William Pesek: Malaysia's "reality show" hurts its economy

It's becoming the highest-rating program in Asia: Malaysia's crime scene investigations.

Just like its wildly popular American counterparts, this crime drama — call it "CSI Malaysia" — features sex, murder, DNA samples, cover-ups and a colorful cast of characters wondering who's guilty of this or that.

At the center of Malaysia's CSI franchise is Anwar Ibrahim, a former deputy prime minister who did time on corruption and sodomy charges. Recently, Anwar was arrested on new sodomy claims. He accuses Deputy Prime Minister Najib Razak — who denies sexual-misconduct allegations related to a 28-year-old Mongolian woman killed two years ago — of manufacturing the charges to discredit him.

The story line is captivating this nation of 26 million people, most of whom are Muslim. It's sparking steamy and decidedly awkward debates about how one defines sodomy and whether it should be a crime. (It is under Malaysian law.)

Surreal subplots abound. Mahathir Mohamad, the man in power when Anwar was jailed a decade ago, has been fighting a very public war of words against his successor, Prime Minister Abdullah Ahmad Badawi, over corruption allegations.

Events in Kuala Lumpur would be far more entertaining if they were confined to a television screen — and not denting the image of one of Asia's most promising economies.

Shifting in their seats

Many Malaysians aren't quite sure what to think. Are the charges against Anwar trumped up to keep him from toppling the government? Is the male aide who claims to have had sex with Anwar telling the truth? If Anwar is innocent — he claims he has never engaged in sodomy — why not submit a DNA sample and clear himself? If you were Anwar, would you trust authorities not to taint the DNA test?

It was impossible to avoid this issue at a Bloomberg panel discussion on July 17, the day after Anwar was arrested (and the day on which he was released). On the panel were bigwigs from the likes of Malaysia Airline System Bhd., Maxis Communications Bhd. and CIMB Investment Bank. You could see them shifting nervously in their seats as the issue of sodomy came up.

If Malaysians don't know what to make of Anwar's plight, you can imagine what foreign investors think. "Summer of Discontent," is how Deutsche Bank AG analyst Teoh Su-Yin titled a recent report on Malaysian stocks.

It is hard to find an analyst who predicts a quick resolution to Malaysia's fragile political backdrop. Nor could I find anyone in Kuala Lumpur who felt markets had fully priced in the negative impact of higher inflation on the economy and corporate earnings.

The world won't wait

What's so frustrating about Malaysia is the obvious potential. Its natural-resource-rich economy has achieved great things in the 50 years since independence from Britain. Twenty-five years ago, this was a tropical backwater. Today, Malaysia's modern, skyscraper-filled capital is home to the world's tallest twin buildings: the Petronas Towers.

Yet the world is moving ahead at a rapid pace, hastened by the rise of China and India. It won't wait for Malaysia, and the current scandals preoccupying the government are coming at the worst possible time. Malaysia should be acting boldly to increase its global competitiveness.

Nations as diverse as China, India, Indonesia, Thailand and Vietnam are working to raise their global influence. Five years from now, any of these economies might harness specific advantages, from low costs to human capital to technology, to challenge Malaysia's growth prospects.

Leadership vacuum

Malaysia should start by fixing a key weakness: a four-decade-old affirmative-action program favoring the predominant Malay community. It limits investment, stifles competition and keeps the economy from becoming a meritocracy. It's a third-rail issue and isn't discussed seriously.

The leadership vacuum in Kuala Lumpur means Malaysia is squandering time its economy doesn't have. Its $151 billion economy is becoming a smaller blip on investors' radar screens, and politics deserve much of the blame.

Abdullah is under pressure to quit after his coalition's worst-ever election result in March. Earlier this month, he announced plans to stay in power for two more years as his chosen successor, Najib, faces sexual-misconduct allegations. What has the makings of a trashy novel has become reality, and it's not clear Malaysia's leaders see that.

Unstable situation

Malaysia, it seems, is being run for the sole benefit of those in charge. The nation has become more about Abdullah's party, the United Malays National Organization, than the welfare of its people. That's not being lost on overseas observers.

"Investors are already considering the situation as unstable," says Tricia Yeoh, director of the Centre for Public Policy Studies in Kuala Lumpur. "They are already reconsidering their options in the country. The new investors are possibly not looking at Malaysia as a viable option, and previous investors would be thinking of extracting their funds to be put in more stable and viable locations."

Financiers may be perfectly happy to watch "CSI" at home. They are far less keen on exposing their money to a whodunit playing out on Malaysia's national stage.

William Pesek is a Bloomberg News columnist.