Political Risk in Malaysia

The fact that undercoat Minister Mahathir has seen fit to condition a 2 month vacation is the strongest evidence in a long time that his position within UMNO remains unchallenged. The political era issue also seems cle arr now that Mahathir has permitted his surrogate to assume the title of playing Prime Minister. Such a privilege was non given to evictk lieutenant Ghafar Baba in 1989, when the prime parson was recoering from a coronary thrombosis bypass operation. Anwars doing go forth be watched mop uply in the glide slope weeks.Another test of the end to which Mahathir is at ease with Anwar leave behind be the degree to which the prime minister gives Anwar free reign to deal with either public controversies which arise part he is on leave. The by-election victory of the resister Democratic Action Party in Perak in mid-May surprised many an(prenominal) observers. However, it would be an exaggeration to suggest that the result portends a signifi heapt transubs tantiation of ethnic Chinese support away from the disposal in the population as a whole.Local issues were paramount in the campaign, and voters k brisk that they could support the reverse with verboten threatening the National Fronts deuce-thirds major(ip)ity in parliament. The differing approaches cutn by Malay politicians (who throw away been calling for a tough stand against capital of Singapore) and the Chinese billet community (which has been urging moderation) has not yet led to any considerable rise in ethnic tension. However, the situation could change preferably importantly should Malay leaders suggest that the nations ethnic Chinese were siding with Singapore. stress between Singapore and Malaysia has remained remarkably persistent, over the last hardly a(prenominal) weeks, egged on by the semi-official evoke in two countries. An informal boycott of Malaysia by Singapore travel agencies during the school holiday season has been followed by a variety of tit fo r tat moves in Malaysia aimed at reducing Malayan exports through Singapore and cracking d deliver on Singaporean professionals on the job(p) illegally on social visit passes.While politicians on some(prenominal) sides of the causeway have been more careful in their public avouchments, it is rugged to believe that the critical tenor of the reporting by the mass media of both countries does not have at least the tacit support of the two governments. Even so, things are un apparent to be allowed to get out of hand. dealings with the US, however, are improving.Once a staunch opp wiznt of an American bail presence in Asia, Kuala Lumpur now appears quite willing to cooperate with the US military in the region, with a number of US warships making high-profile calls at Malaysian ports in recent months. The indemnity shift appears to be relate to efforts by Prime Minister Mahathir to woo US companies to invest in his pet project, the Multi-Media Super-Corridor (MSC). By providin g facilities to US forces, Kuala Lumpur hopes to send a reassuring bode to the American companies it hopes to attract to the MSC. pic Near-Term Out come along Steady as she goes Given a choice, Mahathir would likely really much like to concern himself with foreign policy issues in the glide path months. However, it is very likely that domestic issues will tolerate to push their way to the top of the political docket, forcing the prime minister to put in belatedly to settle various issues which emerge while he is afield. To the utmost that the prime minister will want to show any unsafe sideline in domestic affairs, his attention will probably be focused on corruption.Mahathir appears to have concluded that graft and Malaysias growing temper for it is becoming an increasingly serious obstacle to his efforts to win the country the inter interior(a)istic respect and admiration he believes it deserves as a result of its economic achievements. Meanwhile, Deputy Prime Mini ster Anwar Ibrahims grip on the finance portfolio is on a lower floor threat, with rumors circulating in Kuala Lumpur that the prime minister is none too jolly with the way he has handled several(prenominal) matters in the last few months.A series of missteps by Anwar has sure as shooting left many in the private sector wondering whether the deputy prime minister is really the roughly suitable man for the job. There is little doubt that Dr. Mahathir remains in firm learn of the country. So much so that uncertainties regarding policy issues scarcely seem to emerge when he is not around. With the UMNO partly polls out of the way and field of study elections not due for some time, Dr. Mahathir can be anticipate to spend an increasing amount of his time pursuing his long-held interest in foreign affairs in locations much(prenominal) as Tokyo, capital of Red China and Seoul while putting domestic matters on hold.This year, Kuala Lumpur plays host to two important ASEAN meetings , and the prime minister will want to prevail the closely of them. The first (in July) is the ASEAN ministerial meeting and its ac participationing ASEAN Regional Forum with the groupings dialog partners. The second (in December) is the ASEAN informal summit. In the run-up to both, Dr. Mahathir can be expected to make his views known on a variety of internationally arguable issues. Apart from a few more speeches nearly perceived horse opera arrogance, the prime minister will be pushing for the acceptance of Myanmar as a full member of ASEAN.There will also be more talk rough the formation of a de facto EAEC, with Kuala Lumpur inviting participation from countries such(prenominal) as China, Japan and South Korea. With the prime minister traveling overseas quite a lot, it is possible to argue that the prospect of short-term government policy paralysis this year is greater than is generally realized. On several occasions now, the government has revealed a lack of decisiveness wh en faced with a controversial issue while the prime minister was out of the country.A discipline in point is Anwars foot-dragging early last year over the implementation of the rotation system for the position of Sabah party boss minister. heretofore another(prenominal) was the unfavorable High Court finis last June which forced a temporary halt to work on the Bakun Dam in Sarawak. In both cases, flagging political resolve only revived when Mahathir returned to take charge of rasets. The more recent furor over the uncomplimentary remarks of Singapores leeward Kuan Yew regarding the crime situation in the southern Malaysian state of Johore are yet another example of the same thing.Although the matter appeared to have been obstinate before Mahathir left for Tokyo, ministers emerged from a subsequent locker meeting chaired by Anwar to make off-the-record comments to the press to the effect that Malaysia had decided to freeze its relations with Singapore in the wake of remarks by Singaporean leaders that implied that Malaysia had overreacted. The resulting media reports shocked the line of debateing community in both countries, since such reports inevitably conjured up visions of the 1965 single out and suggested that a wide range of business and political ties would be disrupted.Yet another possible source of uncertainty in the coming months relates to the extent to which corporate rivalries will continue to reflect an ongoing political break of serve between Dr. Mahathir and Anwar. Reports that Renong has come up with a proposal to build a high-speed train line between Kuala Lumpur and Singapore an idea which clashes instantly with similar plans by DRB-Hicom certainly suggests that they will. In the popular mind, Renong is associated with UMNO Treasurer Daim Zainuddin (a close Mahathir confidant), while DRB-Hicom is seen as being more closely linked with individuals associated with Anwar.The reality, however, is probably a little more complicated, with the late tan Sri Yahaya of DRB-Hicom (who died jerkyly in early March) arguably at least as close to Mahathir as he was to Anwar. Either way, the two companies have such powerful connections that the dispute between them will almost certainly involve political as well as purely economic criteria. Local pundits may not have got it exactly right in the case of Renong and DRB-Hicom, but at that place is little doubt that policy differences between the prime minister and his deputy do have some impact on the corporate scene.A case in point is the recent refusal of the finance ministry to provide financial guarantees to Ekran, the company responsible for the construction of the immense Bakun Dam. Anwar has never really embraced the project, and it is not hard to conclude from this decision that the finance minister is determined to make things as difficult for Ekran as possible, despite the fact that the Bakun Dam is one of Mahathirs pet projects. Of more relevance to the busi ness community in general, however, is Anwars performance as minister of finance.With the economy doing well, it may be argued that the fact that he lacks a solid background in economics is of little consequence. every that is really required is an intelligent personality capable of taking advice from experts in both the ministry and the central bank. At this level, Anwar seems to measure up. However, a closer look suggests that he is also capable of making errors of judgment which could create quite serious problems in the future if they are made at a time when the economy is less resilient.Take the problem we mentioned earlier about the Cabinet decision regarding Singapore. Anwar could have ended the confusion over the freezing-of-relations reports as soon as they arose, but he chose not to do so. Instead, he issued a press statement which, while stopping short of announcing a trade and investment boycott, appeared to support widespread rumors that such a decision had actually be en taken. In this way it may be argued that he allowed the panic to spread though the business communities of both countries.As a result, the nurse of both the ringgit and Singapore dollar dropped overnight. Perhaps Anwar was trying to send a political message to Singapore. If so, it is deserving noting that although Mahathir has had some high-profile tiffs with Western nations in the past, even he has never before sent such a girdle message to a neighboring country. Yet another apparent retrogress in judgment concerns the way the central bank (technically under the control of Anwars finance ministry) handled an announcement at the end of March about new guidelines aimed at reducing lending to the prop sector.A vaguely worded statement to the effect that the authorities had imposed a new 20% make on bank loans to the sector sent the stock market reeling, with property and finance stocks in particular taking a beating. The new policy also redefined lending for share purchases in order to curb what fiscal authorities said was excessive share speculation. Left to draw their own interpretations, some banks stopped giving out such loans altogether while checking whether they had exceeded the new limits. Anwar did little at first to clarify the situation, merely informing the press that he was satisfied with the CB move.It was not until several days afterwards when the monetary authorities released details of the new guidelines (which contained exemptions that significantly watered eat the effect of the new curbs) that the market stabilized. Not surprisingly, the incident has pleased nobody, with a number of economists privately accusing the authorities of backing down on an important measure designed to reduce the exposure of the banks to the property market. For Mahathir, the clock could not have been worse. The prime minister is particularly anxious to escort that the listing of the Bakun Hydro-electric Corporation in June comes off well.With foreign investors shying away from the project, the company is now relying on the domestic market to absorb a massive M$3 billion in new shares. This will not be easy to do on a falling stockmarket, and Mahathir will now probably want to make sure that he is sedate in the country in the run-up to the IPO so that he can settle any last minute hitches. Meanwhile, with a Cabinet reshuffle on the cards in the coming months, the Deputy Prime Ministers political opponents can be expected to once again press for Anwars removal in favor of Trade and Industry Minister Rafidah Aziz.Since the antecedent of the year, Mahathir has lost two superior figures who played an important role in promoting projects in which he is especially interested. The uncertainties created as a result of the sudden death of businessman Tan Sri Yahaya show the sort of thing that can happen as a result of actual Malaysian cultivation strategies which place heavy reliance on individual entrepreneurs to run major companies in strategic industries. Of particular concern now is the fate of Malaysias national car project which Tan Sri Yahaya headed.The resignation of Selangor Chief Minister Tan Sri Tun Mustapha in mid-April as a result of corruption allegations is another case in point. The loss of Tun Muhamad was not a serious political featherbed to the prime minister, since the latter was not considered a key Mahathir loyalist. However, it has raised questions about the extent to which his successor will be willing to push the multimedia system Super Corridor project and support the maturement of Putra Jaya, the new administrative capital.The sultan of Selangor does not appear to be especially interested in cooperating with Mahathir in selecting a replacement, and has instead made disparaging remarks about transfers of land possession during Tun Muhamads tenure. The loss of key individuals in other economic sectors could also revolutionize the apple cart. The huge M$15-billion Bakun Dam project i n Sarawak, for example, is very closely associated with Tan Sri Ting Pek Khiing. The fact that he suffered a sonant stroke last year cannot be regarded as good news for the hundreds of subcontractors both local and foreign which are expecting him to push the project through to completion.None of these problems, either by themselves or in combination, are likely to trip up a seasoned politician such as Mahathir, but they are going to be distractions from the foreign policy agenda the prime minister would rather follow. Two other developments are worth monitoring. The first concerns the degree to which the current anti-corruption drive can really be expected to take off, while the second concerns the (not entirely unrelated) political revival meeting of UMNO Youth.The current anti-graft campaign really got going in the run-up to the UMNO ships company elections late last year when Mahathir ordered a blanket ban on campaigning in order to keep candidates from showering money and f avors on delegates. Then, at the convention itself, he launched an emotional attack on graft, facial expression that it would destroy the party. The result has been that several corruption-tainted candidates competing in the party elections lost heavily.Since then, proposals have been tabled in parliament designed to increase the effectiveness of the Anti-Corruption Agency (ACA), the Selangor Chief Minister has been forced to resign, and no less than eight other senior officials have been placed under investigation. On this issue, Mahathir appears to have Anwar solidly hind end him, although the latter has sometimes operated as something of a loose cannon, embarking on investigations that could eventually implicate staunch Mahathir supporters such Works Minister Samy Vellu, for example.The latter development also points to a serious problem facing a national leadership wishing to pursue the matter further how to launch a determined attack on graft without undercutting ones own po litical support. For this reason alone, it is a fairly safe bet that the current campaign will not be a comprehensive one. More likely, a few carefully chosen cases will be vigorously pursued in the hope that this will have a demonstration effect on other greedy individuals. Ahmad Zahid Hamidi, the newly elected leader of UMNO Youth, has not been use much time getting the once-influential organization back into the headlines.Although generally regarded as an Anwar man, Mr. Hamidi has an independent streak which could yet embarrass the deputy prime minister and see the youth organization setting off on a course quite different from that of the national leadership in the coming months. The violent way in which a conference on eastern United States Timor was broken up by Malay youths last year certainly put Anwar in the difficult position of having to distance the government from the actions of his political ally.Since then, Mr. Hamidi has taken on far less politically troublesome (f or Anwar ) issues such as the Australian racism debate, Singapore-Malaysia relations and Malay social problems. However, the strength of UMNO Youth to act independently in the future should not be underestimated. It would not be surprising, for example, if the organization turns out to be the prod that keeps the current anti-corruption drive alive much longer than many local politicians would like.