By Stuart Grudgings
KUALA LUMPUR, April 2 (Reuters) – Malaysian Prime Minister
Najib Razak is widely expected to call national elections in the
first half of 2012, aiming to win a fresh mandate while economic
growth remains relatively strong and before a looming global
slowdown jeopardises his chances.
Economic growth is expected to slow to a rate of 4-5 percent
this year as exports suffer, the central bank said in March.
Last year it expanded by 5.1 percent, more slowly than the
previous year, but still slightly better than expectations.
The election promises to be the most fiercely fought in
Malaysia’s history, and the January acquittal of charismatic
opposition leader Anwar Ibrahim of sodomy charges has added to
the unpredictability of the outcome.
The polls will be a test of whether Najib’s gradual efforts
to reform the state-heavy economy and its race-based political
system are enough to restore the ruling coalition’s prized
two-thirds majority in parliament.
Najib is widely expected to win the election, but further
gains by the opposition would undermine his standing within the
dominant United Malays National Organization (UMNO) party and
could prompt a leadership challenge from a more conservative,
less reformist candidate.
RATINGS (Unchanged since March unless stated):
S&P;: A-
MOODY’S: A3
FITCH: A-
The cost of insuring against default on 5-year sovereign
debt was around 100 basis points at the start of
April, down around 35 points since the start of the year.
Following is a summary of key Malaysia risks to watch:
ELECTION APPROACHING
In March, Malaysia’s cabinet approved a national minimum
wage for the first time in the country’s history, a clear sign
Najib is positioning himself for a vote.
An opinion poll published in early March said support for
him rose to 69 percent early 2012, from 59 percent last August.
The surprise high court acquittal of former deputy prime
minister Anwar in January has given the opposition a formidable
campaigner and eloquent critic of the government. But the impact
of his freedom is not clear-cut — some analysts say it could
help Najib by undermining the opposition’s claims that the
judiciary is controlled by the government.
Najib has tried to claim the reformist mantle as UMNO
struggles to retain support among young, urban voters but he
faces resistance from conservative elements within UMNO who are
loathe to give up affirmative action benefits for ethnic Malays.
Najib pledged to repeal two notorious security laws last
year, following the government’s heavy-handed response to street
protests demanding electoral reform in July, but he has yet to
replace them with new legislation. A new bill that bans street
protests has cast serious doubt on his reformist credentials.
A crucial gauge of his ability to reform the political
system will be proposed changes to the electoral system that the
opposition says is weighted in favour of the government.
The three-party opposition alliance says it aims to campaign
more strongly among ethnic Malays in rural areas, where support
for UMNO remains strong, and to focus on recent corruption
allegations against government officials.
Religious tensions are also a concern. In late October,
about 2,000 Malaysian Muslims gathered near the capital to
denounce alleged Christian attempts to convert Muslims, widening
a religious rift that could cost Najib minority votes.
Political uncertainty has weighed on foreign investment
since 2008 but speculative inflows in search of higher-yielding
markets have boosted the ringgit currency.
What to watch:
– Clues about the timing of the election, which must be
called by March 2013. 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. Another
reason for calling the election earlier would be to get in ahead
of UMNO’s internal elections which will are likely to be held in
the second half of 2012.
– The risk of more protests, and government 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
percent of the population. Last year, he set up diplomatic ties
with the Vatican in a bid to win Christian support.
– Resistance to reform. Najib’s promise to repeal the
Internal Security Act and Emergency Ordinance as well as to
reform other laws to promote civil liberties has been questioned
by Perkasa, an influential conservative group backed by some
members of UMNO.
ECONOMIC REFORM
A scandal over a publicly funded cattle-rearing project that
the opposition says was used as a personal fund for the family
of one of Najib’s ministers continues to rumble. The minister at
the centre of the scandal has said she will quit, and her
husband has been charged with embezzlement.
It raises the risk that elections will be delayed, and
highlights Najib’s stuttering efforts to reform the
corruption-prone Southeast Asian nation.
In addition, Malaysia could delay a $2-billion listing of a
state-linked palm oil firm as farmers’ opposition to the deal
risks undermining the ruling coalition.
Najib has pledged to reform a decades-old affirmative action
policy favouring ethnic Malays and replace it with a “New
Economic Model” to promote greater competition. 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 percent of the electorate.
Investors and the opposition complain that the race-based
policy has been widely abused, fostering cronyism and leaving
the economy run on patronage.
The government is implementing a $444 billion initiative,
called the Economic Transformation Program, that is aimed at
propelling the country to developed nation status by 2020.
The central bank has kept its benchmark interest rate on
hold at 3 percent since May 2011.
In the annual economic assessment it released in March, the
central bank said it expected inflation to hover within a 2.5-3
percent range, slightly lower than lat year’s 3.2 percent.
The budget deficit was expected to hit 5.4 percent in 2011
and the government expects it to fall to 4.7 percent this year.
That target could be put at risk by election spending and a
worse-than-expected global slump.
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.
(Editing by Daniel Magnowski)
