Pandemic’s Threat to Regional Power Balance, Democracy

Good recovery strategies are essential for democracy and economic prosperity

By: B A Hamzah

The Covid-19 pandemic, which so far has taken the lives of more than 100,000 people globally, will be over at some point and when it is, Malaysia along with other Southeast Asian governments, is going to need a practical exit strategy, a workable recovery plan that conceivably includes a diplomatic and economic shift away toward an Asia in better shape than a staggering west.

In Malaysia, the immediate concern is the revival of the economy and restoration of democracy. By most estimates, Malaysia may be in for a slightly longer shutdown period to mitigate the adverse economic impact from the coronavirus. It will have to start with the possibility of millions of Muslims spending Ramadan, which starts on April 24, at home. Indonesia, which runs the risk of being hit harder than either because of its lack of a plan to combat Covid-19, let alone an exit strategy, has already advised its people to stay home during Ramadan and the Eid festival that follows. 

Mitigating the virus is critical. Overcoming the adverse impact on the economy is equally pressing. Bank Negara on April 3 forecast that exports from Malaysia would fall by 13.6 percent in 2020 after a 1.1 percent 2019 decline due to weak external demand as key trading partners experience production interruptions. That 13.6 percent fall could be wildly optimistic.  The World Trade Organization expects global trade to fall by anywhere from 13 percent to as high as 32 percent as the pandemic disrupts normal economic activity.

We must all brace for more uncertainties. Prolonged economic paralysis could trigger security problems as states and people compete for scarce resources. The decision of OPEC to cut production by 10 billion barrels a day, with Russia on board, has averted the price wars among the major oil producers. However, the decision has put US President Donald Trump in a quandary: ostensibly balancing a leadership role among the oil-producing countries with protecting its domestic shale production.

The pandemic has created havoc in the employment sector. The US alone has lost 17 million jobs in the past three weeks. Similarly, failure to contain runaway unemployment following the pandemic could slow the global economic recovery. Despite the financial stimulus on unprecedented scale to cushion the economic impact from Covid 19, unemployment is expected to take a high toll in Southeast Asia.

Malaysia and other Southeast Asian nations should prepare for what has long been underway, the permanent shifting of economic power from the United States and the European Union nations to Asia. That means policymakers should start looking north rather than west. A wide range of authorities including International Monetary Fund Managing Director Kristalina Georgieva believe the impact of coronavirus will be as “bad or worse than the global financial crisis in 2009.”

The United Nations Secretary-General has characterized it as the “worst calamity” since WWII. The US, UK and other European countries are in for a long period of economic paralysis, partly due to failure of leadership, after the pandemic that could well cost the western powers their position as the leading economic powers.

China, having largely put the virus behind it, has begun to emerge far earlier from the disaster at the time the west is just going in. UBS, for instance, sees China’s GDP growth rebounding on policy easing, higher fiscal deficits and stronger infrastructure investment in the face of an expected recession in the Group of Three nations Japan, Germany and the United States as well as global supply chain disruptions and rising unemployment and income losses.  Built on the expected release of pent-up demand and full work resumption in China in the second to fourth quarters, GDP growth is expected to remain in positive territory, in sharp contrast to the west. 

Even before Covid 19, the Malaysian economy was already sluggish following the decline in the export sector. The gross exports of goods and services contributed to about 73 percent of Malaysia’s GDP in 2015. Prices are declining sharply for palm oil, oil and gas as well as its electronics sector. The current political uncertainty will further dampen the overall confidence outlook in the country.

Hence, the first consideration for the exit strategy is to strengthen democracy in the country. Ensuring the rule of law, the cornerstone of all democratic societies, always makes good sense. Respect for fundamental human rights like free elections and an independent judiciary are non-negotiable values in any democracy. The erosion of these values in Malaysia will undermine further efforts at strengthening regime legitimacy. Reinforcing political stability and ensuring accountability at all times will continue to remain lip- service if these issues are not comprehensively addressed.

The second exit strategy is boosting the domestic economy. In the absence of foreign investment, the challenge is how to expand private consumption. While public expenditure on infrastructure projects, for example, may spur growth the trouble it will further widen the fiscal deficit, predicted at 3.2 percent of GDP in 2020 budget by the previous government.

Maintaining fiscal discipline in dire economic situation is key to recovery. Nonetheless, like many other nations, finding the right balance between saving life and saving the economy in Malaysia will be a constant challenge.

The third exit strategy is to develop new strategies to enforce social stability in a multi-racial society where income inequality within the community and across the community is widening since 2008 according to a 2018 study by Khazanah Research Institute. The concentration of wealth among a few families is scandalous. According to the United Nations Development Program, the top 40 richest Malaysians owned 22.4 percent of GDP in 2012, almost 7 percent higher than in 2006. The skewed income concentration will pose a big challenge to the 2030 Shared Prosperity Vision proposed by the previous Pakatan Harapan government.

Leakages from the economy are exceptionally large, most notably through corruption as exemplified in the I MBD saga, which cost the taxpayers US $4.6 billion from corruption and mismanagement, and fund repatriation from over six million foreign workers (documented and undocumented). Foreigners have dumped shares on the stock market, estimated to be around MYR9 billion in 2019. This will further bleed the economy and undermine business confidence.

Finally, the bottom-line to the above reform recovery plans lies on a key pivot: the education system, which Asia Sentinel has labeled as “messy”. Malaysia needs to revamp and fix the education system to be at par with the best in the world. Since Malaysia introduced Malay as the medium of instruction to replace English in 1969, the scholarship and quality of education have never recovered.

In hindsight, had Malaysia retained English as the medium of instruction in schools and put more emphasis on the teaching of science, mathematics, engineering and technology as its Singapore neighbor, public universities would retain high global ranking and more importantly, the nation would retain the much needed human capital to develop the nation and reverse the ongoing brain drain.

B A Hamzah is a keen student of geopolitics.