How long can Malaysia's good economy trump its bad politics?

How long can Malaysia's good economy trump its bad politics?

MALAYSIA'S economic strength is good. Well, not quite; it's strength- o-meter is, in fact, "very high", thanks to abundant natural resources, and an open and diversified economy.

That's how Moody's Investors Service described the crude-reliant economy just two weeks ago in a report.

Embattled Prime Minister Najib Razak's strongest ally is the economy, which for now is robust; a 4-4.5 per cent forecast GDP growth for this year is not shabby. But it would hurt his regime if the macro backdrop turns sour.

That could happen if the current climate of scandal-fuelled political instability persists and unsettles local and foreign investors even more.

Very little else, more than a sagging economy, can wreck Mr Najib's political career that he has fought so hard to guard. Admittedly, Malaysia's opposition stalwart Lim Kit Siang blogged on Thursday that Mr Najib was "getting stronger and stronger with scandal after scandal".

It may seem incredulous, but Mr Lim may be right. Mr Najib has tightened his grip on the leadership amid a scandal involving funds transferred into his personal accounts and state-backed 1Malaysia Development Berhad (1MDB).

He has survived street protests of hundreds of thousands of disenchanted Malaysians calling for him to resign and the incessant drubbing from detractors and a huge reputational fallout.

And if one were to agree with Moody's assessment that Malaysia's macro profile is strong despite the "multiple external and domestic challenges" - sliding commodity prices, risk aversion due to China's slowing economy, US rate hike, and governance-related domestic issues - then Mr Najib's leadership is on steady ground.

But if oil prices sink further or if the weaknesses at home persist, currency experts do not rule out the possibility of the battered ringgit skidding to the 5.00 per US dollar mark - not a far- fetched possibility these days compared to a year ago.

James Chin, professor and director of the Asia Institute, University of Tasmania, predicts a "palace coup against Najib" if the currency hits that level.

"Not only would the Umno warlords politically knife Najib, Malaysian business tycoons - always an influential bloc - would join in," he said in a commentary that appeared in a blog published by a Sydney-based think-tank.

A resilient economy will ensure Mr Najib's political longevity, at least until 2018 when the country goes to the polls. But bear in mind: bad politics could ruin a good economy.

This article was first published on February 5, 2016.
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