Free Malaysia Today
September 17, 2012

The prime minister is holding back on the election date to shore up flagging support and give his reforms more time to work.

KUALA LUMPUR: Prime Minister Najib Tun Razak could call national elections anytime between now and April 2013, but he may wait to announce a generous budget on Sept 28 as he plays a risky waiting game.

The ruling Barisan Nasional coalition is widely expected to win the election but further gains by the opposition after its strong performance in 2008 could undermine Najib’s standing.

Holding back until after September would give Najib more time to shore up flagging support among ethnic Chinese voters, and to convince Malaysians that his reform efforts are working as he tries to reverse the ruling coalition’s worst election showing in 2008.

It would also make him vulnerable to any worsening of the global economy or the emergence of fresh corruption scandals that could push swing voters over to the three-party opposition.

The political atmosphere is becoming more tense as the election looms. Key opposition figures have complained of hate speech and acts of intimidation directed at them.

Its economy grew at a surprisingly strong annual pace of 5.4% in the second quarter, Bank Negara said, as a jump in private and government investment helped offset weakness in exports. The central bank expects growth this year to be at the top end of its 4%-5% forecast.

Following is a summary of key Malaysia risks to watch:

Election approaching

The polls will be a test of Najib’s efforts to reform the state-heavy economy and roll back repressive security laws without upsetting the status quo that has seen his dominant Umno party rule since independence in 1957.

The election promises to be the most fiercely fought in Malaysia’s history, and already tensions are high after Opposition Leader Anwar Ibrahim was charged over his role in a major street protest for electoral reform in April.

In addition, senior opposition politician Rafizi Ramli, who made a series of revelations about alleged government wrongdoing, was arrested in early August for disclosing bank details related to a high-profile corruption case involving the family of a former minister.

Meanwhile, the government is planning a fresh round of cash handouts to poorer families, Deputy Prime Minister Muhiyuddin Yassin said in June, a move aimed at shoring up support among undecided voters.

In July, Najib – facing growing public demand for greater political and social freedoms – said he would scrap the colonial-era Sedition Act, which has been used over the years to silence dissent.

Firm domestic demand helped cushion Malaysia’s economy from the worst of the slowdown in global activity in the first half of 2012 and the trend is expected to continue as government and government-linked companies spend on big projects.

At the same time, heavy government spending and an overly generous budget would sharpen concerns over Malaysia’s chronic budget deficit. Ratings agencies have raised concerns about Malaysia’s public finances and its reliance on oil revenue.

Najib’s personal approval rating remains high but support for his ruling coalition is sliding. According to a June survey, Najib’s rating eased one point to 64% while the coalition’s popularity fell 6 points to 42%.

Two July defections from coalition in what has traditionally been a safe bank of seats in the east Malaysian state of Sabah have added to Najib’s worries.

What to watch:

•Clues about the timing of the election. Signs that the global economy is deteriorating more rapidly could prompt Najib to rush to the polls before Malaysians feel the pain from a slowdown.

•Large anti-government protests, and the government’s response to them, as well as racial and religious relations. Najib is trying to reach out to non-Muslim minorities who make up about 40% of the population. Last year, he set up diplomatic ties with the Vatican in a bid to win Christian support.

Economic reform

Najib pledged to reform a decades-old affirmative action policy favouring ethnic Malays and replace it with a “New Economic Model” to promote greater competition and boost domestic investment that has lagged in recent years.

But the prime minister has since softened his stance on reforming the policy for fear of alienating conservatives among the majority ethnic Malays who make up about 60% of the electorate.

Investors and the opposition complain that the race-based policy has been widely abused, fostering cronyism.

The government is implementing a US$444 billion initiative, called the Economic Transformation Programme (ETP), that is aimed at propelling the country to developed nation status by 2020.

The government says the ETP has helped it turn the corner on years of sub-par investment, pointing to a 19% jump in private investment last year. Critics say the ETP is overly reliant on government funding, which could end up putting further strains on a budget deficit that hit 5.4% in 2011.

The central bank has kept its benchmark interest rate on hold at 3% since May 2011, a position it maintained in September, saying domestic demand was helping shore up the economy amid a weakening external sector. Malaysia’s trade surplus slumped to RM3.6 billion (US$1.16 billion) in July, its lowest in more than a decade, as the Southeast Asian nation’s exports to the European Union and China fell sharply.

Many analysts believe Najib is waiting until after the election to announce politically sensitive cuts to fuel subsidies that he has described as economic “opium”. That move, as well the implementation of a new goods and services tax, is seen as crucial to tackling the chronic budget deficit and reducing the government’s heavy dependence on the oil sector.

What to watch:

•How the global slowdown affects the Malaysian economy, and how this affects development spending.

•A possible rise in Malaysia’s budget deficit if the economy slows and the government ramps up spending in an election year.

– Reuters