Political intrigue leads to capital outflow

Political leaders indulging in the game of thrones undermine economic stability.

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Published by Malaysiakini & Malay Mail, images from Malaysiakini.

Political intrigue can result in foreign net selling, meaning capital flows out from the country which can be inimical for the economy as a whole – with possible knock-on effects on the other variables such as employment levels, currency value, exchange rate and bond yields.

When the political leadership – which includes both leadership in the ruling and opposition coalitions – is distracted by the game of thrones and power play, this undermines economic stability.

A clear example of political intrigue is when a politician makes an unexpected statement about having the majority number to form a government without due respect to the legal process as enshrined in the Federal Constitution, or creates a political drama leading to the dissolution of Parliament with its concomitant snap election being called.

When these political machinations occurred amid a backdrop of a surge in the Covid-19 daily infection figures, this will cause the economic situation to degenerate even worse. As a result, the relationship between political intrigue and capital outflow is part of a country’s political economy.

According to an article from the Harvard University’s DASH repository, it demonstrates the importance of political economy in explaining how political development affects financial development and financial volatility.

Based on a survey by the Merdeka Centre on 1,167 respondents aged 21 and above, 32.7% thinks there is political instability in our country, while a measly 1.2% thinks there is political stability in general. Thus, it can be seen that our country’s politics is not stable.

The “Sheraton Move” which occurred on Sunday, Feb 23, for instance, had triggered panic selling on Bursa Malaysia the following day, resulting in RM43.4 billion in market capitalisation being wiped out from the local bourse just in one day.

All the indices of Bursa Malaysia were in negative territory when the bourse closed on that fateful day, with Bursa Malaysia Construction Index hit worst – falling from 12.6 points to 194.81 or by 6.07%.

The benchmark FBM KLCI index fell below 1,500 points, skidding to an intraday low of 1,486.71 points, its lowest level since December 2011, closing at 1,490.06 – down by 2.69% or 41.14 points.

Let’s now see the dynamics of the stock exchange on Sep 23 when opposition leader Anwar Ibrahim claimed that he had a formidable and strong majority to form a new government – another political intrigue in our country.

Minutes after Anwar’s announcement, amid an already weak market sentiment, the FBM KLCI fell by 0.9% to 1,494.18, as of 12.22pm. Like a domino effect, it later fell by 17.24 points to 1,491.74 at 2.32pm.

But a few hours later, Prime Minister Tan Sri Muhyiddin Yassin gave the stock market some boost by announcing a new RM10 billion stimulus package. As a result, FBM KLCI ended down by 9.30 points, or 0.62%, at 1,496.48, down from the previous day’s close of 1505.78.

In short, the FBM KLCI opened on the day of Anwar’s announcement with a slight increase of 1.51 points at 1,507.29, but fluctuated between 1,491.17 and 1,509.15 throughout the day after his announcement before ending at 1,496.48. RM12.01 billion was wiped out from the bourse. The biggest losers on the FTSE Bursa Malaysia Kl index included a 1.9% drop by Axiata Group and a 1.78% drop by Petronas Chemicals Group.

The Sheraton Move and Anwar’s bombshell show political intrigues will lead to financial volatility via fluctuation in the stock and bond market which, more often than not, leads to net capital outflow.

With the current spike in the number of Covid-19 infections, political intrigue will definitely lead to capital outflow, which in turn will result in slower economic growth, reduced employment rate, uncertainty in the bond market and a weaker currency.

According to some equity strategists and fund managers, political uncertainty has intensified since the split in Pakatan Harapan, with the Covid-19 pandemic casting a shadow over the outlook for global economic growth, further dampening already weak market sentiment.

On Sep 30, international financial rating agency, Fitch Solutions, predicts politics in Malaysia is expected to blunt economic growth for the next decade. Combined with slower population growth and reduced fiscal space to cushion against negative future economic shocks, Fitch predicts real GDP growth to be at just 3.4% over the next 10 years compared to 6.4% over the past decade.

Therefore, it is clear that there is a direct relationship between political intrigue and capital outflow, which will lead to financial volatility and a negative impact on the economy in terms of people’s livelihoods and investors’ confidence.

A frequent change of government within a short period of time means government policies will be in flux, with companies, especially foreign investors such as multinational corporations, unable to plan and make reasonable forecasts on their project, leading to their wait-and-see stance when it comes to their investment commitments in Malaysia.

Henceforth, we should resolve political uncertainty through a scheduled general election rather than political wrangling. By doing so, there is economic stability which will impact on the good performance of our country’s economy.

In light of the unprecedented situation in our country, there shouldn’t be any political intrigue or drama that either culminates in a power grab or a snap call election being called until Malaysia is declared Covid-19 free and the economy is on a firm footing or the 15th general election is called as scheduled in 2023, whichever comes first.

Jamari Mohtar and Tam Mei Si are part of the research team at EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.

Bahasa Melayu

Diterbitkan oleh Berita Harian.

Drama dan komplot politik boleh membawa ekonomi negara ke arah penjualan bersih asing. Puncanya, aliran modal keluar negara yang boleh membahayakan ekonomi secara keseluruhan kerana kesan buruknya terhadap kadar pengangguran, pertukaran asing dan hasil bon serta nilai mata wang.

Apabila perhatian kepemimpinan politik – dalam gabungan pemerintah atau pembangkang – terganggu oleh permainan takhta dan perebutan kuasa, ini mengundang impak kepada kestabilan ekonomi.

Satu contoh jelas adalah apabila seorang ahli politik membuat pernyataan mengejut mempunyai majoriti kukuh untuk membentuk kerajaan baharu dengan mengabaikan proses perundangan termaktub dalam Perlembagaan Persekutuan atau membuat drama politik yang membawa kepada pembubaran Parlimen dengan pilihan raya mengejut diadakan.

Apabila ini berlaku dalam keadaan peningkatan mendadak kes jangkitan seharian COVID-19, ia memburukkan lagi keadaan ekonomi negara.

Hubungan antara kemelut politik dan aliran keluar modal adalah sebahagian ekonomi politik sesebuah negara.

Sebuah artikel daripada repositori Digital Access to Scholarship at Harvard (DASH) menunjukkan betapa pentingnya ekonomi politik dalam menjelaskan bagaimana perkembangannya boleh mempengaruhi pembangunan dan sistem kewangan menjadi mudah ruap.

Berdasarkan kaji selidik Merdeka Centre membabitkan 1,167 responden berusia 21 tahun dan ke atas, 32.7 peratus berpendapat ada ketidakstabilan politik di negara kita, manakala sejumlah kecil 1.2 peratus berpendapat terdapat kestabilan politik secara umum. Ini menunjukkan politik negara kita tidak stabil.

Langkah Sheraton yang berlaku pada 23 Februari umpamanya, mencetuskan penjualan panik di Bursa Malaysia pada hari berikutnya. Ia mengakibatkan modal pasaran RM43.4 bilion terhakis daripada Bursa Malaysia hanya dalam satu hari.

Semua indeks di Bursa Malaysia juga jatuh pada keesokan harinya, di mana Indeks Pembinaan antara paling teruk terjejas, dengan kemerosotan 12.6 mata kepada 194.81 atau sebanyak 6.07 peratus.

Indeks penanda aras FBM KLCI menjunam bawah tahap 1,500 mata, merosot ke paras terendah sejak Disember 2011 pada 1,486.71 mata, dan tutup pada paras 1,490.06 – merosot 2.69 peratus atau 41.14 mata.

Mari kita lihat dinamik pasaran saham pada 23 September apabila ketua pembangkang, Datuk Seri Anwar Ibrahim, mendakwa beliau mempunyai majoriti kukuh dan meyakinkan untuk membentuk kerajaan.

Beberapa minit selepas pengumuman Anwar, dalam suasana sentimen pasaran yang sudah begitu lemah, FBM KLCI turun 0.9 peratus kepada 1,494.18 mata pada jam 12.22 tengah hari. Seperti kesan domino, ia jatuh 17.24 mata kepada 1,491.74 mata pada jam 2.32 petang.

Namun, beberapa jam kemudian, Perdana Menteri, Tan Sri Muhyiddin Yassin, memberi dorongan kepada pasaran saham semasa apabila mengumumkan pakej rangsangan baharu ekonomi bernilai RM10 bilion.

Akhirnya, FBM KLCI ditutup lebih rendah kepada 1,496.48 mata – merosot 9.30 mata atau 0.62 peratus berbanding 1,505.78 mata pada hari sebelumnya.

Pendek kata, pada hari itu indeks dibuka dengan kenaikan sedikit 1.51 mata pada 1,507.29 dan kemudian turun naik antara 1,491.17 mata dengan 1,509.15 mata selepas pengumuman Anwar, sebelum ditutup pada 1,496.48 mata.

Bursa Malaysia kerugian RM12.01 bilion pada hari itu. Antara saham rugi besar adalah Axiata Group (merosot 1.9 peratus) dan Petronas Chemicals Group (merosot 1.78 peratus).

Langkah Sheraton dan pengumuman Anwar menunjukkan kemelut politik membawa kepada sistem kewangan mudah ruap melalui turun naik dalam pasaran saham dan bon, seterusnya mengakibatkan aliran modal keluar dari negara.

Dengan peningkatan mendadak kes jangkitan COVID-19 pada masa ini, kemelut politik pasti akan menyebabkan aliran keluar modal, yang kemudiannya menghasilkan pertumbuhan ekonomi lebih perlahan, penurunan kadar pekerjaan, ketidaktentuan dalam pasaran bon dan susut nilai mata wang.

Menurut beberapa pakar strategi ekuiti dan pengurus dana, ketidaktentuan politik semakin meningkat sejak perpecahan dalam Pakatan Harapan (PH), dengan pandemik COVID-19 pula mempunyai impak negatif kepada pertumbuhan ekonomi sejagat, yang merudumkan lagi sentimen pasaran yang sudah lemah.

Pada 30 September, agensi penarafan antarabangsa, Fitch Solutions, meramalkan politik di Malaysia dijangka menyebabkan kemerosotan pertumbuhan ekonomi untuk dekad berikutnya.

Bersama pertumbuhan jumlah penduduk yang lebih perlahan dan ruang fiskal yang sempit untuk menangani kejutan ekonomi masa depan yang negatif, Fitch meramalkan pertumbuhan Keluaran Dalam Negara Kasar (KDNK) sebenar hanya pada 3.4 peratus dalam tempoh 10 tahun mendatang berbanding 6.4 peratus dalam sedekad lalu.

Lantaran itu, jelaslah terdapat hubungan langsung antara kemelut politik dengan aliran keluar modal, yang akan menyebabkan ketidaktentuan kewangan dan kesan negatif terhadap ekonomi dari segi kehidupan rakyat dan keyakinan pelabur.

Perubahan kerajaan dengan kerap dalam masa singkat bermakna dasar kerajaan akan sentiasa berubah, lantas syarikat terutamanya pelabur asing seperti syarikat berbilang negara (MNC) tidak dapat merancang dan membuat ramalan munasabah ke atas projek mereka, yang membawa kepada sikap tunggu dan lihat ketika melabur di Malaysia.

Justeru, kita harus menyelesaikan ketidaktentuan politik melalui pilihan raya umum (PRU) yang dijadualkan dan bukannya melalui pertikaian politik. Dengan demikian, kita dapat menjadi sebuah ekonomi maju yang stabil.

Memandangkan keadaan tidak pernah berlaku sebelum ini di negara kita, seharusnya muslihat atau drama politik yang akhirnya membawa kepada perebutan kuasa atau pilihan raya segera diadakan, dielakkan sehinggalah Malaysia diisytiharkan bebas daripada COVID-19 dan ekonomi berada pada landasan kukuh atau PRU-15 diadakan mengikut jadual pada 2023.

Jamari Mohtar dan Tam Mei Si merupakan penyelidik di EMIR Research sebuah organisasi pemikir bebas yang berfokuskan kepada pencernaan saranan-saranan dasar strategik berteraskan penyelidikan yang terperinci, konsisten dan menyeluruh.

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