Malaysia’s newly elected Prime Minister Mahathir Mohamad is back on the world stage – and is not shy about stating his opinions.

Following a historic election victory last month that returned the nonagenarian to the political apex as Malaysia’s seventh prime minister, Mahathir’s first overseas trip to Tokyo was both symbolic and indicative of a return to a non-aligned foreign policy.

A big welcome in Japan

Mahathir’s stunning comeback was a welcome surprise for Japan, which has seen its own influence in Southeast Asia diminish relative to an increasingly assertive and economically ambitious China. Prior to his ouster, scandal-tainted former premier Najib Razak had developed robust economic and security ties with Beijing.

By contrast, Mahathir pursued a “Look East” policy in the early 1980s that aimed to imbue Malaysians with the cultural strengths and work ethic of East Asian countries such as Japan and South Korea. The policy  sought to acquire the skills and knowledge that made Northeast Asia’s development models a success.

Mahathir’s new government, cash-strapped from the endemic corruption and mismanagement of the Najib era, now appears set to revive “Look East,” through which low-cost capital and investments from Japan could ease recent dependence on China, a strategic re-balancing rife with geopolitical implications.

Tokyo has traditionally offered Southeast Asian countries development assistance through low-interest loans and technical cooperation, though its influence has ebbed in recent years as the region tilts toward Chinese President Xi Jinping’s Belt and Road Initiative (BRI) and parallel China-led institutions such as the Asian Infrastructure Investment Bank (AIIB).

Japan, which has tried to persuade Association of Southeast Asian Nations (Asean) members to take a stronger stance on China’s island-building in the South China Sea, regards Mahathir as a figure capable of influencing the grouping’s dynamic. The disputed waters are a key transport artery for oil and freight tankers bound to and from Japan.

Japan's Prime Minister Shinzo Abe (R) and Malaysia's Prime Minister Mahathir Mohamad shake hands during joint press remarks at Abe's official residence in Tokyo on June 12, 2018. / AFP PHOTO / POOL / Toshifumi KITAMURA
Japan’s Prime Minister Shinzo Abe (R) and Malaysia’s Prime Minister Mahathir Mohamad at Abe’s official residence in Tokyo, June 12, 2018. Photo: AFP/Toshifumi Kitamura

Asean has been collectively less critical of China since Philippines President Rodrigo Duterte undertook a strategic realignment favoring closer bilateral ties with Beijing and the regional grouping has not settled on a common approach on the South China Sea disputes. Mahathir has signaled a stronger Malaysian position on the subject.

“We know we cannot deny China access to the seas in Southeast Asia because the seas there are a passage between the East and West,” the premier told the Nikkei Asian Review in a recent interview. “But it should remain as such, not controlled by any nation, neither America nor China.”

“We want everything to be open,” he added. “No restriction on movement of ships, except for warships.”

Intensive reviews underway

Malaysia is now in the midst of a Mahathir-imposed austerity drive and rationalization exercise that is seeing it review infrastructure contracts as well as multilateral trade and security pacts signed by the previous administration.

Mahathir’s government suspects Chinese companies were involved in issuing loans and asset purchases that were used to cover up a multi-billion-dollar graft scandal at state fund 1Malaysia Development Berhad (1MDB).

The premier is wary that Malaysia could be forced into sovereignty-undermining deals if unable to service its debts to Beijing.

Malaysia's Prime Minister Najib Razak meets China's President Xi Jinping at Diaoyutai State Guesthouse, in Beijing, China, November 3, 2016. Photo: Jason Lee via Reuters
Malaysia’s Prime Minister Najib Razak meets China’s President Xi Jinping at Diaoyutai State Guesthouse, in Beijing, November 3, 2016. Photo: Jason Lee via Reuters

China has been Malaysia’s largest trading partner since 2009 and the Southeast Asian country has been a top BRI investment recipient. It is unclear how much of Malaysia’s national debt is held by Chinese entities. Mahathir has nonetheless expressed support for BRI and signaled his desire to visit Beijing soon.

Debt pivot from Beijing to Tokyo

Japan, however, was Malaysia’s largest foreign direct investment (FDI) contributor in 2017 at US$13 billion, according to state news agency Bernama. Mahathir met with Japanese Prime Minister Shinzo Abe and senior officials during his three-day visit. Reports indicate that he asked Tokyo for yen-denominated soft loans to ease the national debt burden.

Malaysia’s public debt as a percentage of gross domestic product (GDP) was officially recorded at 50.8% at year-end 2017, though Finance Minister Lim Guan Eng claims Najib’s government mispresented the country’s finances. Federal debt and liabilities currently stand at 1 trillion ringgit (US$251.70 billion), equal to 80.3% of GDP, according to Lim.

Abe promised to consider the request and vowed to support ties with Malaysia. Low-interest rate loans from Japan may now become central to the country’s loan rationalization program, whereby high-interest debts can be retired with low-interest capital sourced from Japan, a precedent that could raise Tokyo’s profile among Asean countries now in Beijing’s orbit.

Financial analysts also expect Japanese companies to accelerate their pace of investment in Malaysia under the new government, potentially seeking stakes in Malaysian state-linked companies. While Tokyo sees new opportunities to deepen Asean engagement with the return of Mahathir, there are setbacks for the Abe administration as well.

Malaysian Prime Minister Mahathir Mohamad delivers a speech during a press conference at the Japan National Press Club in Tokyo on June 11, 2018. / AFP PHOTO / Kazuhiro NOGI
Malaysian Prime Minister Mahathir Mohamad delivers a speech during a press conference at the Japan National Press Club in Tokyo, June 11, 2018. Photo: AFP/Kazuhiro Nogi

Dr  M airs his views

Mahathir wants revisions to the 11-member version of the Trans-Pacific Partnership trade deal, which Japan effectively took leadership of following US President Donald Trump’s decision to exit. That would be yet another setback for the controversial pact, which Mahathir apparently opposes for putting smaller trade-reliant economies like Malaysia at a disadvantage.

“Some of the terms in the previous agreement were drawn up by America, which were not good for poor countries,” said Mahathir, addressing the annual Future of Asia conference in Tokyo. He added, thought, that he isn’t “completely against” the pact. With several signatories to the deal, including Japan, pushing to ratify its framework as soon as possible it looks unlikely that they would entertain Malaysia’s calls to renegotiate terms.

Malaysia’s premier also said the world “should not be cynical” about North Korea’s efforts to “establish better relations with even the United States,” adding that Malaysia would be reopening its embassy in Pyongyang, which has not been staffed since last April.

Malaysia’s once-close diplomatic ties with North Korea were downgraded following the killing of Kim Jong-nam – North Korean leader Kim Jong-un’s estranged half-brother – at a Kuala Lumpur airport in February 2017, prompting a heated diplomatic row. Mahathir praised “the new attitude of North Korea” and called for opening trade relations.

A member of the youth wing of the National Front, Malaysia's ruling coalition, holds a placard at a protest at the North Korea embassy, following the murder of Kim Jong-nam in Kuala Lumpur. Photo: Reuters/Athit Perawongmetha
A Malaysian holds a placard at a protest at the North Korea embassy, following the murder of Kim Jong-nam in Kuala Lumpur. Photo: Reuters/Athit Perawongmetha

The trial of two women accused of smearing Kim’s face with VX nerve agent – both say they were tricked and did not know they were handling lethal poison – is ongoing. The US and South Korea believe Pyongyang orchestrated the assassination on Malaysian soil.

Reviving Pan-Asianism

Speaking at the Future of Asia conference, Mahathir also mooted the idea of an East Asia Economic Caucus (EAEC), a regional free trade zone he first proposed in 1997, to included Asean countries, China, Japan and South Korea, saying that a Pan-Asian bloc like EAEC could more effectively negotiate with major powers.

An EAEC did not take shape previously “because of American objections,” he said, noting that Washington was no longer “in the position to demand that we not form the EAEC.” China, too, would accept “the need for peaceful trade” if confronted by a unified EAEC, he argued, calling for the inclusion of Central Asian countries as well.

Mahathir’s unlikely comeback brings his trademark approach to international relations – one that is independent-minded, mercantilist, pacifistic, non-aligned and ultimately pragmatic – into a new political context. In the minds of many Malaysians, this is stirring a renewed sense of national dignity.