Economic growth before inter-ethnic issues

By Ooi Kee Beng, The Malaysian Insider

Prime Minister Datuk Seri Najib Razak is trapped between the imperative to jump-start the economy as quickly as possible and the political need to retain as much voter support as possible, especially from a Malay community confused by recent political developments.

AUG 27 — Malaysia celebrates its 53rd birthday on August 31 (let’s not get into the controversy of when the country was formed, for the moment).

Exactly 20 years ago, Prime Minister Tun Dr Mahathir Mohamad declared Vision 2020 as the goal towards which the country’s nation-building was aimed. By that year, the country was to reach advanced country status. By that was meant not only a national economy that could match that of most other countries in entrepreneurial skills, scientific knowledge, technological innovativeness and per capita income, but also a society that was at peace with itself.

The latter goal is no longer taken seriously.

Dr Mahathir was lucky enough to have presided over Malaysia’s most expansive period and throughout the early ‘90s until the air went out of the economic balloon in the region, optimism was high throughout the country. Malaysians actually felt they had grounds for believing that Vision 2020 was a seriously constructed agenda and not just cutting-edge political spin.

It helped of course that the goals were expressed in very general terms.

Malaysia has lived through two bad economic crises since then, which were not accounted for in Dr Mahathir’s planning. This year, the country will be two-thirds along the way to 2020. No one now seriously believes that in 10 years’ time, the country will be anything like the paradisiacal one Dr Mahathir had conjured to awe his fellow citizens.

Malaysian society is far from being at peace with itself. Inter-ethnic and inter-faith tension has grown tremendously since the 1997 crisis, along with a burgeoning budget deficit. More accurately, the economic predicament came before the social problem. The budget deficit in 1998, for example, equalled only 1.7 per cent of GDP. Last year, this had swollen to 7 per cent of GDP.

One reformist prime minister after Dr Mahathir retired in 2003 failed badly and the second has yet to show the determination needed to reverse economic and political trends that have seen the country fall to the bottom half of the Asean list of nations competing for life-sustaining foreign direct investments.

A large part of the domestic economy is still dependent on subsidies and emigration of brain and brawn is a growing problem.

These bad macroeconomic trends have been accompanied over the last 15 years by worsening inter-ethnic and inter-faith relations and by falling standards in governance.

But things may not be as bleak as they look. A strong argument can indeed be made that blistering economic growth of the type that Malaysia experienced in the early ‘90s is the solution to most of the country’s major ills.

As suggested by a recent report by CIMB, Malaysia’s biggest bank, what are required first and foremost are macroeconomic and political reforms. The government’s decision to implement gradual subsidy reduction is, in this context, a classroom example of not taking the bull by the horns.