Ringgit slide: Parallels to 1998

The fall of the Malaysian ringgit to record lows this past week, lower than the 1998 financial crisis, has become the focus of concern. Prime Minister and Finance Minister Anwar Ibrahim has said that the current slide cannot be compared to the 1998 Asian Financial Crisis.

To a certain extent, he is correct. The global conditions are different and many indicators in Malaysia’s economy are stronger than has been acknowledged. This includes promised investment, growth in the digital economy and service sector more broadly, as well as greater diversification.

No question, that Malaysia’s economy has a strong foundation that with better management and positioning, it can build on.

Yet, there are parallels to the events 26 years ago that should be discussed.

Malaysia no longer has the same level of comparative advantage as its regional neighbours, especially Vietnam and Indonesia, and its economic policy management is not building the credibility and confidence for her to meet her potential.

Persistent corruption

Let’s discuss some of the similarities.

Foremost, Malaysia suffered in 1998 because it was perceived to have broader regional practices of KKN – Corruption, Collusion and Nepotism. Then, privatisation and political favouritism were seen to be enriching cronies.

The nexus between political power and economic wealth was consolidating, with relationships, political positions and patronage used to make money deepening.

These conditions have not fundamentally changed; the political-economic nexus resting on corruption, collusion and close relationships is arguably stronger than ever. In fact, after 1MDB’s damage to the nation’s reputation, the perception of corruption in Malaysia has worsened.

The 2021 imprisonment of Najib Abdul Razak after a protracted legal process sent a message of political accountability. His partial pardon last month seriously undercut this.

What is being perceived is that the Anwar government gives “discounts” for involvement in the world’s largest kleptocracy. This is hurting Malaysia’s international standing.

What has made the situation worse is that Anwar’s credibility – as both prime minister and finance minister – has been undercut, as his talk against corruption is seen as unsubstantiated, especially as there have been no other meaningful reforms to reduce corruption or improve political accountability.

With over a year in office – and little to show in terms of reform – the time to believe in reform talk has passed. Attention has turned to deliverables, and these have been in short supply.

Same political conflicts

Malaysia appears inward-looking, dealing with its conflicts. In fact, what has happened is that the main 1998 players in Malaysian politics are the same – Dr Mahathir Mohamad and Anwar.

Rather than Anwar facing imprisonment, Mahathir’s close business ally Daim Zainuddin (and his wife) is now facing charges on their asset declarations and two of Mahathir’s sons are in the spotlight.

For many, these investigations are important, a needed reckoning with the past.

But what is troubling is the questions they raise in their contradictions, with those close to power getting off on corruption and others with contentious history targeted. One cannot get away from the perception that this is personal, after over two decades of conflict between the two men.

Ironically, politics in Malaysia echo the situation of 1998, with many opposition figures facing legal charges. The list is long, from former prime minister Muhyiddin Yassin (and his son) to the popular PAS’ Kedah Menteri Besar Muhammad Sanusi Md Nor.

One critic of the Anwar government, Syed Saddiq Syed Abdul Rahman received a sentence with a fine greater than the original infraction and whipping. His case is on appeal.

Each of these cases has its own issues, but the broader picture is one where being in political opposition is facing disproportionately more scrutiny and legal accountability than those in office.

The shadow of possible arrest of other politicians and party members has also been cast. While 2024 is indeed a different era, where charging politicians is the norm, the practice that being in power provides protection has also become normalised.

Same old race-focused narratives

In 1998, Malaysia’s competitiveness was hurt by a political focus on race, especially a preoccupation with the Malay community. Back then, Mahathir had moved policy away from the New Economic Policy to focus on empowering chosen Malay entrepreneurs (read elites).

This was the era of the “new Malays”, “new wealth” and “Umnoputras”.

Sadly, these practices with scores of different congresses only increased the divisions within the Malay community, as well as putting in place a more serious divide on top of the exclusion of other bumiputera communities and minority communities.

Importantly, Mahathir failed to use the Asian Financial Crisis as an opportunity for reform and this has only served to make the contemporary tasks for reform even harder.

Today, Anwar has touted his government as doing both – addressing divisions and reforms. He has not effectively communicated how.

He has introduced a series of big announcements – the central database hub (Padu) system to end petrol subsidies and ending civil service pensions (without buy-in from targeted populations) – and promised big meetings.

At the same time, he has increased sales and service taxes and income taxes, especially impacting the middle class. Meanwhile, he has done little new to create a business-friendly environment for either domestic or foreign investors. Programmes like the tiered MMH2, for example, are waiting for six months for implementation.

Policies are being introduced erratically, lacking coordination and without broad consultation, creating the same sense of unknown, uncertainty of the 1998 era.

People are asking, what is next? At the same time, many are asking questions about the current policies, especially the U-turns and poor implementation. There is a lack of clarity in governance.

Same focus on holding power

Many of the responses to the 1998 Asian Financial Crisis were focused on holding power. Here too, there are commonalities; the current focus also appears to be on building support, feeding political insecurities rather than building security.

With a concentration on holding power, there is no road map of the plans while in power.

Anwar’s Malay support deficit has particularly preoccupied his governance. This has had negative spillovers for the economy.

Every time he speaks of a Bumi Congress or Islamic governance, one hears a finance minister focus on identity politics, showcasing an area where Malaysia has not been competitive globally. A political narrative has overshadowed an economic one.

With the loss of ground on reform, Anwar’s embrace of race and religion has become more prominent, with a perceived increase in Islamisation. There is little attention to the divisions being deepened or how this might be seen externally.

Few learned lessons

What is perhaps the most striking parallel to 1998 is a failure to learn lessons.

Mahathir portrayed the Asian Financial Crisis as external, refusing to make substantive changes domestically. He lost support in the 1999 election, not least for how he treated the opposition then led by Anwar.

Mahathir had one advantage, a more favourable financial position that he used to prime the economy – one that Anwar lacks. Many of the spending decisions then, however, were aimed at shoring up political support rather than bringing about fundamental structural changes in the economy.

Mahathir steadied the Malaysian boat but did not get rid of the causes weighing her down.

Today, Anwar has similarly shown resistance to learning lessons.

He has yet to appreciate that countries separate the role of finance minister and prime minister for a reason. Given Malaysia’s history of the need for accountability after 1MDB, this should be clear. Malaysia’s economy would benefit from the key point person on the economy focused on the economy.

He has not yet appreciated that successful policies need buy-in from the public. Given the communication problems of the 2018 Pakatan Harapan government, the need for better communication on governance should be evident.

The unity government should introduce and implement economic policies with better consultation, especially given that it lacks its own political mandate and is asking more financially in taxes from the public than before.

Finally, the Asian Financial Crisis showed that not using an opportunity for reform only makes the reform process even more difficult. Anwar’s approach to date of caution, accommodation and even appeasement, especially to demands from Umno, has not worked.

Malaysians today and foreign investors are not as patient as they were in the past. The country is no longer in the same favourable position as it was decades ago. This is the biggest difference from the past.

A failure to see parallels, learn lessons and act on them will cause more harm than before.


First published on Malaysiakini.