KUALA LUMPUR, April 16 — The Hulu Selangor parliamentary by-election on April 25 could provide an early verdict on Prime Minister Datuk Seri Najib Razak’s economic reform pledges after a year in office.The stakes are high for Pakatan Rakyat as well, which has named Datuk Zaid Ibahim o run in the vacant seat and who is seen as one of the potential successors to its leader, Datuk Seri Anwar Ibrahim.
Najib is trying to woo foreign and domestic investment and revive an ailing ruling coalition that was hit by record election losses in 2008.
The government has lost seven of nine parliamentary and state by-elections since the 2008 polls. Ethno-religious tensions are up sharply in the mainly Muslim country amid a row over the use of the word “Allah” by minority Christians.
Political uncertainty in Malaysia since Election 2008 has helped dent foreign investment — net portfolio and direct investment outflows reached US$61 billion (RM195.2 billion) in 2008 and 2009, according to official data.
Analysts are closely watching the by-election, which Citigroup in an April 8 research note described as a “barometer of the current administration”, and which could point to electoral trends ahead.
The following scenarios may unfold:
Recent U-turns have cast doubt on Najib’s resolve. — Reuters pic
Hulu Selangor is one in a series of “warm-up” polls in which the government hopes to rebuild its confidence before the next general election.
Another parliamentary by-election will follow in Sarawak, before the timber- and oil-rich state on Borneo island heads to statewide polls expected by the end of the year.
Strong wins added to booming economic growth this year could buoy Najib’s confidence enough to call a snap general election as early as next year, although it isn’t due until 2013.
Najib has rolled back parts of a four-decade-old affirmative policy favouring the majority ethnic Malays and introduced its successor, the New Economic Model, to woo investment that has fallen behind neighbours such as Indonesia.
But recent government U-turns on fuel subsidy rollbacks to tackle a 7.4 per cent 2009 budget deficit, and the implementation of a goods and services tax have fuelled doubts over Najib’s willingness to risk a voter backlash.
Analysts say he would be willing to push such reforms, which would hurt poorer Malays who make up 55 per cent of the 28 million population, only if he gets a general election mandate.
Strong wins in Hulu Selangor and the Sarawak state by-election could give him enough confidence to forge ahead with reforms, but Najib has a long track record as a cautious administrator.
Major reforms, therefore, are unlikely until after the next general election, regardless of how the government fares in the months ahead. Markets, which barely reacted to Najib’s announcement of the New Economic Model, would probably take a neutral view of this.
Opposition holds ground, tensions rise
An opposition win in Hulu Selangor would be huge for the Pakatan Rakyat, but would possibly increase political tensions with race and religion becoming triggers.
Najib promised more inclusiveness to woo minorities, who fled to the opposition in the 2008 polls, with a policy known as “1 Malaysia”. But many in his United Malays National Organisation (Umno) are going the other way, playing up their race and religious credentials to pander to majority Malays.
A government loss in Hulu Selangor could embolden conservative elements in Umno. Many support Malay groups who are pushing for the preservation of Malay economic privileges which Najib is trying to dilute.
This could spook investors, further alienate non-Malays who make up about 40 per cent of the population and increase pressure on Najib to hit the brakes on economic reforms.
This could prompt a negative outlook for the markets.
Victory in Hulu Selangor could generate momentum for PR towards next general election. — Reuters pic
A win in Hulu Selangor could give the opposition fresh momentum heading into the next general election.
“If they do well in the by-election and also in Sarawak, then a takeover at the next general election will begin to turn into a possibility,” said political analyst Khoo Kay Peng.
Market reaction to by-elections will be muted. The stock market barely reacts to relatively minor political developments, with over 50 per cent of market capitalisation held by government-owned funds.
But since Malaysia has seen continuous rule by Barisan Nasional since Merdeka in 1957, a general election victory by an opposition with no record of governing nationally would likely lead to an initial sell-off.
Anwar convicted
An opposition win in Hulu Selangor would widen the options for its leader Anwar Ibrahim. The candidate, former law minster Zaid, is seen as one of a small number of possible successors who could take over if Anwar is convicted of sodomy in a trial due to end in late August.
Anwar says the case is a political conspiracy against him, and a conviction will likely anger his supporters, who could take to the streets in a repeat of demonstrations that shook the capital after his sacking as deputy prime minister in 1998.
Markets could react negatively to an Anwar conviction due to the heightened risk of political uncertainty.
Narrow general election win, neither side prevails
Malaysia has a long record of political stability due to an often commanding majority of seats the government has in parliament.
A worst-case scenario would be a general election outcome where the victor holds a very narrow majority in the 222-seat House of Representatives.
Whoever was in opposition would be sorely tempted to engineer defections to bring down the government in a parliamentary vote of confidence, leading to prolonged political and market instability.
This has been a recent feature of politics in Malaysia. Anwar tried to wrest power by trying to lure over government MPs in September 2008, and the defections of opposition legislators led to the fall of the northern Perak state government last year. — Reuters
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