Wednesday, September 17, 2008

Malaysia’s political saga deepens

Malaysia’s political saga deepens

With the ruling Barisan Nasional coalition's first defection, opposition leader Anwar Ibrahim’s threats to form a new government gain strength.

While Malaysia’s opposition leader Anwar Ibrahim failed to fulfil his promise to form a new government this week, the country’s first ever coalition defection has improved his chances of success. Wednesday’s walk-out by the Sabah Progressive Party from the ruling Barisan Nasional (BN) coalition guarantees that the country’s six-month long political limbo will continue.

The decision by the Sabah Progressive Party’s two parliamentarians to leave the coalition is an unprecedented move in Malaysian politics. No member of the ruling 14-party BN coalition has ever defected in the coalition’s 39 years of leadership.

Wednesday’s move is the latest in a series of political blows to BN’s leadership since the coalition lost its two-thirds majority in the March 8 elections.

So far, the country’s economic indicators have remained strong and according to Bank Negara Malaysia, Malaysia’s central bank, the ringgit closed up less than 1% against the dollar at M$3.4470 on September 17. As of August 29, the latest available date, Bank Negara had M$400.2 billion ($122.6 billion) in foreign reserves.

But observers argue that a prolonged lack of political certainty will not go unnoticed.

Standard & Poor’s equity research vice-president and head of research, Lorraine Tan, says that while the rating agency believes Malaysia is “fundamentally attractive”, the continuation of political uncertainty is “weighing on sentiment (and) raising risk perception”.

Since the beginning of Malaysia’s political woes, the business community has indicated its desire for the government, regardless of party, to continue with its current policy mix.

“Businesses [in Malaysia] want stability, including political, economic and medium- to long-term guarantees,” explains Standard & Poor’s analyst Takahira Ogawa.

In the second quarter, the latest period for which numbers are available, the country's GDP grew 6.3% year-on-year to M$188.8 billion ($54.66 billion). However, in July year-on-year industrial production growth slowed to 1.8% from 2.2% in June. At the same time, the consumer price index rose to 8.5% year-on-year from 7.7% a month earlier.

“The longer the political impasse is prolonged, the greater the potential for a more significant deterioration in the economic outlook,” says Tan.

The failure by opposition coalition Pakatan Rakyat’s leader Anwar Ibrahim to form a new government on Tuesday and Sabah Progressive Party’s defection from BN on Wednesday came on the back of a politically charged summer. Leading headlines this July and August were Anwar’s arrest for sodomy charges and, following his release on bail, his re-election to parliament after a 10-year absence. Upon his re-election, Anwar pledged to fulfil his April promise to form a government by September 16 to call a vote of confidence to challenge the BN coalition government of Prime Minister Abdullah Ahmad Badawi.

While the passing of Anwar’s self-appointed September 16 deadline initially raised doubts as to his political support, the Sabah Progressive Party’s defection from BN has lent credibility to Anwar’s push for a new government.

Out of a total of 222 parliamentary seats, BN currently holds 140 seats and Anwar’s Pakatan Rakyat coalition has 80. In order to form a new government, Anwar needs 30 parliamentarians to break with BN. Such a break is likely to occur along ethnic lines among BN’s other non-Malay parties. BN’s leading party is the ethnic-Malay United Malays National Organisation (UMNO) party.

Copyright Ltd., a subsidiary of Haymarket Media Ltd

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