Malaysia: New Millennium, New Pressures On Mahathir


Dr James Chin

Prime Minister Mahathir Mohamad suffered a major personal defeat when more than half of the Malay voters, the core of his legitimacy, voted against him and UMNO in the November general elections. To add insult to injury, he lost control of the oil-rich Terengganu state as well as Kelantan state to the opposition Islamic PAS party.

To forestall internal criticism, Mahathir cleverly announced that he would 'retire' after the five-year term. This, however, did not stop UMNO veterans from openly, and correctly, accusing the 75-year old Prime Minister (and his main advisor Finance Minister Daim Zainuddin) of being the main cause of UMNO's electoral woes. To prevent moves to dislodge him, Mahathir announced that the date for the UMNO General Assembly would be held in May instead of June, a month ahead of schedule. The UMNO General Assembly elects the party leader and all the top UMNO positions. It is often referred to as the 'real' elections as the UMNO president and his deputy automatically become the country's Prime Minister and deputy PM. Those immediately below the top two posts are normally given senior cabinet positions as well.

By holding the UMNO General Assembly earlier, Mahathir is hoping for two things.

First, that the 'no contest' rule for the top two UMNO positions will be retained. This rule was brought in seven years ago to stop 'excessive politicking' within UMNO which was 'destructive to Malay unity'. The real reason was of course to prevent the then deputy UMNO president, Anwar Ibrahim, from challenging Mahathir for the top spot. Anwar and his backers supported the 'no contest' ruling as they knew that Anwar did not have the numbers to topple Mahathir. Back in 1996, the Malaysian economy was booming and Mahathir had just won his biggest electoral victory in the 1995 general polls. The scenario this year could not be further apart- not only did Mahathir lose the Malay vote, UMNO's internal critics are getting bolder in calling on Mahathir to resign before the current term expires in 2004.

Second, Mahathir is hoping to consolidate the position of his hand-picked deputy Abdullah Badawi. Badawi, who has not been formally elected as deputy president, is seen widely within UMNO circles as politically weak, without vision or colour. Badawi, one of the very few in UMNO who is not tainted by 'money politics', does not have a power base in UMNO - he does not even control Penang UMNO, in his home state. He will be vulnerable to pressures from Mahathir and other UMNO power brokers. Hence the theory in UMNO circles that Badawi will likely be accepted by all factions as Mahathir's successor for all the wrong reasons: he is weak, not a threat to anyone, and have the lowest number of enemies.

If Badawi is confirmed at the upcoming UMNO General Assembly as deputy president, Mahathir's long term plan to protect the business interests of his children and his closest cronies will be more secured. Mahathir's three sons (Mukhriz, Mokhzani and Mirzan), better known in Kuala Lumpur's corporate circles as 'the boys', and his two daughters, Marina and Melinda, are conservatively estimated to be worth at least three billion ringgit (about A$1.2 billion). 'The Boys' hold well over 200 company directorships and interests in an array of businesses, many of them publicly listed. If Badawi succeeds Mahathir, he will not be able to move against his predecessor's children and cronies as he needs their continued support to stay in power.

There is of course the slim chance that Mahathir's plans for the upcoming UMNO General Assembly may go astray. There are indications that the UMNO grassroots are unhappy and may stage an internal revolt. If the revolt is wide enough, it may force Mahathir to lift the 'no contest' rule.

Mahathir is hoping that he will be politically strengthened by an upswing in the Kuala Lumpur Stock Exchange (KLSE), the barometer used by the political elite to judge Malaysia's political economy. The economy is expected to grow between 5-6 per cent in 2000. This is a V-turn from the 7.5 per cent contraction in 1999 -- the worst economic slump since independence in 1957. As a result, the KLSE is expected to continue its rise from the current level of about 850-860 points to test the 1000-phycholigcal level by mid-year.

The optimism is also in part due to Malaysia's expected reinstatement in the Morgan Stanley Capital International (MSCI) indices -- the radar screens of many foreign portfolio managers - this coming May (This may not happen as the two previous attempts to reinstate Malaysian stocks into the MSCI were aborted).

The downside is that Malaysia may be forced to re-value its fixed ringgit-US dollar rate to RM3.50-US$1 from the current RM3.80-US$1.

The close link between the KLSE and politics was best demonstrated the day after Mahathir left on a European tour on 12 January. Next day, four key opposition leaders were arrested on sedition and related charges. Normally mass arrests like these would spark a public outcry. This time it did not as the KLSE staged a massive rally, reaching a high of 953 points in the days immediately after the arrests. The majority of Malaysian polity was obviously more interested in taking profits on the KLSE than a crackdown on the opposition.

The timing of the crackdown was itself interesting: it occurred 24 hours after Mahathir flew out of the country, leaving Abdullah to face the world media and condemnation from major Western powers such as the US, EC and Australia. One can only conclude that it was a classic Mahathir script: by being out of the country, Abdullah will be the regime's public face and will be directly associated with the crackdown. If Abdullah performs well in deflating the criticisms, he will strengthen his standing as Mahathir's successor. If he performs badly, he will take most of the blame. Either way, Mahathir wins politically.

Despite all the political manoeuvring’s, the general consensus among UMNO grassroots is that Mahathir will have to go after this term. He has lost too much political legitimacy in the recent election

WATCHPOINT: Expect the mainstream media, all controlled by Mahathir cronies, to exhort the virtues of the 'no contest' ruling; and more positive coverage of Badawi as Mahathir's designated successor. Also expect anti-Mahathir voices within UMNO to become stronger and louder in the coming months, even if they are not reported in the mainstream media.


About our company:

AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.

Go to top