Malaysia in political stalemate

Malaysia's Prime Minister Najib is facing accusations of fraud with the 1MDB fiasco, and the murder of Mongolian model Altantuya Shaaribuu, while the economy is going into a 'nosedive'.

After six and a half years in office, Premier Najib presides over a nation with contracting growth, rising inflation, growing unemployment, a Ringgit at a 20 year low against the US Dollar, significant capital flight, a massive debt problem, disappearing sources of income, and low consumer confidence.

Although some of these problems are the result of global factors such as declining oil and gas prices, low commodity prices, and sluggish growth of major trading partners, Malaysia's problems also greatly exist today as the result of policy failures. Extremist policies have also led to social and ethnic tensions within the country. In addition, the depreciation of the Ringgit and introduction of the GST have put undue hardships on the people.

Malaysia is going through a very intense period of political infighting at the highest echelons of power within the dominant party within the Barisan Nasional (BN), UMNO. Premier Najib recently sacked his Deputy Muhyiddin Yassin, and other ministers and officials in desperation to maintain his grip on power, while the former PM Dr. Mahathir is leading a vanguard of senior UMNO stalwarts to remove Najib from office.

Within corporate Malaysia, there is now a deep realization about how fast Malaysia is falling behind the rest of the world. Many believe that the Prime Minister has not grappled with the real problems facing the nation. This thinking according to sources goes right to the board rooms of companies like Sime Darby and Petronas, some of the premier financial institutions of the land, as well as a number of Royal Households.

However there is a large split in thinking about how to solve the problem, as the Mahathir forces are still viewed with great suspicion by many sections of royalty. Thus any possibility of him being an immediate interim prime minister would never be considered. There is also a general distain for the weak and incompetent opposition in the country, which instead of showing leadership has allowed infighting to surface publicly and dissolve the Pakatan Rakyat.

Consequently, there is no planned takeover of power, coup, of method to remove Najib from office in existence. The prevailing view is one of being stunned and a feeling of impotence, as Premier Najib has managed to centralize most power in the country around the Prime Minister's position.

The immediate task at hand for Premier Najib was to deliver a national budget. There has been massive revenue shrinkage due to falling oil revenue and a corresponding reduction of dividends paid by Petronas to government consolidated revenue. The unpopular GST will not make up the projected short falls over the coming years, which will increase the budget deficit, if government spending is not drastically reduced. This would be politically unpalatable, particularly at a time when Najib is so unpopular. Najib also has to contend with growing unemployment and will be pressured to maintain infrastructure spending, so lucrative contracts can continue to be given out to his supporters.

The flip side for Najib is that with the falling Ringgit, and rising debt, ratings agencies will be looking for fiscal responsibility in the budget. A fiscally irresponsible budget could increase capital flight which is already a major problem for Malaysia's balance of payments.

Najib has tried to do all this. He has chosen the path to spur the economy through nine infrastructure projects, of which a high proportion are in rural areas, Sabah and Sarawak. In addition, a lot of 'sweeteners' have been added into the budget, which are no doubt aimed at shoring up his popular base. From this point of view, it could be construed as an election budget, giving Najib the option to call a snap election, if necessary. At the same time a number of reforms for the civil service have been announced as well as a projection of a lower budget deficit of 3.2% of GDP, down from 6.7% the year before, in an attempt to win support of ratings agencies.

It's a budget that BN members of Parliament would find it difficult to vote against, due to the large numbers of specific programs benefitting their individual electorates.

The weak opposition has become Premier Najib's great strength. PAS President Aman Hadi's push for HUDUD laws eventually broke up the opposition alliance, Pakatan Rakyat. In addition Hadi's indecisiveness on whether PAS would support any no confidence motion against Najib in parliament this week was seen by many in the opposition as treacherous.