinions of Mahathir and former deputy prime minister and finance minister Anwar conflicted. Mahathir insisted that Malaysia rebuild itself independently, while Anwar argued that it would be better to accept the reform plans of the IMF, similar to South Korea and Indonesia. |
| Furthermore, Anwar was charged with alleged abuse of authority and suspicions of homosexuality. Homosexual acts in Malaysia are charged as criminal offenses. As a result, Anwar was removed from his roles as Deputy Prime Minister and Finance Minister, and established a new opposition party, Parti Keadilan Rakyat (PKR; National Justice Party). As a statement claiming that Mahathir has also committed injustices, Anwar developed “Reformasi” (a protest movement). Anwar was unable to run for the election in 1999 and the PKR earned only 5 seats. However, he went on to become the core of the subsequent opposition party’s efforts, and also won the most seats in this general election. |
| Mahathir resigned from the role of prime minister in 2003, and yielded the administration to Abdullah Ahmad Badawi, thus politically burying Anwar, who claimed that he was the successor, and forcibly breaking through. Najib took office in 2009. |
| In retrospect, the shaking of the strong BN administration began with this confrontation with Anwar while Mahathir was in office, and after 20 years, there is now an unusual turn of events with Mahathir taking office again. |
| Towards a Generation of Change |
| In this general election, it was said that there was a strong tendency to vote for the opposition party amongst current generations ranging from young demographics to middle-aged citizens. It can likely be said that there was a strong image of critics, reformers, and Mahathir, who once led Malaysia to high growth, all against the Najib adminsitration. There may have also been effects from current young people not having experienced Mahathir’s previous term in office. |
| Mahathir is 92 years of age, and there are already points of view stating that he will not serve long as prime minister, and that his administration will be transferred to other politicians. Anwar’s civil rights will be suspended for five years after the end of his prison term, but there is a possibility of pardon by the king. However, Anwar is also not young at the age of 70. Other prime minister candidates will likely emerge. During the BN era, the same politician served as a member of the council for several terms, which had adverse effects on the long-term administration. This also led to uncertainty surrounding the BN administration in certain aspects. As BN has lost this election, there will likely be an increasing number of politicians within BN who will retire. It can be said that this election not only resulted in a change of government from BN, but also became the priming of generation change. |