Economist Azrul Azwar Ahmad Tajudin, who was suspended by Bank Islam for predicting a Pakatan Rakyat win in the next general election, has opined that the country’s economy would likely face an initial shock if his prediction comes true, but said that the impact would be limited.
“After the 13th general election, we can expect some knee-jerk overreaction on the first day of trading due to fears of political instability and administrative inconsistencies… because of that, we may see increased volatility and a sharp pull-back in equity bond and forex market.
“There could also be a surge in capital outflow for portfolio or direct investment businesses,” he said in a forum on political transition yesterday evening.
However, Azrul- who is now an analyst with PKR-linked Institut Rakyat – said the impact would be minimal as the business community had already factored in the possibility of a Pakatan win.
“For example, given the erratic performance of the stock and forex market, and the movements of portfolio funds in a rotational fashion within the equity and fixed income markets, it could suggest that the investment community has factored in this possibility,” he claimed.
He pointed out that even now, foreign shareholding of the Kuala Lumpur Composite Index is at its lows of around 20 percent.
“As such, there are not much foreign funds left to trigger a foreign capital flight post-GE13,” he said at the forum titled, ‘Economic management during political transition: Experience from East Asia and Eastern Europe’.
“The downside risk of the Malaysian financial market and economy is rather limited. I can confidently say that our economy will not plunge into disaster, given its ability to absorb any short-term shocks,” added Azrul.
He noted that other external factors such as the global economic recovery and the signs of resolution to the Eurozone crisis would also help mitigate the shock.
“Precedence wise, countries like Indonesia in 1998 and the Philippines in 1986 have seen their economy return to normalcy in less than a year, and achieved new highs in less than three to four years,” he said.
Other panellists at the forum were Penang Institute executive director Woo Wing Thye and Universitas Indonesia economics professor Anwar Nasution, whereas the event had been moderated by Penang Institute fellow Wong Chin Huat.
Beholden leaders can’t reform
Woo, who had advised the Polish government during its transition of power, claimed that the current reforms instituted by the BN government only addressed the “symptoms” rather than the underlying causes.
He gave the example of the government-formed Talent Corp which was meant as an incentive to lure Malaysians back home, but had not addressed the underlying reasons on why they had left the country to begin with.
Woo stressed that, in order to conduct real reforms, leaders of the present government cannot be beholden to previous office holders.
“For example, in China, Mao Zedong’s appointed successor Hua Guofeng could not institute reforms because he was picked by his predecessor and beholden to him, but when Deng Xiaoping deposed him, he had the legitimacy to turn against the old policies and introduce new policies,” he said.
Since then, reforms in China had accelerated as the old generation die out and the new generation instituted further reforms, Woo added.
While admitting that certain countries had gone through quick and rapid reforms – such as Russia under Mikhail Gorbachev – had fallen, he dismissed that a ‘shock reform’ in Malaysia would lead to a collapse.
Woo pointed out that countries like Vietnam and Laos had also instituted overnight reform, and has seen an amazing growth since then, up until the Asian financial crisis.
He noted that the key point for the success of reforms is not dependent on the speed of reform, but rather on the initial state of the country.
“China, Vietnam and Laos were overwhelmingly based on agriculture, so when the market was opened, industrialisation happened – people in the agricultural sector moved into the industrial sector.
“But in Eastern Europe, (they collapsed) because they were already industrialised – and agriculture was only a small part. Most people were already in heavy industries, and for the light industries to grow, they had to be at the expense of the former.
“Given our condition, I am confident that there will be no collapse, as our initial state does not require a reorientation of the economy,” he said.