Well written article by Steve Hagger.
Happy Sunday (by Steve Hagger)
A peaceful transition
Malaysia has done the impossible & achieved a peaceful transition of power from BN / UMNO, which had been in continuous power since independence. The 7th Prime Minister (PM), was eventually sworn in by an unhappy looking king. Dr M has ~135 seats (out of 222) & possibly growing, giving him a comfortable majority which will allow him to carry out his task, without doing deals & without having to look over his shoulder. Former PM Najib has now conceded defeat & UMNO is in opposition for the first time in ~60 years. Thus Malaysia has achieved a harmonious transition to two party politics over two election cycles. An evolution, not a revolution. This alone is incredible.
The Jedi council
A ‘Council of Elders’ has been formed to advise the government. The council will shore up confidence in the new administration & comprises:
· Zeti: The former BNM governor who steered Malaysia out of the Asian Crisis & prevented Malaysia from being touched by the Global Financial Crisis. She could play a role in overseeing BNM, which has seen an erosion in investor confidence.
· Daim: A former finance minister & Dr M’s former ‘money man’ from the 1990s. He mixed his own business, UMNOs business & his MoF portfolio with ease, never troubled by the conflict. The crony godfather. He is clearly shrewd & will be Dr M’s ears & eyes on the council.
· Hasan Merican: Former CEO of Petronas with a stellar clean reputation. He stepped down on a point of principle.
· Robert Tycoon: Tycoon. I can send you a precis of his autobiography. He could play a key role in keeping good relations with China.
· Jomo: A well respected economist who has studied the interaction between business & politics in Malaysia since independence.
Dr M has shrunk the cabinet considerably, from ~35 ministers during Najib’s tenure to initially just 10 pax. This will not only save money, but will speed up decision making. This will be a difficult task, given that it is a coalition of five parties, while race, geography & gender will need to be taken into account. It is clear from the line-up that Dr M is attempting to work with his coalition partners on this, though it had already hit a speed bump on Saturday. The first 3 positions have been announced. The two other important ministries yet to be announced are Education & Trade.
· Finance: Lim Guan Eng, who was chief minister in Penang & is largely responsible for its transition from backwater to vibrant economy. This is a clever move, as it gets him out of Penang, which, after two terms, he has been in the job too long. He is a trained accountant & holds an economics degree from Monash. Incidentally, he is the first ethic Chinese to hold this position in 44 years. He has promised full transparency of public expenditure, in particular off balance sheet financing. Information on contract awards will be available on-line. The MoF will review all infrastructure contracts involving foreign countries. No doubt, the ECRL will be a priority. Ironically, he was jailed by Dr M.
· Home Affairs: Muhyiddin is the 2nd most experienced person in the cabinet after Dr M. He has never run this ministry before, but he has been Chief Minister of Johor, Minister for Youth & Sports, Domestic Trade, Agriculture, International Trade, Education & Deputy PM. While no saint, he enjoyed a reputational renaissance when he was sacked by Najib in 2016, for asking questions about 1MDB. He has never been jailed by Dr M.
· Defence: Mat Sabu, a former PAS man who presides over its splinter group, Amanah. Ironically, he has been twice jailed by Dr M.
The manifesto can be divided into two parts, getting elected & fixing Malaysia.
1. Getting Elected
To get elected, the new government had to promise to scrap GST & to right the wrongs of 1MDB, FELDA etc. When GST was introduced, it was the first time that many Malaysians had paid tax. As a result of paying tax, they began to care how UMNO was spending their money, particularly when details of 1MDB were revealed. GST generates ~RM40bn. Replacing this with a sales & service tax will lead to a shortfall of ~RM20bn. Thanks to $70+ oil, there will be increased revenues of ~RM5bn. The manifesto promises to go after illegal cigarettes & booze, this will generate at least RM5bn in excise revenue. The cost of Najib’s PM’s dept ballooned to ~RM17bn. The new govt aims to get the cost down to ~RM8bn, saving ~RM9bn. There will no doubt be plenty of other ways money can be saved, but these three alone just about makes the GST shortfall. The manifesto states that there are too many agencies, such that they will be consolidated, presumably with eventual savings. The public procurement budget is ~RM100bn. Open tenders have been promised, which will provide significant savings. It is however a shame that GST has to go, but that is the political price that has to be paid for fixing Malaysia. Tolls will be abolished in stages. No timeline is given & compensation will be awarded. This is easier said than done given bond markets & the cost involved. Petrol subsidies will be brought back. This however will be targeted, rather than wholesale.
2. Fixing Malaysia
The manifesto is a dream guide to fixing Malaysia. It has been written by the 5 component parties of the coalition with very different priorities (socialist to capitalist), such that the result appears comprehensive, logical, ambitious & do-able. If it is achieved, then Malaysia will be incredibly well set to prosper for the long term. Some of the institutional fixes mentioned in the manifesto are as follows. It is hard to do this excellent document justice, please zap me if you would like the full ~150p version:
· The AG & the public prosecutor will be separated. The AG will be an MP & act as a legal advisor to the government. The public prosecutor will be autonomous.
· Key positions will need to be approved by parliament, via select committees, notably the EC, MACC, AG, BNM, SC, senior judges & the national audit department.
· The MACC will be upgraded & will report to a select committee in parliament & not just the PM as it was under Najib. It will have the power to prosecute.
· All MPs & government officials above a certain rank will have to declare their assets.
· A new freedom of information act will be introduced. The Whistle Blower Act & Official Secrets Act will be amended, together with witness protection.
· The chairman of the Public Accounts Committee (PAC) to be chaired by the opposition.
· PM’s question time will be introduced weekly, for 30 mins.
· The EC will be independent. It will lower the voting age to 18, have automatic voter registration & re-formulate the size of the constituencies. Political funding will be transparent & regulated.
· The police force will get properly paid, modernised & have a complaints commission.
· Oppressive laws will be repealed, like the Sedition Act & the Dictator Act.
· Free media. Sarawak Report has already been unblocked!
· Cash handouts (BR1M) will continue, but will be handled by an independent agency, rather than politicians.
· The education system will be revamped.
· A Norwegian style SWF will be set up, funded by Petronas.
· Foreign workers will be reduced from 6mn to 4mn & the minimum wage will be increased from RM1000 to RM1500, with the burden shared by the government. Refugees will be allowed to work (hurray!). 10% of new hires for GLCs & government must be ethnic Indian.
Honest government: The Penang case study
Penang is a great case study on what can happen if you have honest, logical government. When the opposition, led by Lim Guan Eng, took control of Penang in 2008, Penang got back its mojo. He had no great skill, training or experience, just simple, honest logic. Over time, the change became apparent. First, rubbish was cleared from the streets & buildings got a lick of paint. Penangites (notorious for being tight) began to spend money on themselves & their housing. The brain drain stopped & then reversed. There was a property boom. Capital & tourists came back. Penang is now hip & booming. All this happened while Najib’s federal government did everything in its power to choke the Penang economy. Just think what can happen to Penang now that the federal government is on-side? The new government has promised to devolve power & funding down to the state level. Great things can now happen to the country, greater things to Penang. Lim Guan Eng is of course now Minister of Finance.
Anwar, see you next Tuesday
A full pardon is being sought from the King, which should allow the release of Anwar from prison on Tuesday. The plan is for his wife & seat warmer, Wan Azizah, to resign as an MP, triggering a by-election. This could allow Anwar to become an MP & cabinet member within 6 months. Dr M plans to step down in ~2 years & hand over to Anwar. The quick release of Anwar will remove the single largest risk i.e. the single-man risk in Dr M being the sole person that can hold the disparate opposition together. Anwar’s greatest asset is his charisma. He will be able to provide the glue that can hold the opposition together.
Heads will roll
Dr M’s most important task is to restore the independence & integrity of the key institutions. The genesis of Malaysia’s problems dates back to the 1980s, when, on Dr M’s old watch, the judiciary lost its independence. The appointment of an independent Attorney General (AG) is the top of the list & is in progress as I write. This will be followed by the two senior judges. A quick consultation at The Long Bar indicates that this should be a straight forward process. Once the Bar Council gets a voice, the renaissance of the judiciary should fall into place. Other institutions with corrupt or incompetent leadership will likely see change. The Registry of Societies (ROS) frustrated the then opposition. The Election Commission (EC) appeared to work hand in hand with UMNO to frustrate the opposition. The MACC (Anti-corruption commission) appeared to show selective prosecution. The key Government Linked Investment Companies (EPF, Khazanah & PNB) are very well run by honest technocrats & are unlikely to see change. Dr M has already stressed that any changes in institutional leadership will be carried out in accordance with the law & that in future, heads of institutions will need to be approved by parliament.
Just a 1MDB ‘trim’ or ‘a brazilian’?
Corruption has become so institutionalised in Malaysia, that it is unlikely (but not impossible) that Malaysia would follow Brazil’s example & carry out a full-blown anti-corruption investigation & prosecution. Malaysia’s prisons are already over-crowded as it is. It is however a certainty that the new administration will conduct a full investigation & prosecution of 1MDB. The work has all been done, curtesy of the journalistic heroes at Sarawak Report, The Edge & WSJ. The international regulators have done their work & are already cooperating with the Malaysian authorities, hence the raids in London of Najib’s property. The manifesto has promised a full investigation into 1MDB, FELDA, MARA & Tabung Haji. The people will demand ‘scalps’ & will want to see the repatriation of stolen trophies (jewels, artwork, yachts etc.). Malaysian Official No 1 will become former prime minister Najib & will no longer be immune from prosecution as a sitting head of state. His wife, Rosmah Mansor will emerge as this century’s Imelda Marcos. All of which will serve as a useful distraction for the people, as the new administration carries on down a bumpy road of reform.
M for Machiavellian
Dr M is The Master. He may lead a disparate coalition of 5 parties, but he will ultimately get his way. It is an advantage that he is an extremely fit 92 year old. He is a man in a hurry. Superhero that he is, he knows that he only has 2 years & quite possibly less, to right the wrongs and see through the necessary institutional reforms. He knows that it was on his watch that the culture of cronyism & corruption (politely called ‘money politics’) became synonymous with UMNO & BN. While he jokes about being a Dictator, there is so much to do, he cannot do it alone & he will be heavily reliant upon the energy & ideas of his coalition partners to see through the reform. His controversial track record is very well documented in the late Barry Wain’s book, “Malaysian Maverick”. He is no saint, after all, 2 out of his 5 children are probably billionaires.
Dr M is incredibly pro-business
Dr M invented the term ‘Malaysia Inc.’. This was the bringing together of the business community & politicians for the common good. In his maiden speech as PM, within minutes he mentioned the stock market, the ringgit & his pro-trade stance. He has rightly pointed out in the manifesto that many of Malaysia’s cost of living problems go away with a stronger MYR. With 22 years in power, he lived through several boom & bust cycles. In the 1990s, GLIC controlled companies like Tenaga were at worst, troughs in which politicians fed or at best, socio-economic tools for politicians. There was government directed lending by the banks. All that changed under the Badawi administration. With the excellent leadership of Azman Mohktar, Khazanah revamped the boards & management of previously un-investable companies like Bank Bumi into great companies like CIMB. Any sign that Malaysia would go back to the 1990s, would be met by a market rout.
Born again cronies?
Dr M & his then finance minister, Daim, carried out an economic experiment in the 1990’s, ‘Crony Capitalism’. The theory was that by creating Malaysian billionaires, the economic benefits would trickle down. The results were mixed. While Dr M will no doubt call on help from old friends, especially those that helped him in his hour of need. Right now, his priority is institutional reform & it is unlikely that he will attempt to repeat this economic model. In any case, his coalition partners are unlikely to let this happen. For the sake of completeness, those cronies that are still economically extant include Jeffrey Cheah (Sunway), Francis Yeoh (YTL), Ananda Krishnan (Maxis, Astro, Bumi Armada), Syed Mokhtar (MMC, DRB etc.), Vincent Tan (Berjaya), Lee Kim Yew (Country Heights) & Wan Azmi (Splash).
Lifting the mantle of fear
Overnight we have seen a change in behaviour of Malaysians. Political jokes & comments are being made without fear on social media. Such behaviour, would as recently as last week, have resulted in the authors (or senders) being arrested. Social media, which played a monumental part in the election result, will continue to play a huge role in keeping the new administration in check. This will be formalised by the repeal of the printing presses act & the anti-fake news act. In KL. Pride in the nation has returned.
Singapore, friend or foe?
Whenever Dr M’s domestic chips were down, he appeared to pick a fight with Singapore, to distract the nation. While he admittedly remains scarred by the experience he had when he was a medical student in Singapore, it was his relationship with the late Lee Kuan Yew that was difficult. Najib on the other hand, cultivated an excellent relationship with Singapore. It seems likely that Dr M no longer has a beef with Singapore. The two countries will cooperate in the 1MDB investigation & with the High Speed Train, which will likely get built at some point.
Dr M, with the help of Robert Kuok, will need to tread a difficult path with China. It is quite apparent that China exploited the weakness of PM Najib, when it was rolling out its OBOR into Malaysia. Dr M enjoyed excellent relations with China in the 1990s, but he has stated that these projects will need to be reviewed (by the MoF) to ensure that they are in Malaysia’s best interests. Unlike PM Najib, he will not be unwilling to give up sovereignty of Malaysia’s ports. It is tricky, but he has the experience, charm & tenacity to pull this off. This is of course critical for the construction & tourism sectors.
What happens to the new opposition?
Najib has been stopped from trying to flee the country on a private jet, provided by an Indonesian buddy. He has resigned from both BN & UMNO. BN is now an almost pure Malay party, rather than being multi-racial. His successor is Zahid Hamidi (acting, until UMNO elections). He enjoys a strong friendship with Anwar. Things will of course be very different going forward. The party still has a significant number of seats, but will need to undergo significant reform, before it can make a meaningful challenge. PAS, the Islamic Party, has a record 18 seats & controls the two East Coast states. At the federal level, PAS will have little influence, which gives Dr M the opportunity to reverse the political influence of religion in politics & cut government spending on religion, which had ballooned under Najib, possibly with the help of his friends in Saudi Arabia. Most BN MPs would never have dreamt that they could end up on the opposition benches. Defections to Dr M’s party seem likely, which would of course be unfortunate for the future of democracy, could it give Dr M a 2/3rds majority. Inevitably, it is already being argued that a 2/3rds majority is necessary to carry out institutional reforms. Too much comfort is a bad thing.
The market opens tomorrow after being shut for 3 trading days. During that time, we have been on a political roller coaster. This has resulted in weakness in the offshore MYR market (NDF) & the US traded Malaysian ETF. It seems likely that the market will weaken on the open, but there is a wall of money looking to buy into this weakness.
Malaysia is back!
This week, I have expanded beyond my usual distribution list. If you would like to continue receiving my sales commentary ‘Hagger on Malaysia’ going forward (average 2x a week), do please let me know.