Malaysian Prime Minister Mahathir Mohamad speaks to the crowds during a rally   in a September 15, 1999 file photo. AFP PHOTO/Shamshahrin Shamsudin
Malaysian Prime Minister Mahathir Mohamad speaks to the crowds during a rally in a September 15, 1999 file photo. AFP PHOTO/Shamshahrin Shamsudin

The shock election victory of Malaysia’s opposition alliance and the anti-corruption and economic-policy cleansing it has promised roller-coasted stocks before a slight MSCI index gain, and cast a shadow on ASEAN peers the Philippines and Thailand with their own political and fiscal battles under overall asset-class retrenchment.

The International Monetary Fund chimed in with caveats at a Singapore event marking a decade since the 2008 financial crisis, as it called for “budget and monetary buffer rebuilding” to counter capital outflows.

On the positive side, exchange rates are more flexible and reserve coverage is above the adequacy standard, but Asia’s current-account balance is down from a decade ago amid higher external and public debt; the latter has jumped 15 percentage points to 60% of gross domestic product with average fiscal positions now in deficit.

The IMF’s deputy managing director, Tao Zhang, noted a “striking increase” in corporate and household debt over the period and urged targeted macro-prudential measures. He also warned of higher inflation through rising costs of imported oil and other commodities, and the unfinished financial inclusion agenda with “large disparities” in automatic teller and formal banking access across the region.

His speech put the Asia-Pacific region behind sub-Saharan Africa on mobile transactions and urged stronger credit-bureau and payment-system infrastructure to tap unreached customers.

Foreign investors, who own more than a quarter of Malaysia’s local debt and equity, had already trimmed exposure before the election on steep valuations over 15 times earnings. They joined in an immediate 5% forward ringgit selloff as a party coalition led by Mahathir Mohamad became the first other than the United Malays National Organization (UMNO) to win a parliamentary majority since independence.

When last in office during the 1990s financial crisis, Prime Minister Mahathir lambasted “unscrupulous” currency traders and imposed capital controls, and fund managers turned skittish, fearing a reprise. The new party manifesto hinted at possible currency intervention, while assigning the central bank responsibility for reviving “international market value.” However, Mahathir signaled a hands-off approach in early appointments of a finance minister and others based on track records rather than ethnic or crony ties as in the past.

On the Kuala Lumpur Stock Exchange, consumer-goods listings were buoyed by the incoming administration’s promise to abolish the goods and services tax (GST), while maintaining fiscal discipline through cutting unspecified project spending.

Prime Minister Mahathir after reassuming power ordered a raid on his predecessor Najib Razak’s residence, and barred him from leaving the country as the government tries to recover billions of dollars allegedly siphoned from the 1Malaysia Development Berhad (1MDB) sovereign wealth fund.

The Belt and Road relationship with China will in turn be re-examined on suspicion that US$30 billion in agreed bilateral transport financing posed a debt trap that could presage Chinese asset seizure as in Sri Lanka. The East Coast Rail Link to Singapore, underwritten by China’s Export-Import Bank and estimated at half that sum, will be scrapped as “economically unviable” even though it would have created tens of thousands of jobs according to a Mahathir adviser.


The political earthquake resounded in Thailand, where street protesters demanded an end to four years of junta rule as the timetable for February elections next year was again in doubt. General Prayut Chan-ocha, who heads the military government, may be positioning to stay in charge under a nominal civilian regime, as next-generation activists organize new parties.

GDP growth at 4.8% in the first quarter was the fastest in five years on healthy exports and tourism, although private consumption and investment were weak. Inflation is only 1% with the benchmark interest rate on hold, but foreign-investor confidence in the capital market turned bearish this month.


The Philippines’ GDP growth came in at 6.8% for the first quarter on President Rodrigo Duterte’s 15% infrastructure spending push under the $180 billion “Build Build Build” program, but double-digit credit expansion also lifted inflation above 4%, triggering a 25-basis-point change in the policy interest rate.

The trade deficit swelled on equipment imports and remittances slipped in a lethal peso-depreciation combination, down 5% against the dollar so far this year. The setbacks hurt Duterte’s popularity rating, currently at 70%, as ratings agencies cited overheating and governance worries despite low external debt.

Standard & Poor’s upgraded the outlook to “positive,” as international fund managers reserve judgment on such small markets with building tensions within the Association of Southeast Asian Nations.

Gary Kleiman

Pioneer and recognized expert in the field of global emerging economies and financial markets. Founder of first consulting firm dedicated to providing independent analysis and advice to public and private sector clients in 1987, and research coverage and firsthand experience covers 75 countries in all developing regions. Advisor on financial vulnerability issues, risk management, portfolio allocation, and financial sector and capital markets strategy and development.