Prime Minister Datuk Seri Najib Razak has announced an impressive raft of liberalisation measures since he took office in a bid to woo back investors, but his efforts may founder unless he takes steps to stamp out corruption.
Najib took the top job in April charged with renewing a government that was rocked in polls last year as many voters forsook the coalition that has ruled this Southeast Asian country for over half a century, tired of broken pledges to tackle graft.
Since he came to power, however, a scandal over a port trade zone close to the capital has emerged, exposing links between government politicians and business and worrying holders of US$1 billion (RM3.4 billion) of bonds who fear they may not be repaid.
Najib has promised to prosecute any wrongdoing but was forced at a recent presentation to investors in New York to promise that the government would honour the bonds that were initially sold with a fake government guarantee.
“Najib has to take hard measures against what has historically been accepted in Malaysia, which is corruption,” said a fund manager who attended the presentation and who is a bondholder of the Port Klang Free Trade Zone.
Costs for the free trade zone may spiral to RM12.45 billion from an initial RM1.8 billion, according to a report from PricewaterhouseCoopers that identified potential conflicts of interest in land sales.
As a result of the concerns over corruption and the questions over repayment, bonds issued to finance the construction yield 5.9 per cent, a full 213 basis points (2.13 percentage points) over five year Malaysian government debt.
The fund manager, whose company policy does not allow him to be named, is a member of a bondholder group that wants the government to go a step further and issue iron-clad government debt to replace the bonds, removing the risk of non-payment.
Despite promises made by both Najib and his predecessor to end corrupt practices, Malaysia has fallen to a record low of 56th place among 180 countries polled in anti-graft watchdog Transparency International’s 2009 corruption perception index.
That is still better than its emerging Asian neighbours such as 84th placed Thailand and 111th placed Indonesia, but Malaysia has fallen from 29th place in 2004 while Indonesia has risen from 133rd place over the same time period.
Najib has taken measures to stem vote buying in his own political party Umno, but observers say there has been little change in tolerance of abuse among politicians and in the country as a whole.
“There’s no denying that the rhetoric coming out from the (Malaysian) government has been extremely sound but the real test is implementation, and so far we have not seen anything yet,” said Terence Gomez, economics professor at the University of Malaya.
The fall in Malaysia’s rankings has coincided with jitters over the stability of the country’s political system in the wake of the 2008 elections and portfolio investors withdrew almost US$40 billion between the second quarter of 2008 and the second quarter of 2009.
Money trickled back in the third quarter but Malaysia is far from having to douse the flows of hot money that have flowed into the developing world’s top reformers such as Brazil and Indonesia.
Najib’s reform efforts so far have seen some elements of the New Economic Policy (NEP), a four-decades-old economic and social affirmative action policy for the Malays and other indigenous communities, rolled back.
He has received a generally positive response for that and other measures to lift investment caps for foreigners in areas like tourism and financial services so as to boost investment.
Malaysia saw its first flicker of interest yesterday when US banking giant Goldman Sachs Group Inc took advantage of the liberalisation measures to set up a fund management and advisory business here.
Politically, too, Najib has stabilised a government that was so wobbly in September 2008 that it had to ship 40 MPs to Taiwan to put them out of reach of opposition leader Datuk Seri Anwar Ibrahim’s bid to lure them to join him and topple the Barisan Nasional coalition.
Fights in ethnic Chinese and ethnic Indian parties are occupying the premier’s time and stretching his ability to reach out to non-Malay voters who he needs to win back in order to have a convincing national mandate when he goes to the polls.
The biggest concern is the MCA, the second-largest government party, which represents the 25 per cent of the population that is ethnic Chinese and which is paralysed by a leadership row that has forced Najib to mediate.
“Even if the MCA were to resolve its problems, it will likely not have enough time to win back the lost support from the community,” said James Chin, political science professor at Monash University in Kuala Lumpur. — Reuters