Malaysia : “Dynamic Democracy” could harm FDI

CB018552Like the country’s economy, Malaysia’s political scene is experiencing a shake up, with some events directly linked to the fallout from the global financial crisis and others of a more domestic nature. Though Malaysia’s ruling Barisan Nasional (National Front, BN) comfortably won last year’s general election, the coalition headed up by the United Malays National Organisation saw a fall in support, with the main opposition parties – the Democratic Action Party, the Islamic Party of Malaysia and the People’s Justice Party – all more than doubling the number of seats held.

The general election of March 8 last year may prove to be a watershed in Malaysian politics, in more ways than one. For the first time since the country gained independence in 1957, the BN failed to secure a two-thirds majority in the 222 seat lower house. Though it retained control of the house of representatives by returning 140 deputies, this was well down on the 199 seats won in March 2004.

Opposition parties took a combined 47.8% of the national vote, their best-ever performance with a total of 82 seats, a massive increase from the 19 held following the 2004 poll, and have been better positioned to act as an alternative to the government.

Since the election, the pace of politics in Malaysia appears to have shifted up a gear. The BN’s poor electoral result saw Prime Minister Badawi Abdullah stand down in April and replaced by the deputy prime minister and finance minister, Datuk Seri Najib Tun Razak. Almost immediately, the government started wheeling out a range of new policies, aimed at reviving the flagging economy and laying the foundation for the future, one where Malaysia is more closely integrated with the rest of the world.

These reforms included dropping the mandatory 30% share holding by ethnic Malays in businesses operating in services industries, a further opening up of the financial sector to foreign investors and reducing the state’s role in the economy.

Not all of these reforms have proved universally popular with some groups concerned that their economic base could be eroded. However, while driven by economic expediency and the need to attract more foreign investment, the reforms could also have a very direct impact on the country’s political scene.

By winding back many of the long-standing policies that protected the interests of the ethnic Malay community, the BN will be looking to woo back voters from the Chinese and Indian minorities, large numbers of whom deserted the ruling coalition at the last poll and threw their weight behind opposition parties.

While the opposition made a strong showing in the March election, it did not come close to gaining power, nor is it likely to in the immediate future if Najib’s reforms prove both popular and successful. It is hard to say whether the increased support at the ballot box represents a growing well of dissatisfaction with the BN or just a temporary setback handed to the ruling coalition in the form of a protest vote.

The BN has also worked to weaken the opposition alliance, throwing out feelers in June to PAS over the party joining the government, a proposal ultimately rejected late that month. Though the offer was turned down, it did spark heated debate within the alliance and PAS itself, with the conservative wing of the party having favoured the move, while other members remaining keen on going to the next general election, due in 2013, as part of the anti-BN bloc.

One imponderable in Malaysia’s political mix is the forthcoming trial of the former deputy prime minister, Ibrahim Anwar, on charges of sodomy, allegations the country’s best-known opposition leader strongly denies. In turn, Anwar claims the charges are part of a campaign to discredit and remove him from the political arena, similar to a case that was opened against him in 1998, which led to his conviction and imprisonment.

The trial, due to commence on July 8, has the potential to ratchet up political tensions in Malaysia, just at a time when the government is appealing for unity in order to combat the effects of the global economic downturn.

On July 6, Moody’s Investors Service warned that the main risk to the implementation of the government’s reforms, which it described as timely, was political tension.

“If the adversarial relationship between the government and the opposition leads to legislative or policy gridlocks, then the private sector’s response to growing investment opportunities could be muted,” said Anand Mitra, Moody’s lead sovereign analyst for Malaysia said.

Despite this serious blow to the opposition, the government is wary of any political tensions the trial could throw up, and the scrutiny Malaysia’s political and legal system will be subjected to by the international community, preferring the country to be in the headlines for other reasons.

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