The winds of change have been sweeping through the country in the past fortnight at breathtaking speed.
First, the incredible election results that very few predicted correctly. Then the post-election drama until Tun Dr Mahathir Mohamed was sworn in for a historic second time as PM. Followed by many decisions and measures announced daily as Mahathir hit the ground running, or rather sprinting.
The liberation of Anwar Ibrahim “from prison to palace” and from palace to padang for the night rally last Wednesday completed the key milestones in the quick journey from the old discredited order to the new world being born.
Mahathir was not only the man of the hour, masterfully guiding the ship to the harbour, avoiding the last dangers, but also a man in a hurry, laying the foundations for recovering the economy, reforms to key institutions, and getting to the bottom of the 1MDB scandal.
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There is another saying, when a revolution has taken place but there is chaos afterwards and the future is uncertain: “The old world is dying but the new cannot be born.”
What is most remarkable about the first post-election days is not how quickly the old era is passing away but how rapidly the new order is being built.
The reconciliation of the two giants of Malaysian politics, Mahathir and Anwar, paved the way to this remarkable new chapter.
When they fell out two decades ago, their story was worthy of a Shakespearean tragedy. Destiny or will or both have provided them a second chance to get it right this time, and if they do, Malaysia itself will have the opportunity to have a bright future.
It will always be remembered that the sacrifices made by Anwar and his family through his three jail terms and the reformasi movement he generated brought the country to where it is.
Equally, history will record that Mahathir not only laid the foundation of the country’s recent economic development and progressive foreign policy in his long stint as PM but also that he returned to “save Malaysia” from the lowest depths the country had descended into.
If reformasi has been the war cry, implementing a true reform agenda is now the prerogative.
Mahathir has now embarked full scale on reform – Anwar says his role is to keep it on the right track.
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Understandably, the PM’s first priority is the economy. The new government has been acting to ensure that as far as possible its new policies should not lead to confidence erosion by investors and fund managers.
Removing the GST, Pakatan Harapan’s main election promise, is the number one political prerogative. Concerns that this will lead to a RM40bil revenue shortfall are being countered by expectations of increased revenue from renewal of a sales tax, the hike in oil prices to the current US$80 (RM318) a barrel, and savings from a planned reduction of wastage in government expenditure. The GST removal on June 1 should also lead to price reductions, a boost to consumer spending and the economy as a whole, and thus generate extra state revenue.
The new government will have to deal with the explosive jump in government debt in recent years. In a mere six years between 2011 and 2017, government debt rose 51% from RM456bil to RM687bil, while government-guaranteed debt jumped 94% from RM117bil to RM227bil.
Added together, the federal and federal-guaranteed debt went from RM573bil to RM914bil. It might be more if the debts of other entities are included.
This massive jump in debt may partly explain how the previous government was able to splurge on many projects and on welfare schemes, in failed efforts to win over the public and in schemes that mainly benefited the powerful and their cronies.
The commercial viability and social value of many of the loan-fuelled expenses are questionable.
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An audit should be done on sources and uses of the loans, and how to reduce the damage by cutting loss-making projects and improving the performance of those that can be saved.
Recent years also saw the opening up of financial sectors, leading to high foreign participation in government debt and in the stock market, as capital surged into emerging markets like Malaysia in search of higher yield.
There are benefits in good years, but the country also becomes more vulnerable when global trends turn negative, as is happening since higher interest rates in the United States are prompting capital to flow back.
Dealing with the boom-and-bust cycle in capital flows will be a challenge for the new government.
Beyond economics and institutional reforms, there are other pressing issues the new government should focus on.
One of them is the environment. There are crises developing, on water resources and supply, floods, damage to forests and watersheds, hillside collapse and erosion, deterioration of the coastal environment and of course climate change.
Environmental damage harms social life and the economy. Floods and water shortage affect production, and fish prices have shot up due to overfishing and sea pollution.
Priority must thus be put on revamping environment-related policies and on strengthening the Environment Ministry. They have been neglected for far too long.
Martin Khor is the Executive Director of the South Centre.
This article is featured on the Institute for the Future Economy with The Star’s consent. It was originally published here.
Main photo credit: Vincent Thian | AP
Disclaimer: All opinions expressed in this article are the author’s own.