Malaysian Prime Minister Resigns, Deepening Political Crisis

Malaysia’s prime minister (PM), Muhyiddin Yassin, offered his resignation to the country’s King on August 16, 2021, after less than 18 months in power, making him Malaysia’s shortest-ruling leader. His resignation follows months of political turmoil that resulted in the loss of the premier’s majority in parliament. Muhyiddin Yassin will remain as caretaker premier until a new prime minister is appointed.   

The King, Sultan Abdullah Ahmad Shah, has asked the 222 members of Malaysia’s lower house of parliament to submit their choice of successor on August 18, 2021, with the King able to legally swear the new PM immediately. Muhyiddin Yassin has had a turbulent 17 months and has been under almost constant pressure since coming to power in March 2020, as the head of the new Perikatan Nasional (PN) coalition. His resignation comes months of infighting with the PN against the backdrop of public anger at the continued surge in COVID-19 cases despite months of a nationwide lockdown.

How did the political crisis begin?

Malaysia’s political crisis began in February 2020 and was caused by members of parliament switching party support and thus contributing to the loss of parliamentary majority and the collapse of now two successive coalition governments.

In 2018, Pakatan Harapan (PH), a coalition of four political parties – Parti Keadilan Rakyat (PKR), Parti Pribumi Bersatu Malaysia (BERSATU), Parti Amanah Negara (AMANAH), and Democratic Action Party (DAP) – had won the Malaysian general election, against the then incumbent Barisan Nasional (BN), another political coalition that had held power for 60 years. Mahathir Mohamad, the chairman of BERSATU and the president of PH, was elected as the country’s seventh prime minister, a position he once held between 1981 to 2003. He was also Malaysia’s oldest serving PM at 92.  

During his tenure as PM, Mahathir was a member of the United Malays National Organization (UMNO), a component party of the Barisan Nasional coalition. He left the party in 2016 to form BERSATU to oppose the then PM, Najib Razak, who was embroiled in the 1MDB scandal. Mahathir had joined forces with Anwar Ibrahim, the leader of the PKR and who was also Anwar’s deputy prime minister from 1993 to 1998 before he was dismissed and imprisoned from 1998 until 2004. Further, Mahathir had promised Anwar would succeed him as PM within two years.

The Sheraton move

On February 21, 2020, the presidential council of PH held a meeting to discuss the transfer of power from Mahathir Mohamad to Anwar Ibrahim. However, on February 23, 2020, several other political parties also held extraordinary meetings.

The PKR (a member of PH) and its deputy president Azmin Ali, who was also the Minister of Economic Affairs, held a meeting with party members at the Sheraton Hotel. That evening, Azmin Ali and his faction went to the Royal Palace to seek an audience with the King. Also in attendance were the leaders of several parties; UMNO’s Ahmad Zahid Hamidi, Bersatu’s Muhyiddin Yassin, Parti Islam Se-Malaysia’s (PAS) Hadi Awang, Gabungan Parti Sarawak’s (GPS) Abang Johari Openg, and Parti Warisan Sabah (Warisan)’s Shafie Apdal.

It was speculated that the meeting was to declare to the King the formation of a new coalition government and declare support for a new prime minister and effectively blocking Anwar Ibrahim from becoming PM.

On the next day, February 24, 2020, Muhyiddin Yassin announced the withdrawal of the BERSATU from the Pakatan Harapan coalition. In protest of the move, Mahathir Mohamad resigned as PM as was also appointed as interim PM until a new one was chosen. Moreover, Anwar Ibrahim as PKR chairman announced he had dismissed Azmin Ali for his actions on February 23, 2020. Azmin Ali and his PKR faction of 11 MPs officially withdrew from the PH coalition and join BERSATU.               

The withdrawal of BERSATU and Azmin Ali’s faction led to PH losing its majority in parliament, which meant that the King had to interview all 221 MPs to weigh their support for prime minister candidates. The interview sessions were held on February 25 and 26, 2020.

On February 29, 2020, BERSATU president Muhyiddin Yassin and his allies including party leaders from UMNO, PAS, GPS, Parti Bersatu Rakyat Sabah (PBRS), and the Homeland Solidarity Party (STAR) had an audience with the King to discuss the formation of a new government and to announce the new coalition will be called Perikatan Nasional. On March 1, 2020, Muhyiddin Yassin was sworn in as the eighth prime minister.

Incompetency in handling COVID-19

After taking office, Muhyiddin imposed a strict lockdown and in July 2020, the country announced zero cases. However, state elections in the State of Sabah led to a surge in cases and new restrictions were imposed in October 2020. The rules were again relaxed for the new year and in January cases surged again. The PM secured backing for a state emergency to battle the pandemic which also suspended parliament.

Problems with policy incompetency and incoherency have characterized the PN government since the spike in cases. At center stage lies the two main nationalist parties UMNO and BERSATU in the PN coalition, as they compete for support in Malay-majority constituencies. If fresh elections are called, UMNO feels it will have a fair chance of sweeping the Malay-majority seats and stake a claim for the seat of PM.

Further, even with spending incurred through the issuance of several economic packages, Malaysia’s debt-to-GDP ratio is still below the 60 percent set by parliament in 2020.

Muhyiddin has tried to offer major concessions to the opposition, including a promise to implement political and electoral reforms, in addition to holding fresh polls in 2022. The embattled PM also offered a 380 percent increase in federal allocations from 100,000 ringgit (US$23,598) to 3.8 million ringgit (US$896,755) to opposition lawmakers and the title of Senior Minister to Anwar Ibrahim.

Who will replace Muhyiddin?

Political observers believe that the current deputy prime minister and UMNO vice president Ismail Sabri Yakoob is favored to take over. A three-decade veteran of Malaysian politics, Ismail Sabri was only appointed as deputy prime minister in July 2021 in a bid to smooth tensions between UMNO and Muhyiddin.

Anwar Ibrahim, also described as the ‘eternal prime minister in waiting’, has also an outside shot of becoming PM. He needs the backing of 23 more lawmakers to obtain a majority in parliament, particularly those from smaller opposition groups. Among other people, he needs support from his on-off rival Mahathir Mohamed, who at 96, is the leader of his new party Pejuang which has four MPs.

What does this mean for foreign investors?

The exit of the PM is unlikely to end the health and economic crisis in Malaysia, once considered the bastion of stability in the region. Hours before the PM was to announce his resignation, the central bank slashed growth forecasts with GDP expanding by three to four percent this year, from the previous estimate of 7.5 percent. Foreign ownership of Malaysian equities also dropped to an all-time low of 20 percent of total capitalization last month and the currency fell to a one-year low.

Investors’ perception matters in Malaysia since 40 percent of its sovereign debt is held by foreigners. Foreign money has continued to flow out of the country as political instability and the mishandling of the virus has delayed economic planning and stalled tax reforms.

Export demand should provide a source of strength in the near term, and with 80 percent of its adult population likely to be vaccinated by December 2021, Malaysia could reduce lockdown measures and enable more targeted restrictions.

Easing COVID measures can allow the new government to focus on regulatory reforms, especially for emerging sectors, such as the digital economy. Businesses will need to devote resources to mitigating risks and will need to actively monitor any indications of upcoming regulatory changes.

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