Saturday August 29, 2009

Investment, image and Kartika

By VANMALA SUBRAMANIAM

How much has her case affected Malaysia’s attractiveness?

LAST Tuesday was one of those rare days where Malaysia made the front page of the New York Times, the Wall Street Journal and theFinancial Times. Alas, it was not for another feel-good story about Asia’s astonishing economic recovery, but rather the controversial case of Kartika Seri Dewi Shukarno, the part-time model who had been sentenced to six lashes of the cane for drinking beer in a Kuantan hotel.

The Kartika saga has generated much negative publicity for Malaysia.

Questions have been raised about Malaysia’s image as a moderate majority Muslim nation.

Amnesty International and other campaigners have urged the courts to drop their sentence, calling it “cruel, inhuman, degrading and prohibited under international human rights law”.

This is a time where local and regional economies seem to be switching into recovery mode. Slowly but surely, credit is becoming available.

Investors, both local and foreign are on the prowl, albeit cautiously, for lucrative markets. Economic competitiveness among Asian nations is increasingly intense. Surely this is not the time for negative publicity.

“Definitely not,” says Tan Sri Ramon Navaratnam, chairman of the Asian Strategy and Leadership Institute (ASLI).

“Bad publicity leads to poor confidence and lower investment. The Kartika case exposes the ambiguity in our country’s laws. As long as the laws remain unclear, investors will be confused and inhibited about Malaysia. If you feel insecure about a country’s laws, why would you want to put your money here?”

Recent history has shown us that investors are no fans of instability. Bank Negara statistics indicate that the political ruckus that followed the March 2008 election results caused a plunge in foreign direct investment inflows.

Navaratnam’s views are echoed, somewhat, by International Movement for a Just World (JUST) president, Dr Chandra Muzaffar. The prominent political scientist believes that the Kartika caning episode will have an immediate impact upon some business circles, especially in the West.

Others however, beg to differ. The situation is not so bad, they say. An economist for a prominent regional bank dismisses claims of lower investor confidence in Malaysia due to the bad publicity generated from the Kartika case.

“I don’t think it is of overwhelming significance. Foreign investors will invest in a country if they see profitable returns. The recent liberalisation policies of Najib’s government have definitely succeeded in catching the interest of investors. So this caning case will not make a huge difference.”

Chief economist for Ratings Agency of Malaysia (RAM), Dr Yeah Kim Leng also believes that despite the Kartika case being splashed on the front covers of major financial newspapers it is unlikely to affect economic confidence and sentiment.

But the Kartika caning case is not the only incident that has exposed the dichotomy between liberalism and conservatism in this country. What if this becomes a trend?

“If there is a trend, it is quite conceivable that a negative image of Malaysia will begin to form in the minds of some investors from abroad,” says Muzaffar.

Navaratnam, also the former chairman of Transparency International, points out that the frequency of incidents such as the Kartika caning will only serve to dampen potential returns the country might have got from the recent liberalisation policies introduced by Prime Minister Datuk Seri Najib Tun Razak.

Regardless of the extent to which the Kartika episode has affected investor confidence in Malaysia, the events of the past week bring to light the economic costs of political hue and cry. For an export-led country in a highly competitive region, stability is the name of the game.

“I would want to put my money where my mouth is,” says Navaratman. “Indonesia is a secular country, and increasingly stable. Their government has made a concerted effort to tackle corruption. We cannot afford to lag.”

At the end of the day, are foreign investors going to be deterred from investing in Malaysia over the Kartika case? Perhaps not and probably less if in the end her whipping sentence is not carried out.

But if more such cases come up, they may be a cause for concern, not just for foreigners but for Malaysians themselves who will ask the inevitable question: “How much further?” That has the potential to permanently erode confidence within the country itself, far more damaging than a temporary erosion of the image of the country in the eyes of foreigners.