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Breathing space for Mahathir

Growth spurt offers Malaysian leader a window for economic reform

It is time Mahathir got radical. (Photo by Keiichiro Sato)

Count Mahathir Mohamad among those unhappy with the performance of Malaysia's government.

Odd, perhaps, since he is prime minister. But considering how the 93-year-old ran Malaysia the first time around, from 1981 to 2003, recent moves suggest he is not just impatient with his cabinet. He is acting to set things right in ways that may cheer investors.

Last week, he set up an Economic Action Council to devise ways to accelerate growth, increase competitiveness and ensure income growth is shared more widely. Admittedly, it sounds as gimmicky as it does hollow. But it is quintessential Mahathir, a trained medical professional who returned to power last May.

In his 2011 memoir "A Doctor in the House," Mahathir detailed how such panels staffed with nonpolitical types break bureaucratic logjams. It worked during Kuala Lumpur's battle against speculators in 1997 and 1998. "Working together and by conscious effort, the crisis was overcome," Mahathir wrote. "Cooperation between the public and the private sectors in Malaysia was unsurpassed by any other country."

Debatable, perhaps. What is not, though, is that Mahathir 2.0 faces another kind of crisis -- an existential one of the slow-burn variety. The emergency in question: how to heal an economic system suffering from a multiyear decline.

Amid global gloom, there is some good news to report. Malaysia grew 4.7% on an annual basis in the last three months of 2018, ending a series of quarterly drops that began a year ago. That provides Mahathir's government with some breathing room to move Malaysia upmarket.

Already, there is public disillusionment with the pace of change under Mahathir's Pakatan Harapan coalition. His approval rating ended the year 20 points below its standing in May, when he shocked the world by beating Najib Razak at the polls.

Yet Mahathir does not need a blue-ribbon commission to tell him how to reform the economy. He must dismantle a 48-year-old affirmative-action scheme that undermines innovation, stymies productivity and turns off foreign investors. He must attack the opacity that allowed 1Malaysia Development Berhad, the corrupt state fund Najib created in 2009, to taint the national brand. He must reduce budget-busting subsidies for farmers, fisherman and other welfare-dependent vested interests.

But will he? The utility of these Economic Action Council panels is the political cover they provide. Mahathir's newest one includes Rafidah Aziz, who chairs the board of long-haul budget airline AirAsia X, Tay Ah Lek, CEO of Public Bank, Paul Selvaraj, head of a confederation of consumer groups and Shireen Ann Zaharah Muhiudeen, who heads the stock market.

All Mahathir needs to do, really, is leaf through his own memoir to prioritize a to-do list. At the very top: reducing the perks enjoyed by the ethnic Malay majority. The policy is, in a word, "distortive," says economist Peter Mumford of Eurasia Group.

"Dr. M has been given a 'divine' opportunity, a second chance, so to speak, to dismantle political crutches if he wants to steer Malaysia ahead of a very competitive global world," said analyst Chrisanne Chin of IABT Research in Kuala Lumpur. "There is cancer in the system, and he needs to apply many stages of chemotherapy without killing the patient." She advocates abolishing government links to businesses, tackling corruption and increasing incomes regardless of race and religion.

This cancer's side effects sit at the nexus of three core goals with which Mahathir charged his panel: increasing competitiveness, trimming poverty and democratizing homeownership.

These institutionalized preferences disadvantage Chinese and Indian minorities. They immunize most of the labor pool from meritocratic forces and create a brain-drain, driving the talent Malaysia needs to thrive to Singapore, Hong Kong and elsewhere. These inefficiencies reduce Malaysia's attractiveness relative to Indonesia, the Philippines, Vietnam and other neighbors courting multinational companies diversifying away from China.

In Najib's last two years in power, Malaysia fell seven places in the World Economic Forum's competitiveness report, to 25th from 18th. The slide occurred just as the 1MDB scandal put Malaysia in global headlines for all the wrong reasons. Anger over billions of dollars going missing from Najib's sovereign wealth fund played a key role in Mahathir's return to power. In the months ahead, Najib will go on trial on money laundering and other charges (he has pleaded not guilty).

Yet here, too, ethnic preferences play a role. Fear of losing advantages turned all too many Malaysians into single-issue voters. That engenders great permissiveness for wayward leaders. It also creates a third-rail problem for any government looking to repair Malaysia's global image. This is indeed the crossroads at which Mahathir stands.

Take the safe route, preserving the status quo, and Malaysia falls further behind. But forging a new and disruptive path risks "Malay regret," putting Najib's United Malays National Organization back in the ascendancy. Pretrial, Najib is indeed attempting a run at rehabilitation.

It is time Mahathir put his gravitas to work. He should speak directly and candidly with voters about why Malaysia must phase out preferential quotas for government jobs, contracts, housing, college admissions and other perks. Explain succinctly why policies that made sense in 1971 have no place in the globalized economy of 2019.

Democratizing economic opportunity would have immediate positive effects on income inequality. It also could catalyze a thriving startup economy that attracts global entrepreneurs to Kuala Lumpur and Putrajaya.

There is much Mahathir can do to increase Malaysia's global appeal. Deftly handling the outcome of Najib's trial would score points with multinational CEOs. So could efforts to claw back billions of dollars of 1MDB-related fees from Goldman Sachs, cash that could be used to strengthen human capital and the government's balance sheet. Mahathir must resist blaming cabals of overseas financiers, 1997-style, for Malaysia's woes. His ban on Israeli athletes from a qualifying event for the Tokyo 2020 Paralympics was an unfortunate own-goal.

A clear and orderly transfer of power is vital. The nonagenarian pledged to pass the baton to Anwar Ibrahim, his deputy in the 1990s. That might happen within two years, assuming Anwar, 71, still enjoys public confidence. Doing so could rehabilitate Malaysia's standing in Transparency International's corruption perceptions index. On Najib's watch, Malaysia fell six rungs to 62nd place, behind Cuba and Saudi Arabia. In just seven months, Mahathir halted the slide. The country is now 61st.

The year ahead is an extraordinarily uncertain one -- from America's trade war to China's slowdown. Yet it is time Mahathir got radical.

Mahathir can turn things around with merit-based decision making and international standards of governance. In other words, real and epochal change. Now that growth is approaching 5% again, he has breathing room to do just that -- and make voters glad they gambled on a Mahathir 2.0 era.

William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades." He was given the 2018 prize for excellence in opinion writing by the Society of Publishers in Asia, for his work for the Nikkei Asian Review.

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