As critical as the bilateral relationship between the US and China is, last month’s signing of the trans-Pacific Partnership provides a timely reminder that there is more to Asia than China. When Malcolm Turnbull goes to Kuala Lumpur for the East Asia Summit he will find a dynamic member of ASEAN that has recovered strongly after financial contagion spread across the region in 1997 and 1998. As the International Monetary Fund’s Christine Lagarde has observed, thanks to its sound economic policies the Association of Southeast Asian Nations came through the crisis “strong and resilient”. Quite an achievement for relatively small, exposed economies.
Malaysia, the ASEAN chair and its third-largest economy, is arguably the best case in point. Prime Minister Najib Razak is the object of much domestic (and some international) criticism but, particularly in the TPP context, it is surely worth recalling his remarkable economic record. Since 2010, Malaysia has grown by an average 5.3 per cent a year. While growth this year is estimated to slow from 6 per cent last year to 4.7 per cent, it is still comfortably outpacing its northern neighbour Thailand, which is expected to grow by just 2.5 per cent this year. Growth has generated jobs.
Since Najib became Prime Minister, 1.8 million jobs have been created. As a result, Malaysia’s unemployment rate has dropped to 3 per cent — one of the lowest in the region and half or less than that of Indonesia (6 per cent) and the Philippines (6.8 per cent).
Economic growth averaging more than 6 per cent a year since 1970 not only means that Malaysia’s gross domestic product is now some 15 times larger than 45 years ago. It has transformed the economy in which agriculture dominated, accounting for 31.8 per cent of GDP in 1970, to a manufacturing and services-based economy accounting for 76.5 per cent of GDP, with agriculture contributing only 9.2 per cent.
Growth has also seen a transformation of living standards, average household income increasing more than 20-fold. Malaysia did well in the decades after 1970 in harvesting the low-hanging fruit of economic development.
As a result, Malaysia is on the cusp of crossing the $US15,000 per capita GDP threshold into the tier of advanced-income countries — a goal Najib made the centrepiece of Malaysia’s 2016-2020 economic program.
That this is a realistic ambition is because Najib, who has also been Finance Minister since 2008, has the experience and has shown the required leadership. He acted pre-emptively to strengthen the public finances, essential as a buffer against global trends. According to the IMF’s most recent Article IV consultation, “fiscal consolidation is well timed, appropriately paced, and remains on track”. Last year, Najib took the courageous step of using the window created by falling oil prices to eliminate expensive and poorly targeted petrol and diesel subsidies, at the same time introducing a broad-based 6 per cent goods and sales tax — the lowest in the region — to strengthen the country’s tax base and reduce its reliance on volatile oil and gas revenues. The fiscal deficit, which has almost halved since Najib became Prime Minister, is on course to be eliminated by 2020. This is the stuff of sophisticated economic management.
Progress on fiscal consolidation is especially impressive given the importance of maintaining social cohesion in such an ethnically diverse community of Malays, Chinese, Indians and others in an economy drawing in large numbers of seasonal migrants. As the IMF noted, strengthening Malaysia’s social safety is an integral part of Najib’s fiscal strategy. Bold measures will always generate controversy. The real point is that good economic management needs them. And Najib has done it.
This bold reform builds on substantial past progress. In 2012, Najib introduced a minimum income guarantee that helped lift 2.9 million people out of poverty. Since 2009, the income of the bottom 40 per cent of households has increased 50 per cent faster than the average. Cutting taxes has also formed part of Najib’s drive to accelerate the income growth of the bottom 40 per cent. Overall, the poverty rate declined from 49.3 per cent in 1970 to 0.6 per cent last year, meaning Malaysia has effectively eliminated hardcore poverty.
Women’s empowerment is also raising household income and Malaysia is the ASEAN leader in closing the gender gap. A higher proportion of management positions in Malaysia is held by women than in Hong Kong and Singapore. Last year, Najib set Malaysia the goal of having women in 30 per cent of decision-making positions.
In its consultation, the IMF listed the principal risk to Malaysian’s continued growth as being more challenging external conditions and exposure to international capital flows. However, it said this risk is mitigated by Malaysia’s flexible exchange rate, credible monetary policy and its fiscal consolidation. According to a Bloomberg markets survey in March, Malaysia tied with Chile in fifth place for the most promising emerging market nation and ranked as the No 1 ASEAN member.
The Malaysian model combining social inclusivity and pro-market economic policies has delivered one of the most impressive growth records in southeast Asia, one of the most dynamic regions in the world. This is a country at a historic juncture in development terms, making the right decisions as it climbs the development pole. You don’t do that without the tried and tested leadership of someone like Najib.
John Dauth is a former high commissioner to Malaysia and a former Australian high commissioner to Britain.
Written by John Dauth, The Australian