Malaysia holds an unusual, geographically divided position in Southeast Asia. Its mainland, including the capital city of Kuala Lumpur, perches on the southern half of the Malay Peninsula south of Thailand. Immediately to the east, over the South China Sea on the island of Borneo, lie two large Malaysian territories — Sarawak and Sabah. Malaysia's population of 27 million consists of 58 percent ethnic Malays, 24 percent Chinese, 8 percent Indians, and a host of smaller indigenous groups. The sprawling combination of peninsular and insular geography and the stark ethnic diversity of its people give the country its geopolitical shape. For two decades, Malaysia has experienced strong economic growth assisted by stable government policy. It has become an international business and technology hub as well as a regional energy provider. But following the 2003 departure of former Prime Minister Mahathir Mohamad, who modernized the country while ruling it for two decades largely unopposed, Malaysia finds itself caught up in a seemingly endless internal struggle as formerly marginalized groups vie for a better position in the political order. The global economic situation and the government's failure to effectively respond have brought Malaysia's internal politics to a boil. Now, the dominance of the Barisan Nasional (BN) coalition government — which has ruled the country since independence from Britain in 1957 — is slowly but surely ebbing away. The country thus faces a prolonged period of political uncertainty that threatens to detract from its long-standing reliability on policy issues, in turn jeopardizing its attractiveness for foreign business and investment.
Political Uncertainty
Since independence, Malaysia's top priority has been preserving the dominance of the ethnic Malay people despite the influence of the Southeast Asian country's significant ethnic Chinese population and of its mostly Chinese neighbor to the south, Singapore. At present, Prime Minister Abdullah Amad Badawi is striving to keep the broader BN coalition — made up of Malay, Chinese and Indian parties — together and firmly under the direction of his own party, the United Malays National Organization (UMNO). Only in this way can he serve the interests of ethnic Malays and retain their half-century-old privileges without completely disenfranchising the coalition's Chinese and Indian partners. If the 14-party BN coalition disintegrates, however, the UMNO will lose control and the opposition — led by Anwar Ibrahim's People's Justice Party (PKR) — would have the opportunity to make major advances. And Anwar's faction has already pledged to eliminate the Malays' special status. The current political crisis stems from the possibility that the ruling coalition looks weaker than ever before, and closer to the brink. As STRATFOR predicted earlier this year, Malaysia's March elections dealt a
harsh blow to Abdullah and the UMNO. Since then, support for the prime minister has dwindled both among coalition partners and
within his own party. Abdullah's decision to lift fuel subsidies, while economically necessary, has damaged his public approval ratings. The BN coalition has not fallen apart yet, and the parties with the highest proportion of representation in parliament still publicly back Abdullah. But coalition partners will support Abdullah only as long as their constituencies allow them to do so, and popular opinion is not on his side. Of course, a dissolved government does not necessarily ensure that BN would lose its dominance — Abdullah could simply be replaced with a new prime minister and the coalition could carry on. But the loss of Abdullah — in the absence of an equal or more effective replacement — would be an excellent opportunity for the opposition to make unprecedented advances against the BN. The opposition's leader,
Anwar, remains a thorn in the side of his former party, the UMNO. His departure from UMNO occurred after he was arrested and kicked out of the party in 1998, most likely with the approval of Mahathir, who was prime minister at the time. Having survived the purge, Anwar has returned to lead the popular resistance against the UMNO. Anwar hopes 30 members of parliament will defect by September, giving his party the upper hand in the legislature. He is popular among a range of constituents, including secular groups, Islamists and ethnic Chinese, and he has connections with international politicians and VIPs. The July 16 arrest of Anwar on sodomy charges seemed like 1998 all over again, and drew national and international media attention. The U.S. Department of State voiced concern, and most observers widely believed Abdullah or UMNO proxies to be behind the police action. Amid the hubbub, police released
Anwar just one day later. Abdullah likely played a role in Anwar's release. The sodomy charge may have reduced some of Anwar's support (especially in Muslim communities), but it clearly could not have succeeded in getting him put behind bars. Unable to bring him down legitimately, Abdullah's only tactic left is to minimize the uproar over Anwar's arrest so he can concentrate on winning back his party's confidence at an important conference in December. Consolidating the UMNO's support is prerequisite to regaining control of the wider BP coalition and returning to Malay-dominated status quo. In response, Anwar will work to depict the current government as paranoid, and will try to
exacerbate fractures within the coalition structure wherever an opportunity presents itself. Ultimately, even if Abdullah succeeds in unifying the UMNO, reconsolidating the BN coalition will be a hard task. Individual parties and parliamentarians will decide if that happens depending on how well they retain support from their constituencies and financial backers in the months ahead. If they think they can salvage their reputations after Abdullah's downfall, they may defect from the coalition. But they may decide to play it safe, lest they destroy their own reputation in bringing the prime minister down.
Business and Energy
Like other Southeast Asian states, Malaysia relies on exports to keep its economy chugging along. Real gross domestic product (GDP) growth consistently tops 5 percent, and stays well above inflation rates. Malaysia's manufacturing sector is all-important, accounting for 75 percent of exports — mostly of electrical machinery and electronics — and giving Malaysia its trade surplus of about 13 percent of GDP. But with Malaysian politics in upheaval, international businessmen and investors have grown uneasy. Malaysia's role as a Southeast Asian industry and technology hub depends on the reliable and predictable business environment created by Mahathir and his UMNO cohorts over the last two decades. But when policy becomes unpredictable, investors look elsewhere; for a country that depends on exporting manufactured goods with the help of foreign firms and their technology, this is a very bad thing. Recently, economic growth has slowed, exports have diminished and consumer spirits have soured. The higher cost of materials such as steel and cement is threatening the construction industry, and stocks in Malaysian tech firms are slipping. The energy sector is one of the crucial areas where the recent political turmoil could affect Malaysia's ability to do business. Malaysia is a net energy producer, exporting oil and natural gas to regional neighbors through its
state-owned giant Petronas. Though energy accounts for only 14 percent of Malaysia's exports, Petronas supplies the government with 32 percent of the government's total revenues and the vast majority of the country's domestic fuel supply. With energy prices soaring across the globe, the government has moved to overhaul its costly domestic energy policy. In June, Abdullah called for the country's domestic
fuel subsidies to be lifted. The subsidies have ensured that Malaysians enjoy cheap gas, but have led to excessive and wasteful consumption and a ballooning government deficit. At this point in time, Kuala Lumpur cannot afford to continue paying the difference between its own price ceilings and the international market value. Instead, it has opted to let domestic prices rise while levying new taxes on energy companies' windfall profits. The revenues will fund new subsidies directed at those who have been hit hardest, reducing the public reaction to the price hikes. The windfall tax bodes ill for the long-term competitiveness of Malaysian firms. If they do not stay competitive in the international energy market, their operations will suffer and eventually the country could become a net energy importer, greatly reducing its geopolitical heft. But windfall taxes are popular, and Abdullah cannot afford to alienate too much of the public. The high costs of food and fuel have contributed to the growing opposition movement, and will continue to do so — especially when the full fuel price hikes take effect in August. Anwar has promised a return to low fuel prices if his party comes to power, and as the public grows increasingly uneasy, such promises will become more attractive. Meanwhile, pressure on the coalition government will mount. But even with spiraling inflation and the global economic downturn costing the ruling coalition support, Malaysia's opposition may not have a chance of actually taking power. Anwar needs 30 members of parliament to withdraw from the BN coalition to induce its collapse, and it is difficult to gauge whether that will happen. Only three months have passed since March elections brought the current members of parliament (MPs) into power, many of whom are not certain how their own credibility would fare if they abandoned Abdullah. Moreover, dissolving parliament means another round of elections, more unrest, and the risk of driving out foreign investors and sending Malaysian markets plummeting. In short, for most MPs, the current situation is better than the easily imaginable alternatives.
Net Assessment
Malaysia's internal political strife reveals the tensions inherent in its geographical and ethnic makeup. The country is radically ethnically diverse. And though an inclusive parliamentary model has brought the majority Malay and minority Chinese and Indians together, the model is inherently volatile unless it can be unified by a guiding influence. From 1981 on, Mahathir served this purpose, uniting Malaysians and leading them toward modernization. His departure from office in 2003 triggered the ongoing crisis, while the current global economic slowdown has merely fed the flames. Malaysia covers a wide and eminently awkward geographical setting — its borders are unnatural and highly artificial. If a competent ruler cannot unite its disparate groups, they are destined to quarrel.
