May 14, 2018

On May 9, Malaysia held its 14th general election. Many observers had predicted a tight race between the opposition and the ruling Barisan Nasional (BN) coalition, but few forecasts that opposition alliance Pakatan Harapan (PH) would win the election, earning a majority of the 222 parliamentary seats. The victory is the first for the opposition and the first time the BN has lost power in Malaysia since the country’s independence in 1957. While the PH’s victory may create policy uncertainties in the short term, political stability is likely to prevail.

Election Results

The Pakatan Harapan (PH) – composed of the Democratic Action Party, People's Justice Party, National Trust Party, and Malaysian United Indigenous Party – won 113 parliamentary seats, while its ally in eastern Sabah State, Parti Warisan Sabah (Warisan), won eight seats. Parti Islam SeMalaysia (PAS), which contested the poll independently of PH, garnered 18 seats, while the BN won 79 seats. Geographically, PAS won in Terengganu and retained control over Kelantan. The opposition captured the states of Negri Sembilan, Malacca, and Johor from the BN, and kept control of Selangor and Penang. No party won a simple majority in Kedah, Perak, and Sabah. The PH made the most progress on the west coast of the Malaysian Peninsula, likely due to the region’s majority urban voters, who were more inclined toward the opposition. However, the crossover of those who were not traditional opposition supporters also contributed to the coalition’s success.

The PH's victory suggests that discontent toward the BN’s rule was widely underestimated. Allegations of abuse of power and corruption had plagued the coalition, especially the United Malay National Organisation (UMNO) – the largest party in BN – in recent years. The corruption scandal involving former Prime Minister Najib Razak and state fund 1 Malaysia Development Berhad (1MDB), which became public in 2015, sparked protests and calls among Malaysians for him to step down. More importantly, however, the scandal also resulted in several senior UMNO leaders leaving the party and eventually joining the opposition. Notably, former Prime Minister Mahathir Mohamed’s switch to the opposition was a game changer, and likely helped draw ethnic Malay voters to the PH.  

Political Stability Likely to Prevail despite Policy Changes

Despite a change in ruling party for the first time in over 60 years, a period of calm and stability is likely to prevail in Malaysia in the short term. The tension and euphoria from the election results have mostly settled following Mahathir’s official swearing-in as the new prime minister late May 10. Additionally, Najib announced that the BN had accepted the election results, helping to assuage fears that the BN would try to convince some parties to defect so that it could form a government. Lastly, the Royal Malaysia Police chief stated the police would ensure a smooth transition of power.

Among the first objectives Mahathir highlighted after he was sworn in was to seek a royal pardon for Anwar Ibrahim, founder of the People’s Justice Party (PKR). Mahathir’s statement assured opposition supporters of the eventual return of their de facto leader to politics. Local reports claim that the Yang di-Pertuan Agong – the monarch and head of state of Malaysia – is ready to provide the royal pardon. Anwar's pardon is part of the opposition’s plan eventually to make him the country’s prime minister. However, the PKR leader will not be able to immediately assume the role, as he needs to contest an election to become a member of Parliament first. 

Opposition leaders have also reiterated that they will work on the 10 priorities they promised during the campaign for their first 100 days in office. These priorities include abolishing the Goods and Services Tax (GST) and restoring the Sales and Service Tax (SST), providing targeted fuel subsidies, and standardizing and increasing the minimum wage, among other aims. While some of the promises are feasible to implement over the short term, questions remain regarding how the government will address the repercussions, for example, of abolishing the GST, which generates billions in revenue for the country. The opposition has also promised to investigate scandal-plagued institutions, including 1MDB and the Federal Land Development Authority (FELDA). This action will likely lead to significant shake-ups in the affected institutions, but will create greater stability and improve transparency in the long run.

Beyond the domestic agenda, Mahathir is cognizant of the importance of highlighting the government’s next steps and priorities to provide greater certainty and assurance to investors and foreign businesses operating in the country. The newly elected prime minister said his government will focus on Malaysia's finances and economic management and will build the country's economy with the help of domestic and foreign investors. Mahathir also reiterated that the new government would uphold the Constitution and the rule of law – assurances that could boost the confidence of foreign investors. The future of large-scale, Chinese-financed projects is less certain, as the new government claims it wants to review their terms. However, any decisions to alter the direction of infrastructure development in the country will likely happen in the mid- to long-term, as they require extensive review.

Despite the uncertainties and initial tension from the BN's loss in the election, the PH has, in the days after May 9, sought to highlight the new government’s priorities to install confidence in the administration. The assurance from BN leaders and the police of a smooth transition also serves to calm fears that those unhappy with the election results might hold disruptive protests or stir unrest. The Malaysian populace and investors can, therefore, expect the new government to work on fulfilling its 100-day promises. However, there is also a high expectation for change among Malaysians, and if they perceive that the new government is failing to fulfill its promises or Mahathir delays the handover of power to Anwar, these developments could prompt voters’ discontentment and give an impression of disunity within the ruling coalition. If those prospects occur, the BN will very likely use it to further stoke discontentment by highlighting the administration’s purported incompetence and internal disunity, and possibly instigating anti-government protests.