THE political stalemate in the country will undoubtedly leave scars so deep among the investment community that it would take years to heal.
The world is reeling from the Covid-19 epidemic that is expected to shave global economic growth by between 0.5% and 1%. The virus has now spread to Europe, the United States and the Middle East.
The US markets, which have had a 11-year bull run, are on correction mode after having declined 12% within a space of one week due to the outbreak.
Malaysia’s response is a RM20bil stimulus package unveiled by interim Prime Minister Tun Dr Mahathir Mohamad. Not only is the package of incentives feeble, as it involves less than RM3bil of fresh money being pumped into the system, but it has also been over-shadowed by the political uncertainties.
In previous crises, the government would normally appoint some key people to ensure the measures yield the desired results. Now, there is no direction as to who would drive the stimulus package to make sure the objectives reach the ground. Until the political stalemate is resolved, Dr Mahathir and the civil service will manage the administration.
Will it result in an effective stimulus package?
This is highly unlikely, because nobody would be held accountable and responsible if the measures do not yield the desired results. What is worse is the signals coming from some political factions on whom could lead the country in future are rather disturbing.
It is quite apparent that race and religion are the cornerstone issues that will dominate the day as political parties attempt to form a coalition to rule the country.
That should be avoided at all cost because the country cannot afford to be divided, especially at this time. It cannot shed its image as a multi-racial and tolerant society.
Even though the majority of the population is made up of bumiputras, it is a fact that the private economy is driven by the non-bumiputras as well.
The number of listed companies on Bursa Malaysia with a high percentage of non-bumiputra shareholders is ample evidence that the economy cannot be driven by one race or religion. It would send Malaysia back many years.
Malaysia is already bogged down by falling private-sector investments since 2014. Ironically, it seems to have a correlation with the performance of the stock market. With the exception of 2017, the FBM KLCI, which is the benchmark index of Bursa Malaysia, has under-performed every year since 2014.
Domestic direct investment (DDI), which used to make up almost 70% of Malaysia’s total investment, has been on the downtrend for the last six years without any respite. As at the end of 2013, the DDI was at RM159.9bil and made up 72.9% of Malaysia’s total investments of RM219.4bil.
For the nine months up to end-September 2019, DDI was a mere RM82.7bil, making up only 55% of total investments.
There are many reasons for this decline. One of them is the lack of political leadership in ensuring reforms take place. In the past, decisions on what’s best for the people and the business community was more of politics of patronage.
Malaysians paid a heavy price for allowing one party to be in control of a government for too long a period. It resulted in financial scandals such as 1Malaysia Development Bhd and financial distress in government-controlled entities such as Lembaga Tabung Haji, the Federal Land Consolidation and Rehabilitation Authority or Felcra, the Federal Land Development Authority or Felda and others.
The majority expected a new beginning in May 2018 when the Pakatan Harapan coalition toppled the Barisan Nasional government, which had been in power for more than 60 years. However, hardly 22 months later, we are in political turmoil. In a rare public announcement, Dr Mahathir apologised to the public for quitting a fragile Pakatan coalition. His resignation came just as his party - Parti Pribumi Bersatu Malaysia - left the ruling coalition, causing the collapse of the government.
His apology came just too little too late. Being a seasoned politician and administrator who has seen the country through its worst economic crisis, Dr Mahathir of all persons should know that a country needs its full Cabinet when faced with an economic slowdown.
The political leadership in a state of disarray is just the recipe for disaster.
Investors are feeling the brunt of the poor leadership. The stock market fell 22 points at the opening bell a day after the economic stimulus was announced. Over the past one month, Bursa Malaysia is down 4.3%.
Even the stock market in Hong Kong, which is at the epicentre of the Covid-19 virus outbreak, has done better than Bursa Malaysia.
The headline figures of the economic package of RM20bil belie the amount of work that has to be done to ensure that the benefits go down to the ground quickly. Tax breaks, reprieve for loans and incentives to boost local tourism need an efficient administration, which we fortunately have in the civil service.
However, the civil servants cannot be held accountable if there is red tape holding up the implementation process. This is where elected representatives and the Cabinet play a role.
Now, we only have a one-man show, which hardly inspires.
The political turmoil needs to be sorted out quickly for the economy to get up and running. A fresh election is not the answer because it will take time and may not result in an outcome that is good for the investment climate. Billions more in wealth could be lost.
A quick solution is what everybody should aim for.
Views expressed here are the writer’s own.
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