June 4, 2014
Dissonance in Malaysia-Japan Relations
Bamboo Diplomacy–Look East Again?
Malaysia’s Prime Minister Najib Razak recently met with Japanese Premier Shinzo Abe in Tokyo in conjunction with the annual symposium organised by the Nikkei, one of Japan’s leading newspaper. The summit meeting covered various topics including Japanese security policy, coastal protection, the missing MH370, the South China Sea (SCS) dispute, and Malaysia’s goal to be a high-income nation by 2020. Enhancing the cooperation for a ‘Second Wave of Look East Policy’ (LEP) was also agreed as a framework to deepen bilateral relations. The meeting nevertheless appeared lacklustre with the two Premiers appearing in the same press conference but talking about totally different agendas: Japan underscoring the importance of security while Malaysia stressed on the economic cooperation.
Wither “Second Wave of LEP”?
Malaysia-Japan relations have always been depicted as special by academics and diplomats who frequently refer to the LEP as a symbol of cultural, economic and ethical ties. When talking about the LEP, it is important to remember that this policy was the product of a congruence of strategic thought among the key players in the two countries more than three decades ago. In 1982, the LEP was launched by Mahathir Mohamad in response to a proposal by the Japan Malaysia Economic Association and Malaysia Japan Economic Association. The LEP would mean many things: the emulation of the Japanese model; a way to attract Japanese capital; to put Malaysia on the track to heavy industrialisation; but would also uplift the economic status of Bumiputeras.
Japan in the 1980s, on the other hand, was in the process of expanding its identity from just a member of the West to that of the growing Asia Pacific region as developed countries faced economic stagnation after the second Oil Shock, and as Japan confronted a protracted trade conflict with the US. Thus, the LEP was formulated between a developed country looking for new investment opportunity to decrease its trade surplus with the US and reduce production cost on one hand, and a developing country trying to court much-needed foreign investment. Bolstered by an appreciated Yen – following the Plaza Accord – the LEP eased the inflow of Japanese capital, with the amount of direct investment from Japan to Malaysia increasing by more than seven times for the next decade.
Three decades later, Najib calls for upgrading the LEP. The intent was clearly stated when he asserted that the LEP can address new priority industries such as energy-saving and green technology, healthcare and education— key areas of development included in Najib’s Economic Transformation Program (ETP). However, it is unclear if the ‘Second Wave of LEP’ gives a new thrust to the bilateral relations. In the 1980s to 1990s, “Look East Policy”, “Mahathir” and/or “developmental state” were catch-phrases attached to Malaysia among the Japanese business class and policy-makers. Today, neither “Second Wave of LEP” nor “Najib” are buzz words among the same circle in Tokyo. Rather, it is “middle-income trap”, “weak government” or “dragging its feet in the negotiation of the Trans-Pacific Partnership Agreement (TPP)” that the Japanese audience is talking about.
Dominant party systems in decay: experience of LDP and BN
The notion of a “weak Malaysian government” is depicted by the declining power of the Barisan Nasional (BN). For some Japanese commentators, the developments surrounding the 13th Malaysian General Election was reminiscent of Japan in the late 1980s to early 1990s when Japan’s own dominant party, the Liberal Democratic Party (LDP), saw its control over government diminishing and eventually lost.
At that time, financial deficit had become normalcy and government debt kept on soaring as LDP expanded expenditure for public works and social spending for the elderly to consolidate its support. One of the decisive moments of LDP losing its dominance was the introduction of 3% of Consumption Tax in 1989 as a means to broaden revenue base, after years of hesitation in fear of losing voters. Indeed, this decision – to introduce the consumption tax – was derided by voters who were already angered by the LDP-led government’s profligate public spending. Another and bigger cause of LDP’s decay was the corruption scandals involving top party leaders including then Prime Minister Noboru Takeshita. These scandals revealed the pervasiveness of money politics within the party and the government. The recurring scandals prompted voters, especially those who resided in urban areas, to discard the LDP. Not surprisingly, the party lost the majority of the Upper House in 1989. In 1993 the LDP lost power for the first time since 1955 to a coalition of small parties that consisted of former LDP members and socialists in the Lower House elections of that year. The “1955 system” ended.
Like the LDP dominated Japanese government, the dominant party government in Malaysia has behaved in the similar way for decades, and especially since the 1997 Asian Financial Crisis. BN has tried to boost or maintain support for the party, especially under the Najib administration, through expansionary fiscal policies. To draw support from the business sector, the government has increased expenditure for infrastructure projects. To gather support from lower income groups, BN has disbursed cash benefits under the 1Malaysia People’s Aid (BR1M). Moreover, an increase in the Goods and Services Tax (GST) was put on hold in the run-up for the last general election.
The similarity between the LDP and BN does not end there. Prolonged control of government by the BN has blurred the boundary between public and private interest, resulting in the series of high profile corruption allegations involving top party leaders. Even the result of GE13 – in which BN managed to secure a simple majority of the Dewan Rakyat (Lower House) through heavily-weighted rural votes – reminded many Japanese of the strategy of the LDP in Japan to maintain its dominance in equally testy times in the past.
Though the BN managed to retain majority control of the Dewan Rakyat despite losing the popular vote against the opposition Pakatan Rakyat, not a few Japanese observers have reflected on whether a change in the federal government in the near future will ensure better or a more effective government. This question is relevant in the Japanese context given the fact that post-1993 governments have been short-lived, unable to push forward their reform agenda, and in the case of the Democratic Party of Japan that was in power from 2009 to 2012, bungled on key concerns that include Japan-US relations and the management of the 3.11 disaster (referring to the triple earthquake, tsunami and Fukushima disaster).
Stalled structural reform
While the effectiveness of the future Malaysian government is yet to be known, what is clearly understood by the Malaysia-attentive Japanese audience is that the BN government is weak and can barely maintain its autonomy given heightened social pressure. This is made evident most clearly in the TPP negotiations.
While the TPP draws controversy in Japan, especially with its impact on the agricultural sector, Malaysia’s demands on the TPP is also often highlighted in the Japanese media. For example, Malaysia is known to oppose the institution of investor-state dispute settlement and intellectual property rights that affects access to generic medicines. But much more highlighted in the Japanese media is Malaysia’s demand to exempt Government-Linked Companies (GLCs) and government procurement from TPP coverage. For those who are familiar with Malaysian domestic affairs, this is understandable.
GLCs play too big a-role in the Malaysian economy, and also as the major investor in Najib’s flagship Economic Transformation Programme (ETP). Further, government procurement is an essential means to distribute resources to GLCs and eventually to Bumiputera SMEs. Given the result of GE13 where Bumiputera votes somewhat enabled BN-UMNO to remain in power, the already limited room for the Government to make concessions to external negotiating parties in these areas has narrowed even further.
Malaysia’s rather defensive posture in the TPP negotiation is seen, especially by the Japanese business sector, as a reflection of the weak power of the government vis-à-vis pressure groups and a stalled reform agenda. For this group, liberalisation under the TPP is one of the primary means to further advance structural reform and increase the competitiveness of Japanese economy. This same group knows that Malaysia remains – now for almost two-decades – caught in a “middle-income trap”. Many also argue that a failed conclusion of TPP, with the creation of ASEAN Economic Community just around the corner, would negatively affect Malaysia’s path to become a high-income nation.
The misgivings of the Japanese business sector is also anchored on the belief that the BN cannot be expected to exercise strong leadership given its increasing dependence on the Bumiputera constituency and the relative increase in the power of UMNO within the governing coalition. They somehow expect that it will take an even bigger electoral jolt, similar to what the LDP experienced in 1993, before the Malaysian government takes a more serious effort in pushing required reforms through. Looking back, it was only after LDP lost its power that Japan embarked on a series of important reforms. For instance, administrative and fiscal reform was pursued since the mid-1990s, and more seriously since 1996 when the LDP came back to power as a major coalitional partner.
Based on the lessons learned, LDP-led governments shifted to a more liberal orientation where the government drastically decreased government spending, rationalised government financial institutions, and embarked upon series of privatisation including Japan Post, Highway Public Corporation and other financial institutions. In light of these Japanese experiences, a number of Japanese naturally expect that a reform that pushes Malaysia out of the trap would come only after change in the federal government.
Japan’s security agenda and Malaysia’s ambiguity
While Japanese business players have not been impressed with scenes from the Malaysian political economy, the current Japanese government puts much value on Malaysia. This is demonstrated by the frequent official visits of Ministers between the two countries. In particular, Prime Minister Abe’s renewed interest in Malaysia, as well as ASEAN, comes with a clear agenda: regional security.
Abe grabbed a landslide victory and brought the LDP back to power again in the 2012 Lower House election touting a “Take Back Japan” that focused on “intrusion into Japanese territory by foreign forces” as one of his main campaign slogan. Since then, Abe has had official visits to ASEAN countries and even hosted the Japan-ASEAN Commemorative Summit in 2013. All this in the hope of cementing Japan’s relationship with Southeast Asian countries in various areas including regional security given China’s growing naval power and its increasing assertiveness over territorial disputes in the East and South China Seas. In the summit meetings with Malaysian counterpart, Abe highlighted the issues such as maritime security and the newly introduced Air Defense Identification Zone declared by Chinese government in November 2013 as common concerns between the two countries.
The Japanese Premier’s effort is also directed toward securing support from ASEAN countries for his long-cherished goal of a “departure from the post-war regime,” enabling Japan to play a bigger role in regional security among others. His security policy self-labelled as “proactive pacifism” includes changing the interpretation of Article 9 of the Japanese Constitution to allow the country to exercise the right to collective self-defense. This agenda has always been included in the summit meetings with ASEAN countries including Malaysia.
However, the timing and context do not seem right. In the mid-1990s, it was Malaysia’s Prime Minister Mahathir that often urged Japan to loosen the legal constraints on the use of force to play a significant role in regional and global security. The Socialist Party dominated coalition government, however, did not positively receive this prodding. Now, as the Abe government pushes for a reinterpretation of Article 9, the conditions that will generate support for such change from countries like Malaysia has changed. China has grown powerful, economically and militarily, and disputes over territories have become more intense with increasing competition over natural resources and nationalistic sentiments among the general public in the conflicting countries. In this new regional context, Malaysia has shown a somewhat reserved reaction to Abe’s agenda.
Although Malaysia has expressed concern over the overlapping territorial claims in the SCS and the absence of an effective regional Code of Conduct, the fact that China is its largest trading partner has led Malaysia to stick to its traditional position: not to regard China as a threat. This explains Najib’s rather indifferent attitude towards Abe’s expressed concern on China’s aggressive actions in disputed territories. In one meeting, Najib was reported to have indicated that the SCS issue should be dealt by ASEAN through a multilateral approach, indicating his weariness to link disputes in SCS and East China Sea.
While the Malaysian government carefully but steadily deepens security cooperation with the US as a hedge against a rising China, it obviously sits on the fence with Abe’s new agenda. Such a posture by Malaysia is often taken as a reflection of the country’s “pro-China” position by some Japanese whose picture of contemporary East Asia is a region where two major countries – Japan and China – are competing for influence in the region.
The dissonance between Abe and Najib in their latest bilateral meeting is explained by the fate and current status of their long dominant parties in the context of changing regional security dynamics. Abe, the leader of Japan’s former dominant party that recently regained control of government due to the ineptness of the opposition, confidently pursued his hawkish agenda. Najib is at the helm of a dominant party whose acts are tied down by the reality that their support base has declined. Najib also has to balance his responses to regional issues as Malaysia – a middle power – is in a delicate position in the rapidly changing big power relations in the region. Thus, a significant ‘Second Wave of LEP’ underpinned by strategic congruence between the two countries will simply have to wait.