Kuala Lumpur, Malaysia — In his first speech as the tenth prime minister of Malaysia, Anwar Ibrahim promised to give priority to the well-being of “normal Malaysians.”
To keep his word, Anwar must overcome a wide range of economic challenges, from the ongoing scars of the pandemic and rising living costs to a falling currency and one of Asia’s biggest wealth gaps.
Anwar, whose appointment marks the end of a remarkable journey of three decades from waiting leader to imprisoned opposition leader and back again, has set out some details of his economic plans, aside from promising to combat rising living costs and drive development that includes all races and is free from corruption.
But Anwar, whose confirmation as prime minister on Thursday immediately drove up Malaysia’s stock market and ringgit after days of political gridlock, has earned a reputation over his long political career as a reformist with leanings toward economic liberalization.
“Anwar has a good understanding of the economy and is thoughtful and versatile in its approach. He is likely to seek a wide range of opinions and focus on economic reform,” Geoffrey Williams, an economist and non-resident senior fellow at Malaysia University of Science and Technology, told CNN Breaking News.
“There will be fewer guidance measures and more structured long-term solutions. I also think it will offer a very attractive perspective for international investors and financial markets.”
During the election campaign, Anwar, who heads the multi-ethnic Pakatan Harapan (PH) coalition, highlighted his ties to international business and finance and argued that he could attract investors, whom he counts as his “friends.” He also stressed the need to restore Malaysia’s overseas image, which was shaken by the 1MDB corruption scandal involving jailed former Prime Minister Najib Razak.
“Corruption is undoubtedly Malaysia’s most critical systematic issue, which can lead to uneven distribution of wealth and affect the quality of education and healthcare, and lead to an overall lower standard of living for Malaysians,” Grace Lee Hooi Yean, head of economics at Monash University Malaysia, told CNN Breaking News.
“In a corrupt economy, resources are allocated inefficiently, and companies that would otherwise not be qualified to receive government contracts often receive projects as a result of bribery.”
As Deputy Prime Minister and Minister of Finance in the 1990s, 75-year-old Anwar led a boom period in which Malaysia became one of the fastest-growing economies in the world.
At the start of the 1997-98 Asian financial crisis, Anwar implemented spending cuts and market-oriented reforms recommended by the International Monetary Fund. This earned respect in Western financial circles, but strained relationships with his political mentor and then-Prime Minister Mahathir Mohamad.
As relations between the two men worsened, Mahathir Anwar, who led the Reformasi movement against the government before being detained on charges of sodomy and corruption that were criticized at home and abroad as politically motivated.
“Given his legacy as Minister of Finance in the 1990s, when the economy saw near double-digit growth thanks to manufacturing exports, I expect Anwar will be more market-oriented and will be cheaper than foreign direct investment and infrastructure investment,” Niaz Asadullah, professor of economics at Monash University Malaysia, told CNN Breaking News.
“Compared to previous leaders, he will seek global integration and strive to restore Malaysia’s tainted international image as an investment destination by aligning domestic policies with global norms and international best practices.”
Asadullah said he expected Anwar’s agenda to be business-friendly but also “people-centered,” and would focus more on allocating resources based on needs rather than on belonging to an ethnic group — a controversial issue in Malaysia, where the Malay majority receives certain privileges not granted to large Chinese and Indian communities.
The last PH government, elected in 2018 in a historic vote that ended six decades of rule by the Malay majority Barisan Nasional (BN), collapsed in part as a result of a reform agenda that Malay nationalists feared would undermine Malaysia’s “special position” in the constitution.
“While he will continue to campaign for social protection policy, he will try to minimize fiscal leaks by streamlining subsidies and ensuring intelligent allocation of resources and services,” said Asadullah.
Following the biggest decline since the Asian financial crisis of 1997-98, Malaysia’s economy has recovered strongly from the pandemic.
Gross domestic product grew by 14.2 percent in the period July-September after an increase of 8.9 percent in the second quarter.
Still, Southeast Asia’s fourth-largest economy is facing slowing growth as it is feared that the global economy will fall into recession in the coming months.
Inflation is modest compared to Europe and North America, and rising interest rates are weighing on lower and middle-income households, while the ringgit is near quarter-century lows.
According to economists, Malaysia’s longer-term prosperity requires structural reforms to ensure the transition to a high-income economy.
The OECD and World Bank have highlighted strengthening social protection and introducing competition in state-dominated sectors such as transport and energy as reform priorities.
“A prerequisite for reaching a high-income and developed country is the transition to a high-productivity, high-income workforce,” said Lee, professor at Monash. “However, low economic growth has plagued the Malaysian economy following the Asian financial crisis. One of the main factors behind low growth is low labor productivity growth.”
As head of a unity government that includes several rival groups, including the BN, Anwar, whose first tasks will include passing a long-awaited budget for 2023, could struggle to implement important reforms.
“Given the unity government he heads, it will be difficult for him to implement structural reforms quickly without lengthy negotiations and consensus among coalition members,” Kim Yeah, director of the Economic Studies Program at Sunway University’s Jeffrey Cheah Institute on Southeast Asia, told CNN Breaking News.
“Since the ‘big bang’ is likely to be risky and politically destabilizing, he will inevitably be interested in Deng Xiaoping’s ‘the pebbles of crossing the creek, ‘which is a symbol of a phased approach,” Yeah added, referring to China’s reformist leader, who led a period of economic liberalization in the 1980s.
Harris Zainul, a senior analyst at the Institute of Strategic and International Studies (ISIS) in Malaysia, said that Anwar would not change the status quo due to political uncertainties, including the upcoming state elections.
“I don’t expect Anwar to make big changes in economic policy, particularly when it comes to taxes, in the short term,” Zainul told CNN Breaking News.
“The reason is that there is currently little political willingness to increase the tax base, as some key states in Malaysia still have to have their elections by mid-2023. Until that happens, I don’t think Anwar is going to risk anything that could be considered politically unpopular.”