http://business-times.asia1.com.sg/views/story/0,2276,19780,00.html?

August 31, 2001

EDITORIAL

Malaysia in uncertain times

MALAYSIAN Prime Minister Mahathir Mohamad has once again confounded critics of his economic policies - this time by staving off thus far a widely predicted recession.

The US slowdown has hit exports of electronics - a sector that accounts for 20 per cent of Malaysia's total manufacturing and 57 per cent of its exports. Dr Mahathir's RM3 billion (S$1.4 billion) supplementary Budget unveiled in March seems to have enabled Malaysia's economy to keep its head above water, with GDP growth of 0.5 per cent in the second quarter compared to the same period in 2000. This is an achievement, even if the growth was small, and the news comes just in time for the 44th anniversary of the nation's independence today.

But there are fears of substantial job losses to come this year:

Malaysia's unemployment rate rose to 4 per cent in the second quarter, a two-year high, from 3 per cent in the firstquarter. The Malaysian Industrial Authority reports that foreigners applied to invest a mere RM6.71 billion in the manufacturing sector in the first seven months of the year, against the RM30.22 billion for the whole of last year. So, unless investment and growth pick up again by the year-end, as the government hopes, increased unemployment could add another element to a simmering political cauldron.

Indeed, managing the political, as well as the economic, expectations of Malaysians in the next few years is not going to be easy. Dr Mahathir has declared this will be his last term in office. While the next general election is not due until 2004, segments of the dominant Malay community have become noticeably distanced from Dr Mahathir's Umno, the senior partner in the ruling National Front coalition. The fate of Anwar Ibrahim, the jailed leader once in line to succeed Dr Mahathir, has aroused community anger like nothing before. And however much Dr Mahathir and his party might wish it were otherwise, Anwar remains a factor in the political equation. By throwing its support behind Anwar, Parti Islam se-Malaysia (PAS) has become a formidable force in the past two years. Clearly, PAS has had a major influence in setting the political agenda. This has spurred Umno into sprucing up its image. More than a dozen officials, mainly leaders in branches, have been suspended in recent months for various nefarious activities.

In the meantime, the government has become ever more wary of political activity. There is an official ban on public political rallies. PAS has been accused of issuing statements supporting violence. In recent weeks, police have arrested 16 members of a group that officials claim learned guerilla tactics in Afghanistan, fought against Indonesian Christians in the Maluku islands, and staged robberies and murders in Malaysia to help install an Islamic state. Some of those arrested were PAS members - including the son of the party's outspoken spiritual leader. The judiciary has become more assertive and courts have found mala fide in some of those held under internal security laws which allow for detention without trial. Equally, the Malay community also doesn't seem to have been persuaded of a looming threat to national security from Islamic militants.

Placating the Chinese

The Chinese community was pivotal in helping the ruling coalition retain power in the 1999 general election. But a move by the Malaysian Chinese Association, a junior partner in Dr Mahathir's coalition, to take over a popular Chinese-language newspaper has caused a ruckus. This comes on top of years of Chinese disquiet about the continuation of the special rights policy, especially in gaining coveted places in the universities. To keep them on-side, an easing of entrance rules for institutions of tertiary education has been proposed. But special rights for Malays are deeply entrenched in the political system and its dilution may trigger a backlash. How these forces will play out remains to be seen. All who wish Malaysia well must hope that the outcome will be peaceful.