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Friday, August 27, 2010

Economic growth before inter-ethnic issues

By Ooi Kee Beng, The Malaysian Insider

Prime Minister Datuk Seri Najib Razak is trapped between the imperative to jump-start the economy as quickly as possible and the political need to retain as much voter support as possible, especially from a Malay community confused by recent political developments.

Malaysia celebrates its 53rd birthday on August 31 (let’s not get into the controversy of when the country was formed, for the moment).

Exactly 20 years ago, Prime Minister Tun Dr Mahathir Mohamad declared Vision 2020 as the goal towards which the country’s nation-building was aimed. By that year, the country was to reach advanced country status. By that was meant not only a national economy that could match that of most other countries in entrepreneurial skills, scientific knowledge, technological innovativeness and per capita income, but also a society that was at peace with itself.

The latter goal is no longer taken seriously.

Dr Mahathir was lucky enough to have presided over Malaysia’s most expansive period and throughout the early ‘90s until the air went out of the economic balloon in the region, optimism was high throughout the country. Malaysians actually felt they had grounds for believing that Vision 2020 was a seriously constructed agenda and not just cutting-edge political spin.

It helped of course that the goals were expressed in very general terms.

Malaysia has lived through two bad economic crises since then, which were not accounted for in Dr Mahathir’s planning. This year, the country will be two-thirds along the way to 2020. No one now seriously believes that in 10 years’ time, the country will be anything like the paradisiacal one Dr Mahathir had conjured to awe his fellow citizens.

Malaysian society is far from being at peace with itself. Inter-ethnic and inter-faith tension has grown tremendously since the 1997 crisis, along with a burgeoning budget deficit. More accurately, the economic predicament came before the social problem. The budget deficit in 1998, for example, equalled only 1.7 per cent of GDP. Last year, this had swollen to 7 per cent of GDP.

One reformist prime minister after Dr Mahathir retired in 2003 failed badly and the second has yet to show the determination needed to reverse economic and political trends that have seen the country fall to the bottom half of the Asean list of nations competing for life-sustaining foreign direct investments.

A large part of the domestic economy is still dependent on subsidies and emigration of brain and brawn is a growing problem.

These bad macroeconomic trends have been accompanied over the last 15 years by worsening inter-ethnic and inter-faith relations and by falling standards in governance.

But things may not be as bleak as they look. A strong argument can indeed be made that blistering economic growth of the type that Malaysia experienced in the early ‘90s is the solution to most of the country’s major ills.

As suggested by a recent report by CIMB, Malaysia’s biggest bank, what are required first and foremost are macroeconomic and political reforms. The government’s decision to implement gradual subsidy reduction is, in this context, a classroom example of not taking the bull by the horns.

Prime Minister Datuk Seri Najib Razak is trapped between the imperative to jump-start the economy as quickly as possible and the political need to retain as much voter support as possible, especially from a Malay community confused by recent political developments.

The 1 Malaysia initiative that the premier announced soon after he took power last year was aimed at lessening inter-ethnic and inter-faith tensions. Tellingly, his major policy this year has been the New Economic Model (NEM), which if seriously implemented would bring major changes at the macroeconomic level.

What worries investors and observers is that the first initiative — understood more as spin than policy — has been having an effect contrary to its stated intention. It has led to angry expressions of ethnocentric bewilderment, which has included attacks on places of worship and the formation of ultra-right movements.

This trend has unfortunately persuaded the prime minister to be cautious where the NEM is concerned. And while the country continues to wait for major and determined reforms from the top, both the areas of inter-ethnic relations and economic growth suffer.

A decision has to be made whether it is good inter-ethnic ties that precedes economic growth or economic growth that improves inter-ethnic ties. The answer, though, is a given.

Najib’s Gordian Knot can only be cut by a strong conviction on his part that speedy macroeconomic reforms will create conditions for economic growth and inter-ethnic tensions will be as manageable as they were in the ‘90s only if wealth is being generated. Where there is less to share, social tensions get worse. — Today

* The writer is a Senior Fellow at the Institute of Southeast Asian Studies. His latest book is “In Lieu of Ideology: An Intellectual Biography of Goh Keng Swee”. Courtesy of Malaysian Insider

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