Economic Reforms in the Aftermath of Regime Change in Malaysia

• Author: Cassey Lee
• Published date: 01 July 2020
• DOI: http://doi.org/10.1111/aepr.12295
• Date: 01 July 2020

Economic Reforms in the Aftermath of

Regime Change in Malaysia

Cassey LEE†

ISEAS –Yusof Ishak Institute

ABSTRACT

The 14th general election in May 2018 brought about an unexpected change in political rule in

Malaysia for the first time since the country’s independence in 1957. In its first year of rule, the

new Pakatan Harapan-led government implemented several populist economic policies that were

drawn from its election manifesto. While these policies may have moderated populist politics to

some extent, they have also weakened the government’sfiscal capacity. Ethnic fragmentation

and a strengthened opposition alliance have also made it difficult for the new government to

implement its ambitious institutional reform agenda.

Key words: economic reform, institutional reform, political economy

JEL codes: D70, H00, P16

“If we fail or if we break our promises, by all means reject us in the next general election”

Mahathir Mohamad, Buku Harapan (election manifesto), 8 March 2018

“Actually, we did not expect to win, we made a thick manifesto with all kinds of promises

…If we can’t fulfil them, we will need a good reason that is acceptable to the people. Or

else, if we fail to deliver on our promises, the opposition will use it against us and we may

be defeated (in the next general election)”Mahathir Mohamad, New Straits Times,

14 August 2018

1. Introduction

Changes in political regimes are usually accompanied by economic and political

reforms. Such reforms could be particularly drastic and deep if the political transition

involved the demise of a dominant single party that had ruled for a long period. The

14th general election (GE14) in Malaysia brought an end to the political rule of Barisan

Nasional (BN) which had ruled the country continuously for 62 years since the coun-

try’s independence in 1957. Even though BN was resoundingly defeated in GE14, the

change in political regime caught many by surprise including the leaders of the then

opposition coalition Pakatan Harapan (PH). The unexpected nature of the change in

[Correction added on 10 January 2020, after first online publication: author affiliation has been

amended.]

†Correspondence: Cassey Lee, ISEAS –Yusof Ishak Institute, 30 Heng Mui Keng Terrace, Pasir

Panjang 119614, Singapore. Email: cassey_lee@iseas.edu.sg

© 2019 Japan Center for Economic Research 239

doi: 10.1111/aepr.12295 Asian Economic Policy Review (2020) 15, 239–257

regime has had important implications for economic policy-making ex post GE14.

More specifically, electoral promises may have been made that were premised upon

assumptions about expected electoral performance. Furthermore, asymmetric informa-

tion about fiscal capacity may lead to difficulties in fulfilling electoral promises. These

and other related issues are examined in this paper.

The main goal of this paper is to describe, explain, and evaluate economic reforms

in Malaysia in the aftermath of GE14. The outline of this paper is as follows. Section 2

will review the nature of political changes in Malaysia. The economic and institutional

reforms that are proposed and carried out by the new PH-led government are

described and evaluated in Section 3. Finally, Section 4 concludes by providing an

overall assessment of the reforms and prospects for future reforms.

2. Regime Change and Economic Conditions in Malaysia

The analysis of economic reforms following a political regime change requires an

understanding of the nature of the regime change and the factors (economic and non-

economic) that led to the change. The factors that induced political regime change are

important as the new political party that replaces the incumbent party is likely to aim

to deliver electoral promises (in the form of election manifesto) related to these factors.

As is observed in Malaysia, such election promises significantly influenced the eco-

nomic reform agenda following the change in political regime. These two aspects, the

nature of regime change and the factors driving regime change, are discussed in the

following sections.

2.1 The nature of regime change in Malaysia

Before the GE14, the incumbent political coalition, BN and its predecessor the Alliance

had won every general election since the first general election was held in 1955 (2 years

before Malaysia gained independence).

1

BN performed relatively well in the country’s

elections until 2008. In the 12th general election (GE12), the opposition coalition

(Pakatan Rakyat, PR) denied the ruling coalition BN achieving a two-thirds majority

in the Parliament.

2

Another significant outcome of the GE12 was the state-level elec-

tions which saw the opposition coalition PR wresting control of five of the 13 states in

Malaysia. Two of these states –Penang, and Selangor –are amongst the most devel-

oped states in Malaysia.

3

These states provided solid bases for the major two compo-

nent parties of PR –the Democratic Action Party (DAP) in Penang and the Parti

Keadilan Rakyat (PKR) in Selangor. The states of Kelantan and Kedah came under the

control of the Islamic party, Parti Islam SeMalaysia (PAS).

In the 13th general election (GE13) held in 2013, BN was voted back into power in

the federal election with a slight deterioration. Each of the three component parties of

PR –namely, DAP, PKR, and PAS –retained control of their respective base-states.

PAS subsequently departed from the PR coalition in 2015 over disagreements on pol-

icy issues such as the implementation of the Islamic penal code. Following the

Economic Reforms in the Aftermath of Regime Change in Malaysia Cassey Lee

240 © 2019 Japan Center for Economic Research