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October 29, 2007

MALAYSIA
Rising prices an election obstacle for Malaysian govt

Malaysia's economy is riding high on a commodities boom, but public anger over rising prices and a looming US slowdown could spell trouble for the government as it heads towards elections.

Prime Minister Abdullah Ahmad Badawi has until March 2009 to go to the ballot box but is expected to call snap polls within months.

Opposition parties say he is keen to head off growing disenchantment with his administration, and to sideline former deputy premier Anwar Ibrahim, who is barred from standing from office until April 2008.

The one-time finance minister was sacked in 1998 and convicted of corruption in a case widely seen as politically motivated. He has vowed to return to politics and is targetting the high cost of living as an election issue.

"I have been going around the country and there is a lot of anger over increases in prices of basic food items," Anwar told AFP recently.

"Certainly, voters are angry. It will have a political backlash on Abdullah's government. Price rises will be on the top of our election campaign menu," said the political dissident, who now represents the opposition Keadilan party.

On a national level, robust prices for Malaysia's vast exports of palm oil and rubber are supporting economic growth, which is tipped for 6.0 percent this year. The stock market has also recovered from recent turmoil.

Under Abdullah's stewardship, economic growth has averaged a commendable 5.9 percent a year -- while inflation has been "well contained" at a 2.6 percent average, Citigroup said in a research note.

It added Abdullah "will likely want to capitalise on improving economic sentiments and recent by-election successes of the ruling Barisan Nasional coalition" and go to the polls sooner than later.

But many believe that the modest inflation figures do not reflect reality.

As consumers feel the pinch from high costs and stagnant wages, they add, there is a growing sense that prosperity is on the decline.

"The headline numbers look strong but our feedback is that on the ground, people are not happy. A lot of consumer items may not be captured by the CPI (consumer price index)," said Lee Heng Guie, chief economist at CIMB Investment Bank.

Lee said high oil prices will continue to put pressure on the economy.

Sharp fuel price hikes in February last year triggered rare protests in Kuala Lumpur, attracting thousands who squared off against riot police and water cannons in an indication of the strong feeling the issue arouses.

"Uncertainties with regards to the US economy may also eventually impact on Malaysia's economy," Lee added. The US is Malaysia's largest trading partner.

Tony Pua, economic adviser to the opposition Democratic Action Party (DAP), said that although commodity prices are enriching farmers, the fruits of an expanding economy have not been evenly distributed.

"The middle and lower income groups are not experiencing the growth in the macro-economy," he said. "On a micro level, prices have gone up. The urban folks are probably the ones suffering the most."

"For rural folks dependent on agriculture, it's a great time for them. They have never been richer (and) that's where the power base is," he said.

Over 60 percent of Malaysia's multi-racial population of 27 million is ethnic Malay and a significant proportion live in rural areas.

They are traditional supporters of Abdullah's ruling party, the United Malays National Organisation (UMNO).

Another factor as Abdullah mulls when to call an election is the trickle-down effect of three major infrastructure development projects launched this year to spur growth in the impoverished Malay heartlands.

Lee from CIMB, which is headed by Nazir Razak, the younger brother of deputy prime minister Najib Razak, said the resulting feel-good factor will only take off well into 2008.

"We think the elections will not happen anytime this year. Our house view is towards the end of next year," he said.

DAP's Pua said party officials see March as a likely polling date, but that it could be even sooner.

"If you hold elections based on the stock market which is doing relatively okay, it's possibly a good time" soon, he said.

The Barisan Nasional coalition has ruled Malaysia for almost half a century. In the March 2004 general elections, Abdullah led the coalition to a landslide victory, winning 198 out of 219 parliamentary seats.

Courtesy  AFP

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