Q+A-Implications of Malaysia's Sarawak state polls

KUALA LUMPUR, April 15 Fri Apr 15, 2011 1:22am EDT

KUALA LUMPUR, April 15 (Reuters) - Malaysian Prime Minister Najib Razak faces a key test when the country's largest state heads to the polls on Saturday, with its outcome likely to trigger snap general elections. [ID:nL3E7FC01W]

A strong win in Sarawak would place Najib on track to a solid general election mandate that could provide him with fresh impetus to execute economic reforms held back by populist pressure. The following are questions and answers on the implications of the state election.

WHY DOES SARAWAK MATTER?

Sarawak will signal how far Najib has to go to revive his National Front ruling coalition after it was hit by record losses at the last general elections in 2008.

With the state providing the Front with a fifth of its seats in parliament, the polls will also test the opposition's ability to challenge Najib's hold on national power.

Financial markets are tracking the poll, as potential investors such as Rio Tinto and China's top aluminium group Chinalco are mulling plans to set up smelters in the state with the Bakun hydropower dam coming onstream this year.

(For a FACTBOX on why the Bakun dam matters, click on: [ID:nL3E7ES0B8])

WHAT HAPPENS IF THE RULING COALITION SECURES A STRONG WIN?

If Najib scores a convincing win in Sarawak, he could call for early general elections before the end of the year, although they are not due until 2013. He will need to wrest control of at least two of five states lost to the opposition and regain two-thirds control of parliament to achieve a mandate strong enough to allow him push through reforms.

The key reforms which investors are hoping to see are a rollback of fuel subsidies and the implementation of a twice delayed goods and services tax.

Share prices of Sarawak's politically linked companies, which are mainly involved in timber and infrastructure, would be boosted by a strong National Front win.

The benchmark stock index would also likely rise in the coming months as investors bet that Najib would soon call for snap polls.

(For a Table on the main Sarawak listed firms and their price movements in the run-up to past state elections: [ID:nL3E7FC17Z])

Stocks that tend to rise in a pre-election rally are those with significant government ownership, such as Malayan Banking , property developer UEM Land Holdings , lender CIMB Group Holdings , conglomerate MMC Corp. and plantation-to-power firm Sime Darby .

WHAT IF THE OPPOSITION MAKES MAJOR INROADS IN SARAWAK?

At the very least, the opposition has to come close to its goal of increasing its tally of seats to 24 from the present 7 in the 71-seat state legislature. Failure to do so would be read as a strong win by Najib's ruling National Front coalition.

Opposition leader Anwar Ibrahim, who has been the main target of attacks by the ruling coalition in the Sarawak election campaign, would gain political momentum if the opposition erodes the ruling coalition's gains.

Anwar is battling a sodomy charge in court and allegations of involvement in a sex video that recently surfaced, and has denied all charges. [ID:nL3E7EL14M]

He spent nearly six years in prison after being convicted of an earlier sodomy charge in 1999 following his sacking as Deputy Prime Minister.

Freed from jail after the country's top court dismissed the conviction in 2004, he went on to lead the opposition to record wins at the last national election in 2008.

A strong showing by the opposition in Sarawak means that it has stemmed a recent slide in its popularity after a string of by-election setbacks and Anwar's battles against the sodomy and sex tape allegations.

If this happens, Najib could hold back from calling a general election for now and seek to rebuild support by slowing unpopular reforms such as fuel subsidy cuts.

This could eventually affect his pledge to continue trimming Malaysia's budget deficit which hit a 20-year high of 7 percent of gross domestic product in 2009. (Reporting by Razak Ahmad; Editing by Liau Y-Sing and Nick Macfie)

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