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Many Malaysians have high hopes for newly elected Prime Minister Mahathir Mohamad, but there are risks ahead. (Photo by Takaki Kashiwabara)
The Big Story

After the upset: What Mahathir's return means for Malaysia

Young voters have high hopes, but can the 92-year-old prime minister deliver change?

CK TAN, Nikkei staff writer, and GWEN ROBINSON, Nikkei Asian Review chief editor | China

KUALA LUMPUR -- The people of Malaysia may have just elected the world's oldest prime minister, but Mahathir Mohamad's path to victory was cleared by fresh-faced politicians like 25-year-old Syed Saddiq Abdul Rahman.

Saddiq, who passed up a post-graduate scholarship to the University of Oxford last year to enter politics, beat a three-term ruling party parliamentarian in the rural seat of Muar in Johor state on his first try running for office.

"The election has proven the people's power to change and lead Malaysia to a better future," he said shortly after his victory.

The "Malaysian tsunami," as some have dubbed the May 9 election, was a resounding rejection of the status quo.

Young voters turned out in force, helping the 92-year-old Mahathir Mohamad return to the prime minister's office. (Photo by Takaki Kashiwabara)

Voters turned out in droves to deliver a shock to the pollsters, investors and political analysts who expected Najib Razak, the scandal-plagued prime minister, to return to office for a second term. Instead, the victory by the 92-year-old Mahathir marked the first time an opposition party had won since Malaysia gained independence from Britain in 1957.

The message from voters was clear: Stop the rot associated with decades of poor governance, corruption and divisive politics. Saddiq and other young candidates had also emphasized pocketbook issues, including unemployment and the high cost of living. These were winning themes with the young: Voters aged 40 and under accounted for 41% of the total.

Both young and old who voted for change are hoping Mahathir's rich experience in politics can restore the country's international reputation and put Malaysia back on track to becoming a developed nation.

The path may not be straightforward for Mahathir and his unproven coalition. Yet in the wake of the election, he has been relishing his newfound role as an agent of change -- an unlikely fit for a man who ruled the country with an iron first for 22 years.

Mahathir Mohamad is all smiles on May 10 after claiming a stunning upset victory over Prime Minister Najib Razak in Malaysia's election the previous day. (Photo by Takaki Kashiwabara)

"The enthusiasm was really fantastic," he told supporters and reporters on May 10 after being sworn in. A crowd had gathered outside the state palace to try to catch a glimpse of their second-time prime minister, whose election was seen by many around the world as a repudiation of Southeast Asia's recent drift toward authoritarian politics.

He even made a joking reference to his hard-line reputation by reminding people that his detractors had labelled him a "dictator."

The nickname is no laughing matter, however. Tun M, as Mahathir is called by his supporters, oversaw a period of rapid economic growth and development in Malaysia during his first long stint in office. But Mahathir's tenure was also marked by financial and political upheaval that led to the fall of many of his rivals. Some -- notably Anwar Ibrahim, his protege and potential successor -- were imprisoned on dubious grounds without trial simply for challenging him. Anwar was released from prison on May 16 following a royal pardon initiated by the winning coalition.

Mahathir came out of retirement two years ago to take on Najib, his handpicked successor, whom he accused of destroying the country. Najib, the son of the country's second leader, was tainted by the financial scandal involving state fund 1Malaysia Development Berhad, or 1MDB.

While a triumphant Mahathir said immediately after his election that he wouldn't seek "revenge," his subsequent actions -- barring Najib and his wife from leaving the country and announcing an investigation into the 1MDB scandal -- indicated that action would be taken.

"There are a lot of complaints against [Najib], all of which have to be investigated," Mahathir said. "If some of the complaints are valid, we will have to act quickly because we don't want to be saddled with extradition from other countries."

The resignation of Dzulkifli Ahmad as the head of the Malaysian Anti-Corruption Commission was seen as boosting Mahathir's ability to pursue an investigation into Najib.

"Reshuffle? No reshuffle. It is going to be a new cabinet," Mahathir corrected a reporter. "Yes, certain heads must fall. Some people were betting on a prime minister whom the world condemns."

Ahead of the election, the conventional wisdom held that average Malaysians were unconcerned about the 1MDB scandal, in which Najib was alleged to have received more than $680 million amid a $4.5 billion misappropriation of funds. But the scandal -- along with Najib's anti-fake news law, introduced weeks before the election -- rankled voters like Faiz Aziz, 25, who voted for the opposition. "The results ring with the majority, who clearly want a change of government," he said.

During the campaign, Mahathir positioned his Pakatan Harapan (Alliance of Hope) coalition as the underdog -- a hastily assembled and disparate group lacking financial clout and publicity. But thanks to the effective use of social media, the Alliance of Hope's popularity swelled almost overnight, attracting millions of followers on various platforms.

In another shrewd move, Mahathir recruited some of the youngest candidates to ever contest a national election, banking on their fresh appeal and the rise of youth voters. Among them was Yeo Bee Yin, 34, an ethnic Chinese opposition lawmaker who won her first-ever federal election in Bakri, Johor.

"I was overwhelmed with my comfortable 60% winning margin," she said.

A populist agenda?

Mahathir had more of an agenda than merely taking on a tainted successor, however. As he took office, he reaffirmed his commitment to a series of populist economic measures he had outlined during the campaign: overturning an unpopular 6% goods and services tax, restoring fuel subsidies and reviewing big infrastructure contracts, particularly those with Chinese concerns.

Credit rating agencies expressed concern about the proposals. Moody's Investors Service warned on May 14 that such policies would be "credit negative" for the country, adding that there was "little clarity" about the new leader's economic agenda. Fitch Ratings noted that the GST contributed 18% to government coffers in 2017, and replacing it with a narrower sales and services tax could result in a correspondingly higher deficit.

Prominent Malaysian businessmen echoed this sentiment. Munir Majid, chairman of CIMB ASEAN Research Institute and president of the ASEAN Business Club, said there still needs to be more debate about economic policy.

"With respect to the election promise to abolish GST and replace it with a sales and services tax, there is concern that government revenue would fall and that the fiscal deficit would widen from the present 2.8%, whereas the previous government's promise was to bring it down further," he said. "There are also a number of other commitments, such as bringing back fuel subsidies, that would adversely affect the revenue base as well."

The stock market delivered a mixed message when it opened after a two-day post-election holiday, with shares falling at the open but recovering to close slightly higher.

Mahathir's plans to return to the old model known as Malaysia Inc. -- a nationalistic legacy that Najib smashed during his nine years in office -- have only added to questions about his economic plans.

Mahathir has pledged to review infrastructure contracts inked under the previous government, particularly those with connections to China. (Photo by Takaki Kashiwabara)

"Actually, the idea of a business-friendly government was mooted long ago when we introduced the Malaysia Inc.," Mahathir said on May 10. "The corporation is intended to build the Malaysian economy with the help of investors from inside and outside the country."

Inspired by a similar model in Japan, the 1980s-era idea favored the privatization of key state agencies with the government holding substantial stakes. Mahathir appointed allies to control and spearhead privatized companies, fueling criticism that he practiced favoritism. This lack of corporate governance contributed to the collapse of some of these companies, including Malaysia Airlines and national carmaker Proton.

Najib dismantled the model, restructuring the shareholdings in these companies by putting sovereign funds in control.

With a fresh mandate, Mahathir seems determined to drive the economy forward. During his first term, Mahathir promoted a plan known as Vision 2020 -- a pledge that Malaysia would join the club of developed countries by 2020. But that vision has become blurry in recent years. Malaysia's gross national income per capita of $9,660 in 2017 was well below the World Bank's threshold of $12,236 to qualify for high-income status.

"Mahathir will need to leave Malaysia in good hands so that the country can finally escape the middle-income trap after three disappointing decades since the Asian financial crisis," noted Alicia Garcia-Herrero of Natixis, an investment bank.

Munir said the government will focus on evaluating state budget and debts, including all major ongoing infrastructure projects. This may prove an obstacle to China's Belt and Road-related investments in the country, notably the 55 billion ringgit ($13.9 billion) East Coast Rail Link. While Najib had promoted ties with China, some Malaysians -- including Mahathir -- have expressed concerns over the debt commitment on the 688km link being built and financed by Chinese companies.

In a move that has raised further worries among regional observers, Mahathir hinted at a more protectionist agenda, saying that while the country welcomes trade and investment with foreign countries, Malaysia will not bow to any external pressure.

"Sanctions by big powers will not influence our policies," he said, apparently referring to U.S. President Donald Trump's punitive tariffs and his recent reversal of the Iran nuclear deal, which lifted sanctions on the Gulf state. "We know the powers of such countries apply sanctions on countries who do not agree with them."

Appointments and ethnicity

One thing on which both critics and supporters agree: The next 100 days will be crucial for Malaysians and foreign investors waiting to see who will head key government posts.

Acknowledging the new government's lack of experience, Mahathir announced the formation of an advisory group made up of former public and corporate figures to assist during the transition period.

Mahathir speaks during a press conference with his new cabinet on the outskirts of Kuala Lumpur on May 12. (Photo by Takaki Kashiwabara)

Mahathir's first appointments, rolled out three days after the election, drew a positive response -- despite some debate over his move to appoint Lim Guan Eng, chief minister of Penang State and secretary-general of the Democratic Action Party, as finance minister.

He is the first ethnic Chinese politician to hold the portfolio in recent decades. The post is one of the most senior cabinet positions and was previously held concurrently by the prime minister, a practice introduced by Mahathir after the Asian financial crisis. Lim's appointment came after an election fought against the backdrop of Malaysia's precarious ethnic and religious mix.

Malaysia's population of nearly 32 million is about two-thirds Malay, 23% Chinese and the rest a mix of Indian and other ethnicities.

"I honestly do not believe Lim Guan Eng's appointment as finance minister would generate friction in the coalition because of his race," said Munir. "Indeed if we want to focus on race, it is an appointment fully supportive of the change the election result reflects: the prime minister should not be the finance minister as well and appointments should be based on competence and experience."

However, the personnel matter that has captivated the public is the future role of Anwar, who was jailed on charges of corruption and sodomy during Mahathir's first term. Anwar's opposition People's Justice Party (PKR) was a key part of the winning coalition, and the prime minister, who has said he would like to serve for a year or two, has indicated he will eventually hand power to his longtime rival. Yet PKR members have already complained about not being consulted over appointments.

During the campaign, Mahathir was seen as a man with nothing to lose and everything to gain in his audacious comeback. Many analysts now see this as the last chance for Mahathir, also known among Malaysians as the "father of modernization," to see through his economic and social reform goals. These were dented in the past in part by an obsession to please the ruling party's core Malay supporters with an affirmative action policy.

Many ethnic Chinese, who felt sidelined by the move, have come to accept the policy, originally meant to eradicate poverty and close the income gap between different ethnic groups.

"Whether one loves or hates Mahathir, he is currently the best option to put Malaysia on the map again, hopefully for the right reasons," said Lim Eng Boon, a businessman in Kuala Lumpur.

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