William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades."
If there are three words central bankers do not say lightly, it is "significant downside risks." Yet last week, Bank Negara Malaysia had nowhere else to go, rhetorically speaking, as the economy braces for a brutal third wave of COVID-19 infections.
Gov. Nor Shamsiah Mohd Yunus is hardly alone. Her peers in Bangkok, Jakarta, Manila and Singapore also probably spend more time scrutinizing World Health Organization data than domestic inflation trends. But Nor Shamsiah's job is arguably the most complicated among Southeast Asian policymakers. She is, essentially, running an entire economy as politicians brawl.
This will seem par for the course in Malaysia. Since former Prime Minister Najib Razak's election loss and arrest in 2018, Malaysian politics has been something of a roller coaster. In May of that year, Najib's corruption troubles brought his mentor, former Prime Minister Mahathir Mohamad, out of retirement to retake power. Mahathir, then 92, pledged to transform an uncompetitive economy.
Not so fast, said Muhyiddin Yassin, who dramatically grabbed power in March 2020. Two seismic shifts in Putrajaya in less than two years was surprising enough for many global investors. But the arrival of COVID-19 put something else in stark relief: how little wholesale change took place from the time Mahathir left off the first time -- in 2003 -- to now.
That left Malaysia with any number of preexisting conditions when the pandemic arrived. The worst of them, arguably, is political squabbling that gets in the way of progress, raising the nation's economic game.
Najib's nine years in office ended in scandal and turmoil. The billions of dollars that went missing from the state fund created early in his tenure, 1Malaysia Development Berhad (1MDB), sparked money-laundering probes from Zurich to Washington. What Najib did not spark, sadly, was a reform drive to keep pace with upgrades in Indonesia, Vietnam and elsewhere.
The 21 months of Mahathir 2.0 came and went in a blur. Nor have 16 months of Muhyiddin's leadership altered the trajectory. In fact, thanks to the earlier-mentioned political squabbling, Muhyiddin spends more time fighting to keep his job than actually doing it. Last week, Malaysia's largest political party yanked support for Muhyiddin's ruling coalition. The United Malays National Organization is even calling on him to resign.
The nation's parliament has been under a COVID-19 state of emergency since January. On July 26, lawmakers plan to convene briefly for the first time since then to mull new stimulus plans.
These last six months of drift are actually a microcosm of the last six to 10 years of rudderless leadership -- if not longer. And they are coming to a head just as COVID infections and new variants burst onto the scene.
It makes you wonder if Gov. Nor Shamsiah's team pulled punches last week when it warned of "significant downside risks, due mainly to factors that could lead to a delay in the easing of containment measures or imposition of tighter containment measures" and a softer-than-expected global recovery.
On the surface, Malaysia seems to be holding its ground, expanding as much as 4%. What matters, though, are the inflection points. A recent survey by the Japan Center for Economic Research and Nikkei detected a 1.2 percentage point downward revision to Malaysian gross domestic product. That is the sharpest among Southeast Asian nations surveyed. To be sure, there is trouble ahead for Indonesia, the Philippines, Singapore and Thailand, but Malaysia's flashing lights seem reddest of all.
The immediate culprit is more transmissible COVID-19 variants forcing the region into more lockdowns. Tighter restrictions are stifling the commercial buzz that makes Kuala Lumpur one of the globe's liveliest cities. But they also are exposing how much internecine politics stifles resource-rich Malaysia's vast potential.
Since 2003, when Mahathir 1.0 ended, each prime minister -- Mahathir 2.0, included -- promised to dismantle affirmative action policies that benefit the ethnic Malay majority, but stymie productivity and turn off multinational companies.
Each government has, in different ways, pledged to make it easier for entrepreneurs to disrupt the economy and create tech unicorns that generate new jobs and wealth. Each has pledged to strengthen the human capital of all Malaysians, not just favored groups. Each has pledged to make the government more responsive to a global economy changing at warp speed.
Each government has, in the meantime, also pledged to make GDP more inclusive. Only for consumers to grouse, time and time again, that the cost of living is increasing faster than the availability of high-paying jobs. And that the quality of public services, from education to health care, too often falls short of the needs of an increasingly middle-class society.
About that. Malaysia has broken just above the $10,000 per capita income range associated with the middle-income trap. The World Bank has expressed optimism that Malaysia could achieve high-income status between 2024 and 2028 -- and that is great.
The risk is that today's wrangling leaves little legislative oxygen to get there. As competent as she is, Nor Shamsiah's staff lacks the tools to level the playing fields to increase innovation and raise salaries broadly. Yet the downside risks with which Bank Negara Malaysia is grappling suggest now would be a great time for elected officials to step up and do their jobs.