Policy flip-flops, wary investors: can Lim Guan Eng prove his mettle in Mahathir’s Malaysia?

The freshly minted finance minister has had to allay concerns about his credentials while jousting with defeated leader Najib Razak, all while investors and detractors foreign and domestic await his inaugural budget

(SCMP) – Four months into his job, Malaysia’s new finance minister Lim Guan Eng continues to find his in-tray full to the brim – with top priorities including a need to allay concerns about his own economic credentials to overseas investors and domestic detractors. With Lim completing a whistle-stop Hong Kong visit last week to assuage hawk-eyed investors in the city, analysts say they are satisfied with his performance, after initial worries he was fumbling in the hot seat once held by the defeated prime minister Najib Razak.

While questions remain over the trajectory of Southeast Asia’s third-largest economy beyond the medium term, Lim will be able to prove his mettle when he delivers his inaugural budget on November 2, the analysts say.

The finance chief, a trained accountant and a former chief minister of the state of Penang, faced questions over his fit for the job soon after his appointment in May, as he revealed the country’s debt level was far higher than scandal-tainted Najib had let on before the May 9 election.

When a brief sell-off of the ringgit and equities ensued after the polls, some, including Najib, characterised the episode as evidence Lim was a rookie in the world of macroeconomic management.

In Hong Kong, Lim told journalists on the sidelines of the CLSA Investors’ Forum that he remained unapologetic for being forthright about the state of the economy – a far cry from the “fairy tales” he said Najib had told the people during his nine years in power.

Malaysia-based economics professor Yeah Kim Leng said for now, the Malaysian public was more appreciative of that stance than investors.

“The Malaysian public has given the thumbs up for his forthrightness and determination to straighten the country’s finances,” said Yeah, from the Sunway University Business School.

Foreign investors were more wary, amid questions over the “narrower tax system, future revenue sources and spending priorities under the new government”, he said.

Julia Goh, a senior economist with United Overseas Bank in Kuala Lumpur, said she was satisfied the government – with Lim stewarding the economy – was “focused on reforms that can exert a positive influence on the economy”.

One major headache for Lim, however, is his boss Prime Minister Mahathir Mohamad’s drive to review Chinese-funded big-ticket infrastructure projects as part of efforts to reduce loans that ballooned during Najib’s era.

The drive, analysts say, sends mixed signals to investors on the government’s view of foreign direct investment.

While Mahathir has said the Chinese-backed infrastructure projects are unnecessary, he has also said he was open to investments that add jobs and transfer technology to Malaysia.

Conflicting public statements about the projects have caused confusion.

One of them, the US$20 billion East Coast Rail Link, remains in limbo with negotiations underway to reduce its cost, despite Mahathir earlier saying it had been cancelled.

The current opposition – from Najib’s United Malays National Organisation – point to the “flip flopping” over the projects as a sign of economic incompetence in the Mahathir government.

Goh, the economist, disagreed.

“I don’t think deferring or cancelling these projects is contrary to the focus on growth and investment,” she said. “Some of these projects have a low economic-multiplier effect to begin with given the high import content.”

Elsewhere, continued uncertainty over Lim’s newly implemented sales and services tax (SST) – which replaced the Najib-era goods and services tax (GST) – has also become fodder for detractors.

Mahathir’s Pakatan Harapan coalition triumphed in part on a campaign that assailed the GST implemented by Najib as a ruse to raise revenue from average consumers after heavy losses at the 1MDB state fund. It says the SST will ease the sales tax burden on the public.

Najib, who faces criminal charges for his alleged links to a financial scandal at the same fund, has been one of the top critics of the SST.

The former prime minister has echoed sentiment among a large of section of Malaysia-watching economic analysts who say the implementation of the SST is regressive as it is less efficient as a sales tax compared with the GST.

Lim said he would continue to vigorously engage Najib and others who challenge his policies.

Like the episode involving his revelation of the country’s true debt level, some observers say it is beneath Lim to constantly be sparring with Najib in the public domain.

Since his election defeat, Najib has used lengthy Facebook posts to attack the new government. The bulk of his posts target Lim.

Describing himself as a “soft target” for Najib compared with Mahathir, Lim said he relished taking on the former leader.

“There are some who say I should not be wasting time with him, but I feel that public discourse is important … this is the new Malaysia. We should not have a culture of silence,” the finance tsar told media in Hong Kong.

While that combative stance may be a risk in the short term, it is likely to put Lim in a good position for the long run, analysts say.

“Investors will understand that the new government means business when it comes to being transparent and incorruptible … it enhances the investment landscape in the long run,” said Awang Azman Awang Pawi, a politics professor at the University of Malaya.