KUALA LUMPUR, Aug 7 (Reuters) - Malaysian Prime Minister
Najib Razak could call national elections anytime between now
and April 2013, but he may wait to announce a generous budget on
Sept. 28 as he plays a risky waiting game.
The ruling National Front coalition is widely expected to
win the election but further gains by the opposition after its
strong performance in 2008 could undermine Najib's standing.
Holding back until after September would give Najib more
time to shore up flagging support among ethnic Chinese voters,
and to convince Malaysians that his reform efforts are working
as he tries to reverse the ruling coalition's worst election
showing in 2008.
It would also make him vulnerable to any worsening of the
global economy or the emergence of fresh corruption scandals
that could push swing voters over to the three-party opposition.
The political atmosphere is becoming more tense as the
election looms. Key opposition figures have complained of hate
speech and acts of intimidation directed at
Malaysia's economy grew at an annual pace of 4.7 percent in
the first quarter of the year, the central bank said in May,
slowing from the previous three months but beating market
expectations as firm domestic demand helped offset a slump in
exports. Economic growth is expected to slow to 4-5 percent this
year as exports suffer, the central bank has said.
RATINGS (Unchanged unless stated):
Following is a summary of key Malaysia risks to watch:
The polls will be a test of Najib's efforts to reform the
state-heavy economy and roll back repressive security laws
without upsetting the status quo that has seen his dominant
United Malays National Organization (UMNO) party rule since
independence in 1957.
The election promises to be the most fiercely fought in
Malaysia's history, and already tensions are high after
opposition leader Anwar Ibrahim was charged over his role in a
major street protest for electoral reform in April.
In addition, senior opposition politician Rafizi Ramli, who
made a series of revelations about alleged government
wrongdoing, was arrested in early August for disclosing bank
details related to a high-profile corruption case involving the
family of a former minister.
Meanwhile, the government is planning a fresh round of cash
handouts to poorer families, Deputy Prime Minister Muhiyuddin
Yassin said in June, a move aimed at shoring up support among
Najib announced bonuses worth half a month's salary for
civil servants and 500 ringgit ($160) each for government
pensioners would be paid ahead of Eid-Al-Fitr celebrations later
In July, Najib -- facing growing public demand for greater
political and social freedoms -- said he would scrap the
colonial-era Sedition Act, which has been used over the years to
Uncertainty over the timing of the vote could harm the
economy as companies hold back on spending, while an overly
generous budget would sharpen concerns over Malaysia's chronic
Najib's personal approval rating remains high but support
for his ruling coalition continues to slide. According to a June
survey, Najib's approval rating eased one point to 64 percent
while the coalition's popularity fell 6 points to 42 percent.
Two July defections from coalition in what has traditionally
been a safe bank of seats in the east Malaysian state of Sabah
have added to Najib's worries.
What to watch:
- Clues about the timing of the election. Signs that the
global economy is deteriorating more rapidly could prompt Najib
to rush to the polls before Malaysians feel the pain from a
- Large anti-government protests, and the government's
response to them, as well as racial and religious relations.
- Najib is trying to reach out to non-Muslim minorities who
make up about 40 percent of the population. Last year, he set up
diplomatic ties with the Vatican in a bid to win Christian
Najib pledged to reform a decades-old affirmative action
policy favouring ethnic Malays and replace it with a "New
Economic Model" to promote greater competition and boost
domestic investment that has lagged in recent years.
But the prime minister has since softened his stance on
reforming the policy for fear of alienating conservatives among
the majority ethnic Malays who make up about 60 percent of the
electorate. Investors and the opposition complain that the
race-based policy has been widely abused, fostering cronyism.
The government is implementing a $444 billion initiative,
called the Economic Transformation Program, that is aimed at
propelling the country to developed nation status by 2020.
The government says the ETP has helped it turn the corner on
years of sub-par investment, pointing to a 19 percent jump in
private investment last year. Critics say the ETP is overly
reliant on government funding, which could end up putting
further strains on a budget deficit that hit 5.4 percent in
The central bank has kept its benchmark interest rate on
hold at 3 percent since May 2011, a position it maintained in
July. The government expects the budget gap to fall to 4.7
percent this year but that target could be put at risk by
election spending and a worse-than-expected global slump.
Many analysts believe Najib is waiting until after the
election to announce politically sensitive cuts to fuel
subsidies that he has described as economic "opium". That move,
as well the implementation of a new goods and services tax, is
seen as crucial to tackling the chronic budget deficit and
reducing the government's heavy dependence on the oil sector.
What to watch:
- How the global slowdown affects the Malaysian economy, and
how this affects development spending.
- A possible rise in Malaysia's budget deficit if the economy
slows and the government ramps up spending in an election year.
($1 = 3.1060 Malaysian ringgits)
(Editing by Daniel Magnowski)