The last time there was an election in Malaysia where there was a chance of a change of government, almost exactly 49 years ago, I was playing cricket on the Padang (the town square) in Kuala Lumpur. People started running in the streets. I got on my motorbike and rode home. By the time I arrived there the whole country was under a 48 hour curfew. Had I waited 15 minutes, men with parangs (machetes) would have arrived. The best guess is that about 3,000 people were killed, often rural Chinese shopkeepers to whom everyone in the locality owed money.

 

Which is why my first wish for my Malaysian friends, after the historic election today that for the first time since independence has caused the government to change, is that the changeover is peaceful. The new government under 92 year old Dr Mahathir, the former Prime Minister, needs to manage a change in government that is sufficiently punishing for future leaders to be discouraged from the extreme corruption of the outgoing Prime Minister Najib Razak, but not so severe that any future leader might be afraid to allow elections.

 

Malaysia has a precarious balance between entrepreneurial Chinese and Indians, who comprise nearly the same proportion of the population as those who voted Remain in the UK referendum, and the indigenous Malays. The new government has indicated that it will reduce Malay privilege but needs to step carefully.

 

On economic policy the litmus test is the promise by the former opposition parties to scrap the Goods and Services Tax, the unpopular equivalent of  VAT. They have offered a Sales Tax in its place plus reductions in government waste. Fortunately the latter will not be hard to find. Even so their fiscal arithmetic suggests that the deficit should rise from 2.8% of GDP to 4%. With the Asian economy slowing fast, this is going to prove risky and the change will need to be finessed.

 

The new government is an unlikely coalition between Malay chauvinists who feel hard done by, those who want to make the country more Islamic and the Chinese and Indian ethnic minorities who want the opposite.  Considerable diplomacy will be required for this new coalition to hang together.

 

But, if they succeed, the new government will have shown the world that a country where peaceful change had been considered impossible has managed to change governments without bloodshed.

 

Talking to my friends in the country, there is a strong feeling that they are on show.

 

They need to prove that they live in a modern democracy that can manage change. There is huge excitement about the result which many believed could not happen.

 

But the other side of the coin is that international investors have tended to shun Malaysia in recent years because of its anti Chinese and Indian policies and precarious political situation.  If change is managed successfully and peacefully, there is no reason why there should not be a major boost to international investment and hence to GDP growth.

 

 

Contact:  Douglas McWilliams, Deputy Chairman  07710 083 652   dmcwilliams@cebr.com