Malaysia's Economic Revitalisation under Mahathir - Indian Council of ...
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26 September, 2018
Malaysia’s Economic Revitalisation under Mahathir
Dr. Temjenmeren Ao *
The result of the 14th General Election in Malaysia declared in May 2018 was a major surprise. The
ruling coalition the United Malays Nationalist Organisation (UMNO) headed by Barisan Nasional
(BN) lost for the first time since Malaysia’s independence 61 years ago. Dr Mahathir Mohamad
led to victory the opposition coalition the Pakatan Harapan (PH) which was formed after the 2013
General elections. The PH comprised of the left and left-centred parties that included the People’s
Justice Party (PKR), the multi-racial Democratic Action Party (DAP), the progressive Islamic
National Trust Party (AMANAH), and the racially exclusive Malaysian United Indigenous Party
(PPBM).1
The return of Dr Mahathir as the Prime Minister may have well raised concerns in the
West given his rhetoric in the 1980s and 90s along with his authoritarianism style of governance.
However, many first generation Malaysians would also recall his strident nationalistic and
pragmatic approach to the market system that had brought economic prosperity and growth. By
pushing infrastructure development it helped draw foreign investors in large numbers helping
Malaysia become one of the world’s top 20 trading nations. This helped Malaysia get integrated
with Western economies and achieve an enviable development record in the 1990s.2
1
Lewis Mikulic, “A Mature Democracy? The Malaysian General Election”, Australian Institute of International
Affairs, May 8, 2018, https://www.internationalaffairs.org.au/australianoutlook/we-are-a-mature-democracy-the-
14th-malaysian-general-elections/, accessed on September 6, 2018.
2
Barry Wain, Malaysian Maverick: Mahathir Mohamad in Turbulent Time, (Palgrave Macmillian, New York: 2012),
p. 306-307.ICWA View Point
15.00%
10.00% 6.90% 7.70% 9.90% 9.50% 9.80% 10.00%
5.00% 8.80%
0.00% 5.70%
1981
1982
1983
1984
-5.00%
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
-10.00%
1995
1996
1997
1998
1999
2000
2001
2002
2003
-7.30%
Malaysia's GDP Growth (in percentage)
Figure One: Malaysia’s GDP 1981-20033
As indicated in the bar diagram in Figure One, during Dr Mahathir’s premiership from
1981-2003, Malaysia witnessed substantial growth of its GDP. After the announcement of the ‘Look
East Policy’ in 1982, under the Mahathir government there was a push for creating an enabling
ecosystem in Malaysia which would encourage foreign investment while switching from a state-
spurred to private sector-led growth. This led to a sustained GDP growth of close to 10 percent
from 1988 onwards till the Asian financial crisis of 1997. With his return as the Prime Minister
after the May 2018 general elections, Mahathir has named revamping the economy and sorting
out the country’s finances as his top priorities.4
7.30%
7.90%
4.50%
23.60% 55.30%
Services Manufacturing
Construction Mining and Quarrying
Agriculture
Figure Two: Sector-wise contribution to Malaysia’s GPD in Q2, 20185
3
“Malaysia GDP Growth”, The World Bank,
https://data.worldbank.org/indicator/NY.GDP.MKTP.Kd.zg?end=2017&locations=my&start=1981&view=chart,
accessed on August 29, 2018.
4
Laignee Barron, “Malaysia’s Longest-Serving Prime Minister Returns to Power Promising a Tide of Change”, TIME,
May 11, 2018, http://time.com/5273663/malaysia-mahathir-mohamad-prime-minister-reforms/, accessed on
September 7, 2018.
5
“Malaysia Economic Performance Second Quarter 2018” Department of Statistics Malaysia, Official Portal,
August 17, 2018,
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According to the data from the Department of Statistics, Malaysia, the economy in the
second quarter (April-June) during the new Mahathir government grew by 4.5 percent. This
indicated a slight decline from the 5.4 percent growth witnessed in the first quarter (January-
March) of 2018. The pie chart in figure two indicates the sector wise contribution to Malaysia’s
total GDP in the second quarter of 2018. The services sector grew by 6.5 percent in Q 2 while
manufacturing and construction grew at 4.9 percent and 4.7 percent respectively. There was a
decline of -2.2 percent in the mining and quarrying while agriculture also declined by -2.5 percent
in the second quarter. The data from the Malaysian statistics department also indicated that in
Q2, foreign direct investment dropped from RM 12.0 billion in Q1 to RM 2.8 billion. In terms of its
trade Malaysia’s imports in Q2 increased by 7.7% to RM 217.8 billion, with capital goods recording
an increase and representing 12.7 percent of total imports in which industrial transport equipment
import increased by 9.56 percent. Exports of goods increased by 8.2 percent in the second quarter,
valuing at RM 245 billion, with increase in electrical and electronic products followed by refined
petroleum products. Malaysia’s major export product namely palm oil and palm-oil based
products however witnessed a decline of 12 percent.6
The decline is also on account of the European Union's (EU) move to phase out the use of
bio-fuel as transport fuels. The EU in June 2018 agreed to increase renewable energy use by,
among other things, cutting out the use of palm oil as biodiesel from 2030. This is part of a
renewable energy directive which says 32 per cent of the EU's energy in 2030 must be from
renewable sources. Indonesia and Malaysia are world's two largest palm oil producers and
exporters. Malaysian Foreign Minister Datuk Saifuddin Abdullah after meeting his Indonesian
counterpart, on July 23, stated that both countries will boost cooperation to counter the move
undertaken by the European Union. According to Mr Saifuddin, Indonesia and Malaysia supply
80 per cent of palm oil globally, and thus must be united and enhance collaboration against trade
barriers. In the second quarter of 2018, as indicated in figure two, construction stood at 4.5
percent, a decline from 4.9 percent in the first quarter of 2018. More specifically, residential and
non-residential buildings declined to 7.3 percent and 4.6 percent respectively. The impact of this
has been an overall decline in the construction sector. 7
Since taking office, Prime Minister Mahathir has been reviewing infrastructure projects
undertaken by the former administration, some of which according to him were unnecessary. The
cost-cutting effort has been one of his major agenda aimed at tackling the country's liabilities,
which have surged above RM1 trillion. On May 28 after the Parti Pribumi Bersatu Malaysia
https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=100&bul_id=U0oyNStDWTh6R29rN2kwZzd
xcStnQT09&menu_id=TE5CRUZCblh4ZTZMODZIbmk2aWRRQT09, accessed on September 5, 2018.
6
“Malaysia Economic Performance Second Quarter 2018” Department of Statistics Malaysia, Official Portal,
August 17, 2018,
https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=100&bul_id=U0oyNStDWTh6R29rN2kwZzd
xcStnQT09&menu_id=TE5CRUZCblh4ZTZMODZIbmk2aWRRQT09, accessed on September 5, 2018.
7
Linda Yulisman, “Indonesia, Malaysia will join hands to fight EU move against palm oil”, The Straits Times, July 24,
2018, https://www.straitstimes.com/asia/se-asia/indonesia-malaysia-will-join-hands-to-fight-eu-move-against-
palm-oil, accessed on July 24, 2018.
3 | www.icwa.inICWA View Point
supreme council meeting it was confirmed that the 350 km High-Speed Rail (HSR) project which
would link Kuala Lumpur with Singapore would be scrapped. According to PM Mahathir, "It's not
beneficial; it's going to cost us a huge sum of money. We will make no money at all from the
operation. It is just a short track.8 PM Mahathir during his five days official visit to China from
August 17 while speaking at a joint press conference with his Chinese counterpart Li Keqiang
appealed to China for understanding Malaysia’s fiscal woes. His administration remains critical of
the “lopsided” deals with China-backed infrastructure projects.9 On September 10 according to the
Finance Ministry, Malaysia has cancelled three China-backed pipeline projects after halting work
on them in May following the election of Dr Mahathir. The plans comprised of the Multi-Product
Pipeline and the Trans-Sabah Gas Pipeline that cost more than US$1 billion each as well as a
pipeline that would have linked the state of Melaka to a refinery and petrochemical plant in the
state of Johor. Malaysian Finance Minister Lim Guan Eng in an interview to the Financial Times
also stated that another China-backed project - the East Coast Rail Line - was under review.10
Having completed hundred days in office on August 17, the Mahathir government has
stuck to its agenda of revamping the economy and sorting out the country’s finances. The new PH
government has also abolished the six percent Goods and Services Tax and has been able to
stabilise fuel prices through the extension of subsidies. On June 11, during his first foreign trip to
Tokyo after taking over the office, in a speech to the Future of Asia forum Dr Mahathir stated that
he was "not very keen" on the Trans-Pacific Partnership (TPP) agreement. He stated that the TPP
needs to be renegotiated and urged protection for small countries in international trade.11 Thus,
while advocating for the continuity of free trade Dr Mahathir continues to stress on the need for it
to remain fair to all parties. According to a recent nationwide survey carried out by pollster
Merdeka Centre for Opinion Research, 67 per cent of Malaysians approve of the new
government.12 Dr Mahathir effort towards restoring Malaysia’s economy and attempt towards
fiscal stability seems to be getting domestic approval. There seems to be continuity in his
doctrine, based on his ‘Wawasan 2020’ (vision 2020) for Malaysia. This also includes remaining
hawkish against any attempt towards the establishment of new era colonialism by any other
nation.
8
Rashninjeet S. Bedi and Hemanantnani Sivanabdam, “Dr M confirms high-speed rail project with Singapore to be
scrapped”, The Star Online, May 28, 2018, https://www.thestar.com.my/news/nation/2018/05/28/dr-m-confirms-
scrapping-of-high-speed-rail-project-with-singapore/, accessed on May 29, 2018.
9
“PM: Understand Malaysia’s fiscal woes”, The Star Online, August 21, 2018,
https://www.thestar.com.my/news/nation/2018/08/21/pm-understand-malaysias-fiscal-woes-dr-m-also-calls-on-
china-to-be-patient-as-country-works-to-resol/, accessed on August 21, 2018.
10
“Malaysia finally scraps three China-backed pipelines”, The Straits Times, September 11, 2018,
https://www.straitstimes.com/asia/se-asia/malaysia-finally-scraps-three-china-backed-pipelines, accessed on
September 11, 2018.
11
“Malaysia PM urges TPP 'renegotiation'”, The Jakarta Post, June 11, 2018,
http://www.thejakartapost.com/seasia/2018/06/11/malaysia-pm-urges-tpp-renegotiation.html, accessed on June
11, 2018
12
Karim Raslan, “100 days of Mahathir: Should Malaysians be more patient?”, South China Morning Post, August
23, 2018, https://www.scmp.com/week-asia/society/article/2160966/100-days-mahathir-should-malaysians-be-
more-patient, accessed on September 7, 2018.
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The new Pakatan Harapan government prioritising on the restoration of the economy and
improving the country’s fiscal health provides opportunity for India-Malaysia economic
partnership. This was clearly emphasised during the meeting between Prime Minister Modi and
Dr Mahathir on May 31, where both leaders had a productive discussion on further cementing
India-Malaysia ties through boosting their economic and other areas of strategic partnership.13
Malaysia is India’s third largest trading partner amongst the ASEAN states, while India is
Malaysia’s tenth largest trading partner, with total bilateral trade standing at US $ 14.7 billion in
2017.14 The signing of the India-Malaysia Comprehensive Economic Cooperation Agreement
(CECA) in 2010, covering trade in goods, services, investments, and movement of natural persons
creates an enabling environment for deepening economic partnership. Further, the priority on
improving the country’s financial position being undertaken by the new PH government also
provides opportunities to broaden the scope of the bilateral economic partnership.
***
* Dr. Temjenmeren Ao, Research Fellow, Indian Council of World Affairs, New Delhi.
Disclaimer: The views expressed are that of the Researcher and not of the Council.
13
“PM Modi meets Malaysian counterpart Mahathir Mohammad”, DD News, May 31, 2018,
http://ddnews.gov.in/national/pm-modi-meets-malaysian-prime-minister, July 2, 2018.
14
“Strengthening ASEAN-India Partnership: Trends and Future Prospects”, Export-Import bank of India, January
2018, https://www.eximbankindia.in/Assets/Dynamic/PDF/Publication-Resources/ResearchPapers/88file.pdf,
accessed on June 28, 2018.
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