MALAYSIAN ECONOMY ENTERS DIFFICULT PERIOD
Since the ruling BN (National Front) government suffered the unprecedented loss of its two- thirds majority, due to the successes of the opposition Pakatan Rakyat in the 2008 general election. it has been going all out to regain the lost ground by introducing government and economic transformation programmes. Recently, also to try and gain some popularity, it announced plans to abolish the extremely unpopular and draconian Internal Security Act (while still retaining broad powers to try and suppress social movements that threaten its hold on power).
The uprisings in North Africa and the Middle East as well as the prolonged uncertainties in the global economy have forced the BN government, which has been in power for almost 55 years, to restructure its outlook in order to uphold its hegemony. However, the BN could not get rid of its racial politics from where it got its original base, even though they have tried to divert into nationalistic rhetoric such as ‘One Malaysia’ to give an impression of equality and unity of the various races of Malaysia. This shows that the BN government with its free market policies for the minority - the national and multinational capitalists – is incapable of solving the ‘national questions’ (such as racial and religious inequality) in multiracial Malaysia. Neither do the opposition forces have solutions on such issues. The national question can only be solved if the economy is democratically planned to meet the needs of the majority - the working class and youth - without racial or religious prejudices.
Nonetheless, the vulture character of global capitalism, that is enraging young people and the working class in the US, Europe, the Middle East and elsewhere, is also undermining the economic and social conditions of youth and workers in Malaysia. This is basically because the Malaysian economy is dependent on exports and is very much interlinked with the conditions of the global economy; there is no place to hide when the advanced economies are in trouble.
Malaysian capitalism undermined
Since the 1997/98 Asian financial crisis, the Malaysian economy could not return back to the era of the ‘tiger economy’, when it had experienced GDP growth of 9 to 10% from 1988 to 1996. The average annual GDP growth of around 5% from 1999 to 2010 has already diminished the 'Vision 2020' which was formulated in 1991 to achieve the status of a fully developed economy by 2020. This was based on the idea that “a self-sufficient industrialised nation encompasses all aspects of life, from economic prosperity, social well-being, world class educational standards, political stability, as well as psychological balance” but requires annual GDP growth of at least 7%.
The impact on the economy and society caused by the neo-liberal agenda and laissez-faire capitalism during the ‘tiger economy’ of prime minister Mahathir's era has been felt in the period since the 1997/98 Asian crisis. Mahathir himself switched to introducing protectionist measures such as strict capital controls as well pegging the ringgit to the US dollar to save Malaysian capitalism in 1998. Under the pressure of international capitalism, the new government under Abdullah Badawi removed these measures in 2005. The impact of the global economy's 2008/9 ‘Great Recession’ has further undermined the export-dependent economy of Malaysia which now expects GDP growth for 2011 and 2012 will be around 4 - 5%.
The ruling government has been zig-zagging from one policy to another to alter the export dependent economy that was strongly established in the 1980s and 1990s through massive industrialisation and privatisation. These endeavours within free market capitalism to stimulate the economy have so far not changed the outlook for the economy and further exposes the vulnerability of the Malaysian economy to global economic crisis.
Gloomy outlook of global economy
On October 7, the BN government announced the budget for 2012 – with the fifteenth budget deficit in a row since the Asian financial crisis of 1997 - as ‘The people’s budget’ with a range of welfare 'goodies' and one-off handouts, mainly to lower income families with less than RM3,000 per household. Meanwhile the government debt, which is around 53% relative to GDP, keeps on increasing. The budget hand-outs are merely another attempt by government to woo and enlarge the support of voters for the looming 13th general election, now expected to be called early next year. However, growing inflation - the rising cost of living caused by the profit-oriented monopoly of national and multinational capitalism - is still the main concern for the majority of lower and middle income people.
The government has projected GDP growth for this year and next at between 5 and 6 percent with the fiscal deficit declining to less than 5% of GDP. It believes this is achievable by stimulating domestic economic activity and intra-regional trade among Asian countries to offset the volatility in the economies of the US, Europe and Japan. However, the major local banks, the IMF as well as the MIER (Malaysia Institute of Economic Research) have all revised downwards the country's GDP growth to between 4 and 5 percent this year and next year, owing to the slowing down of exports and weaker domestic demand.
With the current economic scenario, Malaysia is struggling to even maintain itself as an investment hub for manufacturing products as it is facing stern competition from the regional countries that are offering a far cheaper labour force. At present, the demand for the manufacturing industries, especially electrical and electronic products, have not returned to even the level of pre-2008 because of the slowdown in the US, Japan and Europe. The prospects seem very dim for manufacturing in the coming years. The government is looking towards attracting high- and green- technology based investment to create 3.3 million new jobs in the coming years. However, the competition for such investment is very intense even from the regional economies such as Taiwan, Singapore, Thailand and Indonesia. Insufficient skilled manpower in such industries in Malaysia would further complicate this process.
Debt crisis threatens Asia
The stimulus package of RM60 billion pumped into the domestic market in 2009 and the export of commodities such as palm oil, rubber, tin, gas and fuel oil to China and India cushioned the economy in 2010. At present, commodity exports account for roughly 40% of the country’s exports. However, in recent months the commodity futures prices have taken a downward trend as evidence of slowing growth is increasing in Asia, with the exports of China rising the slowest for seven months in September. Meanwhile the IMF has warned that “an escalation of euro-area financial turbulence and a renewed slowdown in the US could have a severe macroeconomic and financial spillover to Asia…Since 2009, investors from advanced economies have built-up substantial positions in Asian markets. A sudden liquidation of these positions could trigger a loss of confidence, and contagion could spread from bond and equity markets to currency and other markets”. This has been the reason for the weakening trend of the ringgit since last month as the reversal of short-term foreign capital flows, driven by fear of uncertainties in global economies, accelerated between August and September.
Recently, the Philippines government announced a stimulus plan while Indonesia and Singapore cut interest rates to bolster slowing growth. This shows that the intra-region trade among Asian countries could also be affected if the volatility in the global economy continues. This means that the economy of Malaysia could be further affected if the Chinese and Indian economies slow down sharply with the deteriorating demand from Europe and the US.
Pumping money into domestic market
40% of government revenue still comes from oil and gas, which means that if the oil price goes down by US$10 per barrel, RM 2 billion would be lost. If the global economy further slowed, this would push the oil price further down, and this would cut down the government revenue. In addition, further cuts in subsidies and the introduction of GST (goods and service tax) are deferred because of the looming general election.
The CPI (Consumer Price Index) went up to 3.3% in the second quarter from 2.8% in the first quarter this year. The working class and the poor, who use up to 40% of their salary on food items, have already felt the pinch. The unemployment rate is over 3 and worst amongst university graduates. This could become worse if new jobs are not created sufficiently given the low FDI coming into the country to cater for the new graduates in 2011.
Property prices increasing between 5-10% per year, especially in the urban areas, such as in the Klang valley, are alienating the first time buyers from working class and middle class backgrounds that want to own a house. There are signs of a growing property bubble in Malaysia because of uncontrolled speculation on propertiy prices. If the bubble bursts, it could have a big effect on the economy since the property sector contributed up to 8% growth to the GDP last year.
The government has planned many construction projects, from MRT (Mass Rapid Transit) to large infrastructure projects, to stimulate the domestic economy. This sector is expected to contribute 7% growth to GDP. The 'New Economic Model' (NEM), aiming to push Malaysia towards becoming a high-income nation by 2020, the '10th Malaysia Plan' (10MP), the 'Economic Transformation Programme' and the 'Government Transformation Programme' are all designed to stimulate the domestic market as well as to attract investment. But they have not changed the outlook for the Malaysian economy, much of which is still vulnerable to external changes - in the global economy. Malaysia fell six slots, from 10th to 16th, in the 2011 World Competitive Rankings.
The gap between rich and poor gap is widening, including among the Malay population. This demonstrates that the NEP (New Economic Policy) as well as subsequent policies, have served only to increase the number of middle class Malays as well as to enlarge the economic share of Malay capitalists. This shows that affirmative policies for malay/bumiputra have been used by the ruling class only to enlarge the wealth cake of the capitalists. There was a similar experience, while under different historical circumstances, in South Africa when the ANC came to power after the ending of the racist apartheid regime. The ANC, with affirmative policies for the black population, created a black crony capitalist elite while the majority of blacks are still marginalised.
However the dissatisfactions are growing among different racial groups, both working and middle class, with rising prices and declining living standards. According to the 10th Malaysia Plan report, the bottom 40% of households in Malaysia are still earning between RM1,000 to RM2,000 with the majority dependant on a single income. Almost 70% of EPF (Employee Provident Fund) contributors - more than 4.4 million - are earning less than RM2,500. Monthly household expenses in 2010 are RM2,190, an increase of 12% from 2005.
Household debt also has increased from 69.1% of GDP in 2005 to 76.6% of GDP in 2009. Although this is still considered low compared to other countries, it could increase if inflation continues. Because of the pressure of inflation, many working class and poor people have also been trapped by ‘loan sharks’ (illegal money-lenders) when unable to obtain credit from legitimate financial organisations.
So far, the government has been able to contain the dissatisfaction of the people to a certain extent against the diminishing living standards by maintaining subsidies - which amount to around 10 - 15% of the budget. However, if the economy further weakens and the government faces pressure to reduce the budget deficit, the government will be pushed to further reduce or stop certain subsidies. This action would undoubtedly have an effect on the living conditions of the working class and poor as well as on some sections of the middle class that have been benefiting from the subsidies.
Democratic socialism as the alternative
The Economic Agenda of the opposition Pakatan Rakyat has not offered any alternative. As Anwar Ibrahim, a leading opposition politician, stated in a recent report in the Wall Street Journal that he could only suggest “to focus on weeding out corruption and waste to make the country more efficient, and educate Malaysians about what is going on so they can prepare”. This demonstrates that the Pakatan Rakyat political agenda is merely to defeat the UMNO/BN government by any means but without genuine alternatives to correct the society and the economic conditions of the working class and poor as well as the youth, who will be the first to suffer if the economy worsens.
The Malaysian economy is entering one of its most difficult periods, and it could further dramatically worsen if there is a sharp slowdown in China, on top of the economic crisis in the US and Europe persisting for any length of time. At present, social demands are kept under control only by subsidies, a relatively low level of inflation and unemployment, and a 4 to 5% GDP growth. But a further slowdown of the economy would burden the working class and youth, and this could enrage them against the government policy. They have demonstrated this anger in the 2008 General election, and this could be repeated in the next general election.
Malaysian workers and youth have been observing the economic and political conflicts that have been unfolding in the Middle East, the US and Europe. They see young people and the working class in those countries beginning to look for an alternative to the crisis of capitalism. Similar situations could emerge in Malaysia if the economy is further affected by the world crisis. The CWI in Malaysia as everywhere, puts forward a democratic socialist alternative - nationalisation of banks and industry and democratic planning of society as an alternative to the ongoing anarchy of capitalism.
Ravi, CWI Malaysia