Malaysia’s Reluctant Razak-Edge Margin
Malaysian shares and the currency which have lagged ASEAN peers climbed on Prime Minister Najib Razak’s National Front narrow re-election victory after opinion surveys showed an even battle with the opposition headed by former finance minister Anwar Ibrahim which actually won the popular vote. The ruling coalition again lost seats and remains far short of the supermajority needed to enact constitutional changes, and was on the defensive throughout the campaign on ending pro-Malay educational and economic preferences and promoting better relations with ethnic Chinese and Indians. First-time young voters also showed disaffection with the status quo although they did not decisively swing toward challengers unable to articulate clear policy alternatives. In the stretch before the balloting several sideshows emerged with longtime leader Mahathir approaching the age of 90 taunting Anwar to jail him if he took power and the government criticized for engaging Goldman Sachs for $6.5 billion in private bond deals which entailed $200 million in fees. The firm has ties dating back decades and claims it exercised “high global standards” meriting selection. Two transactions were on behalf of a sovereign wealth fund emphasizing Islamic finance, where a cross-border insurance push is now prominent to supplement banking and securities activity. Takaful operations were recently granted full license to invest abroad after a previous 80 percent local assets mandate. GDP growth supported by domestic demand should be 5 percent this year as electronic exports flag, but budget plans to curb subsidies could dampen consumption and lift inflation to the 3 percent range. The central bank may be forced to tighten as it otherwise considers personal borrowing limits with credit at almost 120 percent of GDP. The current account surplus in turn may dip to 4 percent of GDP on softer commodity earning as plantations begin to send home immigrant labor facing domestic worker backlash.
Indonesia has entered the 2014 election season with no clear successor to two-term incumbent SBY as he tries to clear the sensitive issue of fuel subsidy adjustment from the agenda in advance. The sovereign ratings outlook was cut on the problem’s competing fiscal and inflation pressures and worsening balance of payments figures with a persistent hydrocarbons deficit and an agricultural import surge which prompted quota imposition especially for garlic and onions. Foreign exchange reserves are below $100 billion as portfolio investors hesitate with steep stock exchange valuations and bond market interventions. Golkar party leader Bakrie has stepped into the presidential race on a platform to instill business confidence, but his family-run conglomerate’s track record remains controversial as anti-corruption investigators have yet to capture major suspected cronies. The elusive results there are increasingly contrasted with the Philippines, where President Aquino’s good governance enforcement has been instrumental in an investment-grade designation by a second agency. S&P cited fiscal and remittance prods along with the disadvantage of low per-capita income which could shave future promotion.
