TCS Daily

Malaysia's New Mood

By John McKay - June 30, 2004 12:00 AM

A new and much more constructive mood seems to be emerging within the government of Malaysia, and there are signs that the country's economy is beginning to respond to a new range of policies and directions. This shift has coincided with the retirement in October 2003 of longtime Prime Minister Dr. Mahathir Mohammed, and the arrival of Abdullah Badawi as the new leader. Reforms have gathered pace particularly since the massive victory in March this year by the National Front Alliance, the ruling coalition led by Badawi's United Malays National Organization (UMNO). But it also appears that these changes reflect some more fundamental shifts in response to new economic and political circumstances both within Malaysia and in the broader region.

New approaches and policies are to be found in many aspects of the society and economy, and in the tone of Malaysian comments about international affairs. The former prime minister was particularly strident in his comments about Western approaches to Islam and the War on Terror. Many commentators felt that he was often making important and constructive points, but his message was being drowned out by his deliberate racist and anti-Semitic rhetoric. In his recent statements, Badawi has retained a strong critical edge, but he has been critical of both US actions and the teachings of many Islamic extremists. His tone has been constructive, putting forward some ideas about longer-term approaches to the problem of terrorism.

Given Malaysia's importance in the Islamic world, it may be that the country may now play a very useful role as a go-between in crucial dialogues about future directions for Islam. Within Malaysia, Badawi has moved to limit the influence of the private Islamic schools that have often been seen as ideological training grounds for future terrorists. In future, much teaching about the Koran will be incorporated within the state school system, where curricula can be more easily monitored and moderated.

Particularly important have been Badawi's moves to stamp out corruption and cronyism within Malaysia. This is not an easy task, given the long history of such practices, but polls taken in the lead-up to the March elections suggested that some 80 percent of voters were strongly in favor of cleaning up the system. Picking up this mood, Badawi made strong promises of reform in a number of his policy speeches, and this is seem by many as a major contributor to his massive victory. Critically, a large number of Malay voters that had been alienated by the old corrupt system came back to UMNO in the expectation of significant reform.

In foreign policy there have been similar changes. The agreement by the leaders of the Association of Southeast Asian Nations (ASEAN) to invite the prime ministers of Australia and New Zealand to the ASEAN summit in Laos in November this year to discuss the possibility of a free trade agreement linking the ASEAN Free Trade Area with the Closer Economic Relationship (CER) area established by Canberra and Wellington came as a particular surprise. The idea has been around for many years, but had been consistently blocked by Malaysia. In a similar vein, Malaysia is now much more enthusiastic in its support of ASEAN moves towards new free trade agreements with China, Japan and India. Badawi has also moved away from the old convention, faithfully followed by Mahathir, of non-interference in the in the internal affairs of other ASEAN members. He has been outspoken about events in Myanmar, for example, and has not been slow to admit that the problems of the newer members of ASEAN, such as Laos and Cambodia, represent a significant handicap for the wider regional body.

How then can we account for these significant changes? I would argue that this is not just a matter of personalities, and in particular the retirement of Mahathir. Rather, the Badawi government has had to respond to some new political and economic realties facing Malaysia. Most important perhaps has been the realization that South East has been losing out in the emerging economy of the Asian region. Before the reform process began in China, South East Asia was able to attract some two-thirds of all foreign investment going to Asia. Now, of course, China absorbs the vast majority of this FDI.

For a country like Malaysia, which has historically relied on foreign investment for much of its economic growth, this is a very serious matter. Malaysia and ASEAN must now compete with and respond to this emerging economic giant, and in order to do this more open trade and investment policies are essential. Malaysia has also been falling behind both Singapore and Thailand both in terms of the reform process and in the negotiation of free trade deals with a number of countries such as the US and Australia. But this is not just a matter of reform within Malaysia, because it is clear that the fortunes of the country are also influenced by outside perceptions of the broader region, hence the concern with cleaning up ASEAN as a whole.

Badawi's new approaches to the questions of Islam and terrorism have also been heavily influenced by the recent terrorist violence that has erupted in southern Thailand. At an emergency summit in April, Badawi and his Thai counterpart, Thaksin Shinawatra, agreed to cooperate to strengthen border controls, but also to work towards the promotion of stronger economic development programs on both sides of the border to remove at least some of the simmering discontent. Malaysia and Thailand both fear the resurgence of long-standing demands for independence by Thailand's southern provinces, a move that would also be seen as destabilizing Malaysia's northern border region.

There are already signs that the Malaysian economy is responding positively to the new government, and foreign investor sentiment seems to have improved dramatically. Given the strong underlying pressures for reform that I have described, it seems likely that the reform process can only gather intensity.

John McKay is Director of the Australian APEC Study Centre and a Partner with Analysis International, a new research institute and think-tank based in Melbourne, Australia.


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