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FACTBOX-Five risks to watch in Malaysia
03 Nov 2009 08:30:09 GMT
 Source: Reuters
KUALA LUMPUR, Nov 3 (Reuters) - Political risk has risen in Malaysia in recent years, most analysts say, with the ruling coalition more vulnerable than it has been for decades.

Following is a summary of key Malaysia risks to watch:

* POLITICAL CONFLICT

Prime Minister Najib Razak is trying to assert his authority on the ruling coalition and stop the opposition engineering a change in government. The National Front which has ruled Malaysia for 52 years recorded its worst defeats in last year's general election, losing control in five states and its once iron-clad two-thirds control of parliament. Voters, especially the country's Chinese and Indian ethnic minorities, abandoned the National Front in favour of former Deputy Prime Minister Anwar Ibrahim's three-party opposition. The political situation is likely to remain fluid, and the trial of Anwar on renewed sodomy charges will provide a flashpoint. Malaysia's political stability has deteriorated significantly over recent years, and investment will be further damaged if that trend continues. [ID:nKLR508265]

Key issues to watch:

-- Malaysia's High Court is expected to set a date soon for Anwar's trial, and rule on the final attempt by his lawyers to get the charges dismissed.

* ECONOMIC REFORM

The government has promised further economic reform to attract increased foreign investment. Najib has rolled back elements of a four-decades old Malay affirmative policy, including the relaxation of the rule that companies must offer stakes to indigenous ethnic Malays. Despite the moves, Najib is wary of upsetting the Malays, a critical vote bank, and treads carefully on economic reform. This may cause him to dilute or abandon his plans as he attempts to remain in power.

Key issues to watch:

-- Government policy announcements. Markets will react negatively if Najib appears to be backing away from reform.

* RACE AND RELIGION

Race and religion have always been explosive issues in Malaysian politics, and although Najib took power pledging a more inclusive approach to ethnic Chinese and Indian minorities, UMNO may cast this approach aside to try to prevent further loss of support amongst its Malay powerbase.

Key issues to watch:

-- If the government tries to woo Muslim voters with more conservative policies based on Islam, investors may be spooked.

* CORRUPTION

Malaysia used to be regarded as one of the region's more reliable countries but worsening corruption and a perceived lack of judicial independence have damaged investment. UMNO's policy of handing out government contracts to what critics say are cronies under a long-entrenched system of patronage within the party has hit Malaysia's competitiveness.

Key issues to watch:

-- How Najib handles the dilemma of bolstering his core support bloc while also cracking down on corruption. Investors are watching to see whether promised reform materialises.

* SECURITY

The insurgency in southern Thailand has implications for Malaysia, particularly if it starts to draw more attention and sympathy from Malaysians for the ethnic Malay fighters across the border. A less likely danger is that al Qaeda-linked groups manage to establish a foothold in the area. Key issues to watch:

-- Signs the insurgency is becoming more of a political issue in Malaysia.

-- Any evidence al Qaeda is gaining traction in the region. (Reporting by Andrew Marshall; Editing by Jerry Norton)


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Last updated:Tue Nov 3 08:33:08 2009