Malaysia’s political saga deepens

By Edward Russell | 18 September 2008

With the ruling Barisan Nasional coalition's first defection, opposition leader Anwar Ibrahim’s threats to form a new government gain strength.

While Malaysia’s opposition leader Anwar Ibrahim failed to fulfil his promise to form a new government this week, the country’s first ever coalition defection has improved his chances of success. Wednesday’s walk-out by the Sabah Progressive Party from the ruling Barisan Nasional (BN) coalition guarantees that the country’s six-month long political limbo will continue.

The decision by the Sabah Progressive Party’s two parliamentarians to leave the coalition is an unprecedented move in Malaysian politics. No member of the ruling 14-party BN coalition has ever defected in the coalition’s 39 years of leadership.

Wednesday’s move is the latest in a series of political blows to BN’s leadership since the coalition lost its two-thirds majority in the March 8 elections.

So far, the country’s economic indicators have remained strong and according to Bank Negara Malaysia, Malaysia’s central bank, the ringgit closed up less than 1% against the dollar at M$3.4470 on September 17. As of August 29, the latest available date, Bank Negara had M$400.2 billion ($122.6 billion) in foreign reserves.

But observers argue that a prolonged lack of political certainty will not go unnoticed.

Standard & Poor’s equity research vice-president and head of research, Lorraine Tan, says that while the rating agency believes Malaysia is “fundamentally attractive”, the continuation of political uncertainty is “weighing on sentiment (and) raising risk perception”.

Since the beginning of Malaysia’s political woes, the business community has indicated its desire for the government, regardless of party, to continue with its current policy mix.

“Businesses [in Malaysia] want stability, including political, economic and medium- to long-term guarantees,” explains Standard & Poor’s analyst Takahira Ogawa.

In the second quarter, the latest period for which numbers are available, the country's GDP grew 6.3% year-on-year to M$188.8 billion ($54.66 billion). However, in July year-on-year industrial production growth slowed to 1.8% from 2.2% in June. At the same time, the consumer price index rose to 8.5% year-on-year from 7.7% a month earlier. Read more.........