Comments on “Economic Reforms in the Aftermath of Regime Change in Malaysia”

• Author: Satoru Kumagai
• Date: 01 July 2020
• DOI: http://doi.org/10.1111/aepr.12302
• Published date: 01 July 2020

Comments on “Economic Reforms in the

Aftermath of Regime Change in Malaysia”

Satoru KUMAGAI†

Development Studies Center, Institute of Developing Economies

JEL codes: P16, H00, L32

The regime change in Malaysia following the 14th General Election (GE14) is one of

the most significant political events in modern South-East Asia history. Lee (2020)

analyses GE14 both descriptively and statistically. Lee’s paper contains detailed back-

ground information and a discussion of the consequences of the regime change after

GE14 that unexpectedly happened in an entirely democratic manner.

Lee (2020) investigates the factors that led to the GE14 regime change, such as economic

conditions and the defection of political elites, and undertakes a statistical analysis of the share

of the votes obtained by Barisan Nasional (BN), the former ruling coalition. Then, Lee explains

the context and details of the post-GE14 economic and institutional reforms with comprehen-

sive lists of the electoral promises and subsequent policies implemented by the new administra-

tion of Pakatan Harapan (PH) led by Mahathir Mohamed. Lee foresees the difficulties of

institutional reform, mainly due to ethnic polarization and strengthened political opposition,

and points out that the abolition of the Goods and Service Tax has weakened the new govern-

ment’sfiscal capacity significantly.

Lee (2020) give us extensive and detailedinformationtoobtainapictureofthefirst

regime change in Malaysia and the subsequent economic/institutional reforms. His evalua-

tion of the on-going reforms is balanced and informative, and his scorecard for the imple-

mentation status and estimated cost of the 10 electoral promises to be implemented in the

first 100 days are especially useful.

On the other hand, a few critical factors are not discussed extensively in Lee’s paper

due to limitations of space. One of these factors is the reform of government-linked

companies (GLCs) that is deeply related to both economic and institutional reforms.

The presence of GLCs in Malaysia’s economy is significant as they having been playing

a central role in implementing the Bumiputera Affirmative Action (BAA) since the

first Mahathir administration decided to re-nationalize big privatized conglomerates to

bail out them from the turmoil of the Asian Financial Crisis (AFC) in 1997–1998.

The close relationship between several huge conglomerates and BN leaders during the first

Mahathir administration is well described in various research represented by Gomez and Jomo

(1999). The overly expansionist corporate strategies of these companies led to a debt crisis amid

the AFC, and Mahathir decided to re-nationalize them to bail them out. This bail out was

labeled by the international financial community as a notorious example of “crony capitalism.”

†Correspondence: Satoru Kumagai, Development Studies Center, Institute of Developing Economies,

Wakaba 3-2-2, Mihama-ku, Chiba-shi, Chiba 285-0858, Japan. Email: satoru_kumagai@ide.go.jp

260 © 2020 Japan Center for Economic Research

doi: 10.1111/aepr.12302 Asian Economic Policy Review (2020) 15, 260–261