You are a foreign potential investor, perhaps thinking of setting up a business, and you are considering if Malaysia would be a safe place to risk your money.
However, Fitch has just downgraded the country (outlook ‘negative’) and other ratings agencies look set to follow. The reasons are dreaded ‘political uncertainty’ and concerns over ‘poor governance’.
Prospects for a further improvement in Malaysia’s governance are uncertain in Fitch’s view. The new government continues to implement some transparency-enhancing measures launched under the previous coalition, and corruption trials of former officials have continued, but the government’s thin two-seat parliamentary majority implies persistent uncertainty about future policies, in Fitch’s view. After a significant improvement in 2019, Malaysia’s World Bank governance score weakened slightly in 2020, to the 64th percentile, and is closer to the ‘BBB’ median of 58th percentile than the ‘A’ median of 76th percentile. Deterioration in governance and continued political uncertainty could dampen investor sentiment, constraining economic growth. [https://www.fitchratings.com/research/sovereigns/fitch-downgrades-malaysia-to-bbb-outlook-stable-04-12-2020]
Ugh! You ask your advisor, could this “deterioration in governance” mean that if the business were to get on the wrong side of someone powerful you might find that the system is stacked against you because the rule of law is compromised? Answer seems yes.
And might this “continuing uncertainty” result in further political upheavals and a collapsing economy as the government pours public money into all the wrong places for political rather than economic reasons? Answer seems yes.
Anyone reviewing Malaysia from the outside (let alone the inside where private exasperation has reached a peak) cannot help but identify numerous indicators that tend to be associated with so-called ‘banana republics’ – gimcrack, corrupted and downright dangerous countries run by authoritarian leaders without a proper mandate.
Such countries are associated with weak institutions, arbitrary rulings and governments that produce illogical and unconvincing excuses for avoiding scrutiny or suffering criticism. Injustice, bribery, public theft and favouritism thrive: altogether a terrifying place to risk your money.
Consider the present situation. Malaysia was rescued in 2018 from one of the world’s most spectacularly corrupt governments thanks to the fury of its own outraged electorate, which defied all manner of rigging and gerrymandering to heave out an entrenched kleptocracy. That earned global admiration as a demonstration of a mature democratic process in action.
Considerable strides were then made to proceed against the most blatant and powerful individuals associated with the political mafia which had been robbing the country, with cases initiated against key kleptocrats in the former ruling party.
A platform of reforms was also embarked upon to put an end to corrupt practices and the secretive apportionment of public money. Hence the reference by Fitch to ‘transparency measures’ and ‘anti-corruption trials’, which investors (who take comfort from the rule of law and honest leadership) regarded as promising initiatives by the PH government.
However, the pace had been slow, not least because of the innate conservatism of the ‘transition’ prime minister, who reneged on the immediate performance of manifesto commitments as well as on his agreed handover.
This uneven but certainly much more positive direction in terms of good governance was then shockingly interrupted by a political coup, as the parties from the old kleptocracy (backed by powerful cronies) joined forces with religious extremists and bought-up rebels, who had been trying to seize power within the elected government.
The professed rationale behind this new ‘PN coalition’, appointed without the approval of Parliament which was itself suspended for several months, was that too many individuals from minority races had been included by the reforming government, whereas only Malays should be allowed into top decision making jobs – race not results.
Unfortunately, such bigotry hardly acts as a Welcome Mat to multinational investor confidence.
Worse, it’s not hard for observers to detect the other less ‘philosophical’ motives behind the coup – crooks were anxious to get off the hook and a once pampered establishment elite wanted to see the return of their previous privileges – i.e. fat ‘contracts’ for the bigger fish and cushy public ‘jobs’ for the lesser players (forget the rest of the Malays, who are used to being very poor).
Persistent Uncertainty
So, what have been the priorities of this half-baked coup (given not nearly as many rebels agreed to betray their electors as had been promised)?
Few would disagree that the past months have seen a response to Covid 19 designed as much to crack down on dissent as to help protect or sustain the public. The all too obvious focus of the backdoor government has been to consolidate its shaky grip on power.
Indeed, the most disastrous aspect of this overthrow of what had been a stable and largely popular government, elected by the people, has been the blatant lack of legitimacy. Malaysia is presently governed by a backdoor administration that at best manages at best a majority of two having cobbled together a coalition of widely disparate, rivalling and now deeply hated political figures.
One of these is the convicted former prime minister, who retains a vital vote (on appeal). Several other key deciding votes are likewise in the hands of those who also face prosecution but have not stood aside.
It has provided the worst of all worlds with Malaysians treated almost daily to blatant episodes of political bribery in order to maintain this razor thin majority and quell the constant squabbling over who should rule the roost and get the lion’s share of plunder.
A minority of PH coalition rebels have snatched the top jobs, but they are reliant on the opposition parties with grass roots support, who resent their secondary role in this coup government which they sustain.
Everyone wants rewards – and more rewards every day. There is no commitment, no loyalty, no discipline: only blackmail and bribery. Bigotry has replaced policy. The current budget is about pork barrelling the Malay constituency – certainly not about caring for the needs of all Malaysians.
With such pressures to buy-off a pack of baying hyenas (known otherwise as MPs) the pressures on the hard-pressed economy are clear. Not only has this been a pork barrel budget, but it is a fearfully non-transparent and deceptive one as well. Huge borrowing in the name of ‘Covid relief’ to the public is in fact being channelled into a vast and obscure ‘development budget’, no details given.
A $2.5 billion cash payment from Goldman Sachs, which under the previous administration was committed to be paid into a transparent trust to help repay the burden of debt owed by 1MDB, has instead been made into an official secret. Destination unknown.
The suffering of ordinary citizens starved of their livelihoods by this pandemic has been treated as a sideshow meanwhile, with plenty of order, fines and arrests meted out, but little genuine support. This is a government wrapped up in its own problems of survival run by people who think they may have limited time to take advantage of their present positions of power.
Perhaps the most troubling and concerning aspect of this whole descent into dark corruption and disruption has been the bargaining over law and order and blatant return to a two tier system of justice. Not only have the politically connected brazenly been able to ignore the Covid restrictions that affect everyone else, but they are bartering votes for pardons.
As one foreign financial expert on Malaysia is reported privately warning his banking colleagues just this week after the latest outrageous dropping of charges against a corrupt politician “It is no secret that any fragile coalition government will have to keep doing backroom deals to stay in power. Sadly, the country will pay the price for this, with the recent Fitch Ratings Inc’s downgrade being one such example”.
Given the businessman from whom the UMNO MP was charged with receiving a million ringgit bribe has pleaded guilty, it is a simply jaw-dropping decision for the newly appointed AG to have made. However, it is just the latest in a string of politically motivated reversals of prosecutions as all Malaysians know.
Meanwhile, the brother of the said AG has been unconstitutionally parachuted into Parliament as an unelected Speaker, with the main task being to refuse the growing pressure for a Vote of No Confidence to test the effectiveness of the range of cabinet posts, GLC positions and dropped prosecutions that have been employed to keep the each and every MP in this backdoor coalition ‘faithful’.
Public finances do not fair well under circumstances such as these. Malaysia was already reeling thanks to the raids on the public purse, public companies and public funds from the Najib years and Covid has made things worse. However, on top we have an unelected, inexperienced crony for a Finance Minister who is in hock to the real man in charge (Azmin Ali) and held to ransom by howling hyenas after every penny they can leverage out of every vote.
Please go ahead and invest.