Mahathir Warns Najib of Malaysia Coalition Woes: Southeast Asia

Photographer: Goh Seng Chong /Bloomberg

Mahathir Mohamad, Malaysia's former prime minister, attends an interview in Kuala Lumpur, Malaysia. Close

Mahathir Mohamad, Malaysia's former prime minister, attends an interview in Kuala Lumpur, Malaysia.

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Photographer: Goh Seng Chong /Bloomberg

Mahathir Mohamad, Malaysia's former prime minister, attends an interview in Kuala Lumpur, Malaysia.

Mahathir Mohamad, Malaysia’s longest- serving leader, warned Prime Minister Najib Razak against measures that may alienate members of the ruling coalition and threaten its 55-year grip on power.

“The problem here is not Najib -- he is a leader of a weak government,” Mahathir, who ran the country for 22 years before stepping down in 2003, said in an interview in Kuala Lumpur. Any defections from the ruling Barisan Nasional coalition could “result in BN losing the next election,” the 87-year-old said.

The 13-party alliance has ruled since independence in 1957 and now controls 63 percent of Malaysia’s 222-member parliament. Najib, who stoked speculation he would call an election in June or July after making a series of campaign-style appearances, must call a vote by early next year.

Najib, the son and nephew of two former premiers, has maintained high approval ratings after his government provided cash to the poor and pledged to allow more freedom of expression. That contrasts with other members of his United Malays National Organization party who have refused to step aside in favor of younger candidates, according to Farish Ahmad Noor of the S. Rajaratnam School of International Studies.

“I doubt that either side will be able to win an overwhelming victory,” he said in an e-mail. “Under such circumstances, Najib’s delay may serve the opposition better as they have more time to campaign among the young and the fence- sitters, which they are doing already.”

Najib U-Turns

The prime minister’s approval rating remained steady in June at 64 percent, according to a survey by the Merdeka Center for Opinion Research. By contrast, those who were “happy” with the government fell six percentage points to 42 percent, the survey showed.

The government “is weak because it has to continuously relent to demands,” said Ibrahim Suffian, a political analyst at Merdeka. “Pressure groups realize that their support is needed to win the elections. You see a situation where he has to make concessions. There have been a number of U-turns.”

In the past year, Najib has backtracked on several initiatives to boost the country’s fiscal position and competitiveness. He delayed rolling back state subsidies on essential items and implementing a goods and services tax. He also dropped a proposal to make civil servant salaries more merit-based.

The ruling coalition won its lowest-ever share of the vote in 2008, when former Prime Minister Abdullah Ahmad Badawi led the country. Najib told reporters in March that winning back the two-thirds majority that BN held from 1969 until the last election would be “challenging.”

‘More Popular’

UMNO’s main coalition partners -- the Malaysian Chinese Association, Malaysian People’s Movement Party and the Malaysian Indian Congress -- have undergone leadership problems that have weakened the alliance, Mahathir said. Still, he added, the coalition is better off than it was in 2008.

“Najib is much more popular now,” said Mahathir, who won five consecutive elections as prime minister. “Previously, the people were not against BN, but they were more angry with the previous prime minister, his family and son-in-law,” he said, referring to his successor Abdullah and Khairy Jamaluddin, the current leader of UMNO’s youth wing.

Najib last year unveiled a record 232.8 billion ringgit ($75 billion) budget that increased civil servant salaries by as much as 13 percent and removed school fees for primary and secondary students. Households with monthly incomes of 3,000 ringgit or less received one-time cash handouts of 500 ringgit.

The outlays contributed to negative fiscal pressures that are unlikely to be addressed until after the election, according to Fitch Ratings.

Reform ‘Uncertain’

“Given the current domestic political context, Fitch does not expect policy makers to address the underlying weaknesses in the public finances before elections that must happen by end- June 2013,” the credit-rating company said in a report yesterday. “Prospects for fiscal policy management and structural fiscal reform after the elections are uncertain.”

The FTSE Bursa Malaysia KLCI Index (FBMKLCI) has gained 6.9 percent this year, trailing benchmarks in the Philippines, Indonesia, Thailand and Singapore. The ringgit has gained 2 percent in that time, fourth-most among Asia’s most-traded currencies.

The KLCI was little-changed at 1,636.24 at 10.25 a.m. in Kuala Lumpur today, while the ringgit gained 0.3 percent.

Southeast Asia’s third-largest economy expanded 4.7 percent in the first three months of 2012 from a year earlier, the least in three quarters, on weaker export growth, official data show. Najib said on July 17 that annual expansion of 5 percent to 6 percent is essential to avoid “many problems.”

Corruption Scandals

Najib’s party and the ruling coalition have faced several corruption scandals that have tainted its image. Malaysia ranked 60th out of 182 nations last year in Transparency International’s corruption perceptions index, down four places from 2010, when 178 countries were included.

Shahrizat Abdul Jalil stood down as minister for women, family and community in April at the end of her term as senator after her husband was charged with corruption. Two former transport ministers in a coalition party were separately charged over financial irregularities at an industrial zone, while Mohd Khir Toyo, former head of Malaysia’s Selangor state, was sentenced to one year in jail for graft in December.

Najib has sought to appeal to younger voters by appearing on radio stations and maintaining accounts on Twitter and Facebook. He is strategically distancing himself from the party through a campaign “that is more presidential in nature,” said Ong Kian Ming, a political analyst at UCSI University.

“UMNO is a party that is seen as corrupt and that has a lot of warlords with vested interests,” Ong said. “He’s effectively saying come and vote for me even if you don’t like these things.”

To contact the reporters on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net; Haslinda Amin in Singapore at hamin1@bloomberg.net; Elffie Chew in Kuala Lumpur at echew16@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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