SINGAPORE (Reuters Breakingviews) - Malaysia’s 92-year-old comeback kid has everything to prove. Mahathir Mohamad, a former prime minister, has won a bitterly contested election. Hopes for change run high after the first ever opposition victory, but the political shock will rattle markets, as investors fret about growth momentum and future ties with China. The winning alliance will have to move fast, laying out a clear economic agenda and much-needed anti-corruption reform.
Najib Razak, head of the Barisan Nasional (BN) coalition and prime minister from 2009, has been dogged since 2015 by the multi-billion dollar 1MDB scandal, and faced growing discontent over rising living costs. Many expected him to win anyway. Instead, his side was beaten even in traditional strongholds.
Change will be welcomed by many in Malaysia, but investors dislike uncertainty. The winning alliance does not have an obvious shadow cabinet, for one, nor is its economic plan particularly clear. Crowd-pleasing ideas like reintroducing subsidies and scrapping the goods and services tax may have won votes, but they hint at poor budget discipline. Increasing the country’s reliance on oil is also imprudent. Markets reopen on Monday but in thin offshore trade, the ringgit is already feeling the pressure.
Still, the alliance has an opportunity to capitalise on this earthquake to push through reforms on everything from press freedom to graft. The new government will doubtless launch a new probe into 1MDB. For real change, though, it will need to radically reduce the role of the state in Malaysian business. The government currently owns shares amounting to roughly 40 percent of the market value of Malaysia’s top 30 companies. That hampers competitiveness and encourages rent-seeking.
Finally, the alliance and Mahathir, known popularly by his honorific title of Tun, will have to clarify their position on ties with China. He has been publicly critical, accusing Najib of selling Malaysia. On the other hand he is opportunistic, and aware of his country’s need for infrastructure and investment.
None of this will be easy. The coalition includes former sworn enemies; Mahathir, in his previous two-decade stint as prime minister, was hardly a reformer. But if this government can move quickly and speak clearly, it could still get off to a good start.
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