The recent free trade agreement between New Zealand and Malaysia was widely hailed as a positive development for both countries. Asia:NZ contributor Vaughan Yarwood assesses the current economic and political landscape of New Zealand's eighth-largest market. 

Please note that the views expressed by the author of this feature do not necessarily reflect the views of Asia:NZ.

Prime Minister John Key described the free trade agreement with Malaysia, signed in October, as ‘a significant step forward’ in relations with that country and ‘further evidence of our economic integration with Asia’.

Malaysia is New Zealand’s eighth-largest market, taking almost $1 billion of exports in 2008, so satisfaction over the FTA is understandable — especially given the favourable terms agreed for such diverse enterprises as education providers and kiwifruit exporters.

For Malaysia, the deal comes at a good time. Often held up as a model developing economy, its dependence on manufacturing left it more vulnerable than many in the region to the global recession. Shortly after the Asian Development Bank forecast Malaysia’s economy to grow at 5.3 per cent in 2009, the government cut its own projection from 3.5 per cent to, at best, 1 percent. In March 2009 Malaysia announced a NZ$22 billion stimulus plan to arrest its economic slide. The package, which is equivalent to 9 percent of the country’s economic output, included infrastructure projects such as a high speed broadband network and other measures aimed at creating more than 160,000 new jobs.

‘We cannot depend on orthodox economy recovery measures’, said Prime Minister Najib Razak, who described such spending as the only way to avoid the prospect of a deep recession.

But an underperforming economy is not the only difficulty besetting Malaysia. The country’s political equilibrium is, if anything, even more fraught. In last year’s general elections the ruling Barisan Nasional (BN), which has comfortably ruled Malaysia for half a century, found itself rejected by non-Malay voters. Although retaining control at the federal level, the BN — a coalition of 14 largely racially-based parties dominated by the United Malays National Organisation (UMNO) —lost an unprecedented five state governments on the Peninsula along with the two-thirds majority in parliament needed to change the constitution. The opposition Pakatan Rakyat (People’s Coalition) headed by Anwar Ibrahim took 82 of the 222 parliamentary seats.

Since then, the Pakatan Rakyat has won five out of six by-elections, thanks in part to the rising popularity of the internet which has eroded the power of the traditional UMNO-controlled media by becoming a conduit for dissenting views.

The poll results come as ethnic Chinese and Indian populations express frustration at the lack of progress in achieving a measure of equality in a country whose political, social and economic system is built on racial lines.

The majority Malay Muslims have special rights due to their bhumiputras, or ‘sons of the soil’, legal status, leaving the largely Hindu Indians (approximately 10 per cent of Malaysia’s population) and the Chinese (26 per cent), both of whom are disproportionately active in business, without access to benefits such as government jobs and subsidised housing that Malays enjoy.

The government considers all ethnic Malays to be Muslims and for 20 years it has energetically built up a network of Islamic institutions, ostensibly to ward off demands for a more extreme form of Islamic governance. Gradually, despite a professed commitment to pluralism, Islam and the government in Malaysia have essentially merged, says commentator Maznah Mohamad. Writing in the Guardian newspaper, Mohamad said ‘over time… the effort to outdo its critics led the UMNO to over-Islamicise the state’.

She noted that Malaysia’s Sharia court system is one of the most extensive in the Muslim world, and that the number of the country’s Islamic laws has quadrupled in little more than a decade.

Several recent incidents have underlined the country’s mounting religious tension. A protest by Muslims against the building of a Hindu temple in their neighbourhood, in which the severed head of a cow — an animal sacred to Hindus — was paraded, drew support from the Minister for Home Affairs, Datuk Seri Hishammuddin.

Malaysia’s Catholics in the Borneo states of Sabah and Sarawak also found themselves under attack for their use of the word ‘Allah’ to describe the Christian God — something ethnic groups such as Bidayuh, Dayaks and Ibans claim to have done for centuries.

‘We have to question Christians’ motives for wanting to use this obviously Muslim word. It appears to be for conversions’, Muslim Youth Movement President Yusri Mohamad was quoted as saying.

Some Muslim scholars, however, contend that the risk of conversions among the 60 per cent Muslim majority is negligible and that the issue is being exacerbated by a government intent on gaining voter support by identifying ethnicity with religion.

It is illegal in Malaysia to convert from Islam to another religion; although the reverse process is permitted.

Osman Bakar, deputy head of the International Institute of Advanced Islamic Studies (IAIS) Malaysia, called the spectre of conversion ‘an irrational fear but a very powerful one’, and accused the government of ‘setting up demarcations around the national language’.

It was to end the increasing polarisation of Malaysian society, as well as to counter the perceived arrogance and corruption of the UMNO, that the former Prime Minister, Abdullah Ahmad Badawi was persuaded to resign in April 2009 in favour of Najib Razak.

On taking office Najib, a British-trained economist who styled himself a radical reformer and promoter of transparent government, pledged to close the gaping ethnic and religious divide.

‘Economic progress and better education have directly resulted in the birth of a class of voters who are better informed, very demanding and highly critical’, he told party faithful. ‘If we do not heed this message, their seething anger will become hatred and in the end this may cause them to abandon us altogether’.

However, a promise to review a Draconian internal security law that allows imprisonment without trial appears to have come to nothing and the media continue to be tightly controlled, prompting former minister Zaid Ibrahim to quip: ‘You are in Burma here, but with a more sophisticated economy’.

For its part, UNMO is caught between Islamic fundamentalists agitating for a greater ‘Talibanisation’ of the state and international critics pushing for economic reform. The party’s dilemma is that it needs the support of both radical Muslim Malays and foreign investors to retain power.

Much therefore depends on Najib.

‘The government will not act like a single integrated unit unless Najib acts the strongman, not against society, but against the system that he is the leader of’, Ooi Kee Bend, a Singapore Institute of Southeast Asian Studies fellow told Reuters.

‘That is what a reformer does. He cleans house’.

- by Vaughan Yarwood

Read more:

• Read in our business section a report on the announcement of the deal and a recent article on Kiwi high-tech companies finding niche markets in Malaysia
• Details of the agreement can be found on MFAT's website.

Image sourced in Wikimedia Commons