Malaysia: Covid-19 takes toll on economy and government

Muhyiddin Yassin, Prime Minister of Malaysia following a 'palace coup' (Wikicommons/CC)

During the spread of coronavirus into Malaysia in the middle of February, the ruling government – the Pakatan Harapan (Coalition of Hope) – which was in power for one and a half years, collapsed. A plot was orchestrated when some politicians in the PH government staged a ‘coup’. With the help of opposition parties, they formed a new government, Perikatan Nasional (PN) (National Coalition), with Muhyiddin Yasin as the Prime Minister.

Initially, Muhyiddin and the PN leaders used the Covid19 pandemic as a pretext to stop any kind of ‘politicking’ or protest against this new government and even a one-day parliamentary sitting that they convened ended without allowing any debates.  These ‘coup stagers’ hoped that with the PN in power, they could gain more privileges and scope to plunder government wealth.

Now, this so-called ‘backdoor’ government, which was formed three months ago, on the 2 March, with only two seats more than the Coalition of Hope PH, is facing big uncertainties due to the severe impact of the pandemic on the economy. These are expected to lead to another political rupture, sooner rather than later.

Unemployment increasing

Since 18 March, Malaysia has been under lockdown to control the spread of Covid-19 but from 12 May almost all of its economic activities have been allowed to operate under certain lockdown conditions. Until now, 115 people have died out of almost 8,000 cases, with a 75 per cent full recovery rate. The public health system, on which around 50 per cent of the population still depends, is still reliable, with some reasonable quarantine and treatment facilities to act on the infected cases. However, in the last few weeks, the cases infecting the migrant workers and refugees have been increasing. This is because of their deplorable living conditions – cramped and crowded into single housing units that have poor hygiene.

The employers simply hire migrant workers for very low wages and long working hours for ‘dangerous, dirty and difficult’ work in construction, on the plantations and in the agricultural sector. But they have long been undermining their rights for decent living and working conditions, and this has been happening with the knowledge of the government.

There are almost two million documented migrant workers and another one to two million undocumented migrant workers and refugees living in the country. How far they have been affected by the virus is still unclear. The circumstances are similar to those in Singapore where the migrant workers have been most vulnerable to the virus. This could develop in Malaysia since many migrant workers are still not screened for the virus and the employers are not willing to pay for the screening cost.

If there is the likelihood of a second wave of infection, it could further endanger the economy and affect the livelihood of people more severely. Currently, the economy is heavily dependent on commodities-based industries and low value-added industries, which hire low-skilled and semi-skilled workers earning low wages. The prolonged lockdown is going to affect the economy.

Although to a certain extent the government has been able to contain Covid-19, the impact of the virus on the economy has been overwhelming. The country has been losing RM2.4 billion (USD600 million) income daily because of the lockdown. Since it began, the PN government has unveiled three stimulus packages totalling RM266 billion (USD60 billion) but its effects seem temporary merely to sustain the domestic economy to a certain extent. Some amounts from this stimulus package were channelled to low-income and middle-income people to increase their purchasing power. But the amount is not sufficient to cover their living costs for the coming months when they are going to feel more pressure with increasing unemployment, retrenchment and reduced household incomes.

A recent survey showed that the unemployment rate has been increasing, and economists have predicted that 2.1 million people (16 per cent of the workforce), mostly self-employed, have been out of work, so far. Many workers have been facing a substantial drop in their wages – some even up to a 90 per cent drop, especially in the informal sectors. If each worker has an average of four family members to feed, that means eight million Malaysians could be in a dire condition.

The Malaysian Employers’ Federation (MEF) has also threatened that there could be another two million retrenchments in June following the holiday of Eid al-Fitr. The MTUC (Malaysian Trade Union Congress), which has around 800,000 members and various unions under its coalition, did not counter the retrenchment threats of the MEF by campaigning and mobilising its members to pressure the government and employers to save the jobs and wages of workers.

Impact on the economy

 The tourism industry, which of late has relied on tourists from China, has been one of the key economic activities of the country. The lockdown has therefore badly affected the service industries, such as hotels and aviation. Some prominent hotels in cities are now closing down, and many workers in the hotel industry are being retrenched. The pandemic has also brought the property market to a halt, with a 10 to 15 per cent drop in prices in April this year. The pandemic has badly affected other major industries such as oil, gas and manufacturing and commodities such as palm oil and rubber.

Chinese investments in Malaysia have been increasing since the announcement of the Belt and Road Initiative (BRI), in late 2013. In the last ten years, China has been the largest trading partner, surpassing the US. The controversial BRI projects became the basis of hostile anti-China rhetoric on the campaign trail for the 14th General Elections in 2018, in which the PH defeated the BN (National Front) after it had been 60 years in power.

Last year, the PH government under Mahathir revived some major projects with China that had been suspended for financial irregularities when they came to power in 2018. One of the projects was an East Coast Rail Link (ECRL), in which a Chinese company expected to finance 85 per cent of a RM 44 billion (USD 10.7 billion) project that was intended to bolster economic development in the rural eastern states. That showed Malaysia is still dependent on major economies like China for trade and investment.

However, total trade with China in the first quarter of 2020 was down by 2.1 per cent, showing the impact of a slowing down of the Chinese economy. Similarly, trade with the US, Europe, and the Middle-East is expected to slow down with the prolonged effect of the pandemic on the global economy. A small economy like Malaysia, which is export-dependent and very much integrated with the global free-market economy, will not be able to sustain its economy by decoupling from world trade in the current crisis.

In the last few years, Malaysia has been much more dependent on its domestic economy owing to the impact of trade wars between China and the US. The government has been giving subsidies and other financial support to SMEs (Small and Medium Enterprises) to stimulate the domestic economy. These SMEs have been operating as subordinates to the Government-Linked Companies (GLCs) or Multinational Corporations (MNCs) in supporting certain services.  With the global economy and supply chains coming to a halt, the economic activities of GLCs and MNCs are also badly affected. Thus, while the global economy is in lockdown, the dependency on SMEs to generate the domestic economy as the ‘new normal’ is unrealistic.

In addition, the GLCs such as Petronas, PNB and others, which contribute around 40 per cent of GDP and generate income for the government, are also suffering significant drops in profits. Some GLCs, such as MAS (Malaysian Airlines), which appear unprofitable, could be privatised or sold and merged with other companies because of the pressure on the government to further reduce financial support to maintain these companies under state control. With the deeper crisis in the economy due to the pandemic, the remaining public services, such as the Health System, could be threatened with certain privatisations to merely cut the public spending of the government.

Many economists anticipate that GDP growth this year will be minus two per cent or, in the best scenario, it could sustain 0.5 per cent growth – far lower than the four to five per cent of the last few years, since recovering from the global financial crisis of 2008/2009. The Malaysia Department of Statistics has predicted that the country is heading into an economic recession in the next four to six months. The severity of the impending recession depends on how fast the global economy will recover. If the poor economic fundamentals continue, the economic crisis can be as bad as the 1997/98 Asian Financial Crisis or even worse.

Fight for a socialist alternative

The coronavirus pandemic has revealed the weaknesses and deep contradictions in global capitalism based, as it is, on profits and competition. Malaysia is integrated into this profit-oriented system, and with the crisis in the global market, the government has no alternatives to save the livelihood of the people, other than saving the system from collapsing by protecting the wealth of the bosses. The 40 richest people in the country own almost 50 per cent of the wealth, but their wealth is still untouched by the state, while millions of working-class families are suffering under this pandemic.

The PN government is waiting to collapse anytime soon. But the PH or any other coalition coming into power is not going to satisfy the needs and aspirations of the working class, young people, and other oppressed under the profit-oriented system. Only through a working-class government, with the support of the mass of the population, operating in the interest of working people and not the profits of the big companies, an alternative can be built.

Such a government, through implementing a socialist programme, with a democratic plan of production and distribution that meets the needs of the majority in society, would benefit all in society and establish environmental sustainability.  To build a socialist alternative, it is necessary to build a mass workers’ party, with the support of workers, young people, socialists, and activists to provide a fighting political alternative to all pro-capitalist parties.





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June 2020