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Thursday, December 29, 2016

WHAT PRICE MALAYSIA’S TRUST DEFICIT?

Malaysia's Prime Minister Najib Razak (C) delivers his speach during the phase one launching of the Malaysia Mass Rapid Transit (MYMRT) at the Kwasa Damansara station in Sungai Buloh, on the outskirts of Kuala Lumpur on December 15, 2016.
Mass Rapid Transit Corporation Sdn Bhd (MRT Corp) launched its first phase of Malaysia Mass Rapid Transit from Sungai Buloh to Kajang, which runs for 21 kilometres starting at Sungai Buloh Station and ending at Semantan Station. The service will be open to public on December 16. / AFP PHOTO / MOHD RASFAN####################MOHD RASFAN
Malaysians, it seems, are less willing to go along with government policies no matter how attractive the long-term benefits are.
Abdillah Noh, The Straits Times

The last weeks of December have been busy ones for Malaysian Prime Minister Najib Razak. On Dec 13, Datuk Seri Najib signed the much awaited High Speed Rail (HSR) agreement with Prime Minister Lee Hsien Loong that will link Kuala Lumpur and Singapore.
That same week, he officiated at the opening of Malaysia's Mass Rapid Transit (MRT), a project that started in 2011. Days later, on Dec 18, Mr Najib launched the 1.4km-long Batang Sadong Bridge in Sarawak, a huge connectivity leap for Sarawakians, who previously had to rely on ferry crossings. The bridge is one of several projects the government has in store for Sarawak, the others being the massive 2,000km-long Pan Borneo Highway that will link Sarawak and Sabah and a coastal highway that will connect towns in Sarawak.
Soon after the Sarawak trip, Mr Najib was in Sabah to launch eight projects linked to the Pan Borneo Highway. The recent launches came weeks after Mr Najib's trip to China, one that saw the Malaysian economy potentially receiving a thumping US$33 billion (S$48 billion) of Chinese investment. A major part of the investment deal was Malaysia agreeing to build a 640km-long East Coast Rail Line(ECRL) with Chinese financing. Once completed, the ECRL will link the northernmost town in the east coast state of Kelantan to Port Klang, which fronts the busy Straits of Malacca on the west coast. Needless to say, these infrastructural investments are major game changers that are set to alter Malaysia's landscape in a fundamental way, unleashing the country's huge economic potential.
Such long-term growth commitment should excite the public, but not so in Malaysia. As for China's massive investment, Mr Najib's critics see it as a sell-out to China's interest. They were also quick to contest that the US$13 billion ECRL project was overpriced - never mind that the proposed line needs to negotiate the Titiwangsa ridge, difficult geographical terrain that has for a long time kept the east coast of the peninsular relatively underdeveloped compared with the west coast.
What is apparent is that Mr Najib's policies attract sceptics. Malaysians, it seems, are less willing to go along with government policies no matter how attractive the long-term benefits are. An obvious reason is that nagging political issues continue to cloud the many positives of Mr Najib's policy initiatives. People in Malaysia are not quite done with the 1MDB issue. The international media has also kept turning the spotlight on 1MDB and Mr Najib, reinforcing public scepticism. What is obvious is that Malaysians are stuck in second gear, unwilling to move beyond the 1MDB issue.
Is Malaysia paying a heavy price for its ongoing political crisis? It seems so. The state is suffering from a trust deficit. Trust, between the governed and the government, seems to be in short supply. The 2016 Edelman Trust Barometer found that only 39 per cent of Malaysia's general population trusts the government. That needs addressing because a trust deficit prevents the state from garnering policy collaborators. Policy "buy-in" becomes difficult as stakeholders are unwilling to be part of the policy process. Worse, a trust deficit could also see stakeholders subverting what otherwise could be effective policies. Mr Najib's market-friendly policies, which would have been gladly accepted in the past, are now looked upon with intense scepticism. His decision to lift fuel subsidies, allow 70 per cent foreign ownership in the services sector, sell all the government's Proton shares and introduce the goods and services tax (GST) to prevent leakage and broaden the tax base are but a few market-friendly policies that, thus far, have not warmed citizens' hearts. Malaysians are still unwilling to accept the GST even when GST receipts have clearly buffered Malaysia's huge losses in petroleum revenue in the past year.
Mr Najib launching Malaysia's MRT on Dec 15. The lack of public trust stands in the way of Malaysia's long-term goals. PHOTO: AGENCE FRANCE-PRESSE
A trust deficit could potentially lead to more damaging systemic risk. Thinning public trust and greater tendency to talk down the economy could amplify Malaysia's political, social and economic risks. A self-fulfilling prophecy may set in, creating a case where the public runs down the economy more than it should and triggering a crisis of confidence. An obvious benchmark of confidence is the Malaysian ringgit, Asia's worst-performing currency. Though there are external factors that have contributed to the weakening of the ringgit - Trumponomics, the attractiveness of US bond yields and weak commodity prices - analysts are also quick to add that the ringgit suffers from domestic risks, the premium of which is anybody's guess. Some see domestic risk as one contributing factor to the ringgit weakening to a rate of RM4.70 to US$1.
There are those who think that the ringgit slide is overdone as it does not reflect Malaysia's fundamentals. But under conditions of low public trust, good economic figures are quickly neutralised by bad economic ones. Going by fundamentals alone, there are reasons not to short the ringgit. The Malaysian economy has shown plenty of resilience despite chaotic domestic politics and severe economic headwinds. Its GDP has averaged 5.3 per cent growth since 2011. This year, the economy is expected to grow at 4.2 per cent. For next year, the IMF predicts the economy to grow at 4.5 per cent on the back of strong domestic consumption. The country is also in better fiscal shape, with Mr Najib keeping to his promise to trim spending. The Budget deficit now stands at 3 per cent of GDP, down from a high of 6 per cent in 2009. Its current account remains positive. In fact the current account saw a sharp increase in the third quarter, the highest since December last year. More importantly, the economy has broken away from its heavy reliance on the oil and gas sector. Petroleum now counts for just 15 per cent of total revenue, a sharp drop from about 30 per cent two years ago. The economic figures, however, do not seem to count when it comes to the sliding ringgit.
Finally, broken trust between the state and the governed is affecting Malaysia's long-term effort at institutional change. Change is difficult when stakeholders are unwilling to ride on the change agenda. In a low-trust environment, stakeholders are persuaded by partisan concerns, depriving the change agenda of a diversity of views. The Najib administration, for instance, has introduced the "blue ocean" strategy as part of its strategic blueprint. Developed by two Insead professors, the strategy rethinks the idea of competition and collaboration and has been behind many of Malaysia's government and economic transformation programmes. Policy emphasis on the bottom 40 per cent of income- earners, retargeting state subsidies, providing direct transfers to low income earners, collaboration and sharing of resources between government agencies and building a one-stop centre for public services are among the few policy initiatives that seemed to enjoy little public buy-ins.
An exploratory study I carried out between September and October to gauge public receptiveness to the government's national blue ocean strategy, part of wider research on networked government, found that the public know little or nothing at all of such blueprint. Trust, or the lack of it, has blurred the public's identification with policies, making them unwilling partners of institutional change.
With a general election expected next year, Mr Najib has his work cut out for him. Restoring public trust is proving to be difficult but the need for it is urgent. Systematic public disengagement from political leadership could well be the most important factor that stands in the way of Malaysia's long-term goals. In the short term though, Malaysians should be careful that their attempts at political change do not cripple an otherwise functioning economy.

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