Malaysia’s 2013 General Election: Scenario analysis

Ending years of speculation, Prime Minister Najib Razak dissolved parliament April 3, setting the stage for Malaysia’s 13th general election. This will be the most contentious general election in the country’s history and, for the first time, the outcome is uncertain. Although Najib, who sits at the helm of the ruling coalition Barisan Nasional (BN), is personally popular, BN has assumed the title of the “establishment party” and is growing increasingly unpopular. But since late 2011, even the prime minister’s luster began to fade as some see a disconnect between his reform initiatives and reality and partially because the opposition’s attacks have begun to hold sway.

Many ascribed the delay in calling the election to Najib’s hope that his reforms—mainly, the Government Transformation Program and the New Economic Policy—needed more time to incubate. However, as the election date lingered, observers began to speculate that the Najib’s dithering reflected his insecurity and weakness. The delay has also further emboldened the opposition coalition Pakatan Rakyat (PR), led by its charismatic leader Anwar Ibrahim. The past years of unofficial campaigning have been filled with spectacular political theatre, instigated from both sides. Although the political drama has at times obscured clear policy distinctions between the rival political blocs, two distinct visions for Malaysia’s future have emerged. For those doing businesses in or with Malaysia, this election will be critical because any of the possible outcomes will produce a very different result. Below are possible scenarios and their implications.

Best case scenario

The most favorable scenario for international investors, in our view, has the opposition winning the election with Anwar Ibrahim as Prime Minister. Malaysia faces the very real prospect of continued executive mismanagement and, as a result, finding itself a permanent place among many other countries in the comfortable trap of middle income growth. Though progressive, Najib’s reforms have lacked the horsepower sufficient to stoke sustained economic development. Pakatan, on the other hand, is running on an anti-corruption ticket and advocates the dismantling of the long-standing quota system favoring Malays, both of which bode well for addressing two of the most fundamental impediments to meaningful economic growth in Malaysia. With management and social reforms in place, Malaysia’s economic prospects find firmer footing. Malaysia will need to reform its way out of the middle income trap it faces and BN, despite impressive rhetoric, has proven its dexterity at hunkering down in the trap.

However, even this, “best case scenario”, comes with risks. If PR wins, Malaysia is in uncharted waters. Political transition is untested in Malaysia and no one knows how BN or segments within society–racial, religious or other–will respond. Were the PR to win, we would hope for a peaceful handover of power, although social disruptions and violence remain a genuine risk.

Most likely outcome

The Prime Minister stands on relatively solid political ground. He led the country to 5.6% GDP growth last year, made strides to reform Malaysia’s draconian social and political laws, and presented annual cash handouts to low-income households. In the end, we expect BN will most likely edge out PR, albeit with a reduced electoral majority, particularly with Chinese and young, urban Malaysians who have an appetite for change. It also remains to be seen which way the country’s 3 million new voters will lean.

The size of any lost ground would dictate Najib’s ability to retain his position. He could conceivably withstand ceding 5-10 seats to PR and maintain his job but much beyond that he stands the very real risk of an internal coup. The question then becomes, what happens to the state governments. It is conceivable that PR gains 1-2 more states, most likely Perak and Negeri Sembilan which both seem vulnerable. Empowered with 2 more states, PR would then govern 6 out of the 13 states in the federation.

If Najib were to emerge from the election as Prime Minister, he would be empowered with the electoral mandate that he did not have in 2009 when he was tapped to replace then Prime Minister Abdullah Ahmad Badawi. Such a mandate would be sufficient to push through bolder reforms, if the political will exists, and may be the boost Najib needs to demonstrate the real leadership, which he seems capable of delivering.

Possible scenarios that could lead to greater uncertainty

There are two possible scenarios that would lead to greater uncertainty. First, should BN win but suffer further rebuff at the polls to the extent that Najib resigns, he would most likely be replaced by Tan Sri Muhyiddin Yassin, Malaysia’s Deputy Prime Minister and Education Minister. Muhyiddin is less internationally sophisticated, much more conservative and less likely to spearhead any meaningful reforms. He is also more racially divisive and would likely further entrench Malay interests rather than dismantle them. Policy making under a Muhyiddin government would conceivably be more erratic and less friendly to international business by means of corruption and favoritism of Malay interests.

Second, if BN were desperate enough, it may attempt to manufacture a victory through vote-rigging, or invoke some pretext to postpone a transfer of power and thereby retain control of the government. The likelihood of either of these scenarios playing out cannot be ruled out.

What happens now?

Typically the process from here happens very fast. By the end of this week or early next week, the Election Commission (EC) will announce the date of the election, with party candidates for all 222 national seats and 505 state assembly seats. The EC builds into that consideration 10-14 days for official campaigning. The election will likely be held sometime in April.

PHOTO FROM FLICKR | Esharkj STREAM  | http://www.flickr.com/photos/esharkj/6152515530/in/photostream/