Week Ended: March 14, 2008

Shake Up in Malaysian Politics

Malaysia saw a dramatic electoral upset last week when its ruling coalition lost its two-thirds majority in parliament for the first time in nearly four decades. Known as the National Front, Prime Minister Abdullah Ahmad Badawi's coalition has ruled uninterrupted since Malaysia's independence in 1957. Despite calls for his resignation following the party's setback, the Prime Minister took the oath of office this week for another five-year term. While Malaysia can boast a generally healthy economy and coveted natural resources such as palm oil, rising racial tensions and charges of corruption caused the National Front to lose its majority in parliament. Opposition parties also claim the government has failed to battle poverty and higher living costs, and have campaigned to end affirmative action plans that favor the nation's majority Malays but disadvantage its sizeable ethnic Chinese and Indian communities in housing, jobs and education.

Several notable former leaders are among those calling for the Prime Minister to step down. Premier Mahathir Mohamad, Malaysia's longest-serving prime minister who handpicked Abdullah as his successor in 2003, renewed calls for him to quit after the election result. Former Deputy Prime Minister Anwar Ibrahim, who was imprisoned during elections in 2004 on criminal charges of sodomy—which were later overturned—is now resurgent in Malaysian politics as an opposition leader. He has campaigned to overturn the preferential policies in Malaysian law that grant superior economic rights to ethnic Malays and other indigenous groups known collectively as "bumiputera." These laws favor bumiputera in land ownership, and companies listed on the Kuala Lumpur Stock Exchange must find bumiputera to take up a minimum 30% of equity to satisfy listing requirements.

Not surprisingly, the recent political upheaval has translated into volatility in the markets. Race relations in Malaysia could worsen and lead to further turmoil. But should the country begin to chip away at its controversial racial policies, this would constitute an important liberalization that could pave the way for better growth in Southeast Asia's third-largest economy. Considering neighboring Thailand's own political shifts with the recent return from exile of former Prime Minister Thaksin Shinawatra, a great deal of political transition appears to be underway in the region. The last time Malaysia's ruling coalition lost its two-thirds majority, in 1969, race riots erupted. Despite the current backlash of resentment felt by the country's non-bumiputera, and perhaps in a sign of the times, the streets of Kuala Lumpur have thus far been calm.

 

 

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