Malaysia’s Anwar Ibrahim must revamp economy, defuse tensions in race to unite polarised nation

Anwar needs to use his political skills and national credibility to convince Malay voters to abandon their conservative, Islamic-oriented turn
Appointing a second finance minister other than himself to drive economic reforms would help free up the prime minister to focus on politics

Hasan Jafri

Published: 10:30am, 19 Aug 2023

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Malaysia must focus on improving the economy to boost the chances of Prime Minister Anwar Ibrahim’s unity government winning a second term in four years’ time.

Anwar’s ruling coalition and the opposition each retained control of three states in last week’s regional elections. The unity government now controls legislatures in nine out of 13 states, giving it confidence that there will be friendly parties at the state level to execute an ambitious national economic agenda.

Time is now of the essence. Malaysia is polarised, angry and divided. The electorate is fatigued and the national mood is glum, not helped by cost-of-living and other economic woes. The Malays, the country’s largest ethnic group, are politically split and have steered right towards conservative and Islamic-oriented parties that vociferously peddle racial politics to attack Anwar’s nine-month-old government.

Anwar’s political skills will be essential for Malaysia to roll back this turn to the right and defuse the racially charged politics. In his unity government, which had to accommodate the discredited United Malays Nasional Organisation (Umno) after an inconclusive general election in November, Anwar is the only leader with national credibility and political capital to spend on politics. That is where his energy should ideally be spent.

Malaysian Prime Minister Anwar Ibrahim (centre) has unveiled an ambitious road map to boost the country’s economic fortunes. Photo: Reuters

Ambitious agenda

Anwar’s unity government took time to outline its economic road map, revealing it only days before the state elections.

The agenda is ambitious and outlines key promises such as raising the annual growth rate to 6 per cent, lifting stagnant real wages and reducing unsustainable national debt. Anwar’s government is also aiming to boost public finances by raising taxes and rationalising subsidies, and build new engines of growth such as a green economy.

Improving economic integration into the region, especially with neighbouring Singapore, is also a priority.

“The fact is that we are caught in a vicious cycle of high costs, low wages, low profits, and a lack of competitiveness,” Anwar, 76, said late last month in a frank assessment of Malaysia’s economy.

Anwar warns Malaysian economy faces ‘very serious crisis’ without reforms

Internationally, the environment is also uncertain. The global economy is wobbly, politics are fractured and, post-Covid, the mood is decidedly inward-looking. China, Malaysia’s largest trading partner and its No 1 foreign investor, is one big unknown. The reconfiguration of global supply chains may actually benefit Malaysia, but its case will be made stronger if economic reforms are quickly executed.

The uncertainty caused by the political crises of the last five years has affected the confidence of domestic investors. This has had spillover effects on the race to attract foreign investors, who are more comfortable risking capital in booming Indonesia and India – both of which will hold elections next year – than in a globally integrated economy like Malaysia’s.

Only when investors feel comfortable that Anwar’s unity government is implementing promised reforms will interest increase; speeches alone won’t work.

Rafizi Ramli, Malaysia’s economy minister. Photo: Bloomberg

Economic co-pilot?

Anwar is also the country’s finance minister. He had good reasons to take on the role, as no one in his party has the stature or experience to do so. Given the racialised political environment, the role had to be reserved for the majority Malay ethnic group. And Umno – which had its worst-ever electoral performance in the last general election – had already extracted far too many cabinet roles in exchange for joining the unity government.

Anwar’s economic team is bright and ambitious, but also young and inexperienced. Tengku Zafrul Aziz, minister for investment, trade and industry, was finance chief under the previous government. Yet the 50-year-old senior Umno leader’s total cabinet experience is less than three years.

Rafizi Ramli, from Anwar’s own party, is a 45-year-old first-time minister who has taken on the difficult task of reshaping the economy.

Anwar himself was also finance minister 25 years ago, but Malaysia and the global economy then were very different indeed.

Supporting Anwar now is a group of prominent business and economic leaders led by Hassan Marican, former president and CEO of Malaysian energy giant Petronas. Still, this group can act only as good-faith advisers, knowing the power to decide and execute policies rests firmly with Anwar and his cabinet.

What recession? Malaysia’s economy sees best growth in 22 years

Given the political dynamics, Anwar will remain finance minister for the foreseeable future. But he can always opt for a co-pilot and appoint a second finance minister who can drive the economic agenda and give Anwar space to focus on politics. This is not a novel concept, given that his predecessors Mahathir Mohamad, Abdullah Badawi and Najib Razak all had co-pilots.

This co-pilot must not only have political credibility, but also the skills to drive the civil service – to be an enforcer, as it were, and an economic spokesperson for the government, especially when difficult reforms that will cost political capital are executed.

Time is not on Anwar’s side. The next general election is due in just over four years. To win it outright the next time, Anwar must make Malaysians feel economically strong and optimistic. A co-pilot can help the country get to its destination sooner than the next election.

Hasan Jafri is managing director of Singapore-based HJ Advisory and advises global clients on political risks in Asia.