Malaysia PM to quit early, policymaking frozen

KUALA LUMPUR (Reuters) - Malaysia's prime minister is to accelerate his departure from office, but his failure to set a date leaves a lame duck in charge at a time when his coalition is in disarray and the opposition is claiming power.

At the same time, Malaysia's economic growth is slowing, inflation is at a 27-year high and much-needed reforms promised by Prime Minister Abdullah Ahmad Badawi have not been done.

The United Malays National Organization (UMNO), the biggest party in the coalition that has ruled Malaysia for 51 years, agreed on Friday to delay to March from December a leadership vote that could have seen Abdullah defeated.

But Abdullah declined to say whether he would quit on that date or run in the party poll. The premier had already said he would quit before the next election, which must be held by 2013, saying he would cede power to his deputy Najib Razak in 2010.

"He's buying time, but I don't think he will be able to push for reforms in the meantime," said one diplomat based in Kuala Lumpur who spoke on condition of anonymity. "UMNO won't allow him to do that."

UMNO and the Barisan Nasional coalition it heads are for the first time facing the prospect of losing power to a re-energized opposition alliance led by former deputy premier Anwar Ibrahim.

Abdullah has come under increasing pressure to quit since Barisan stumbled to its worst election result in March this year when it lost its two-thirds parliamentary majority.

LONG PEDIGREE

Najib, 55, has an impeccable political heritage. He is the son of Malaysia's second prime minister and the nephew of its third. He also holds the powerful finance ministry portfolio.

Recently however he has been dogged by allegations he had a sexual relationship with a murdered Mongolian woman. Najib has firmly denied the allegations.

If and when he does assume power, he may prove as incapable as Abdullah in staunching Barisan's losses, analysts said.

Although UMNO is divided and disillusioned at present, it is its smaller coalition partners that hold the key to power. One small party recently quit the coalition, leaving the Barisan Nasional with 13 party groupings, split along racial lines.

"It will be very difficult for Najib to hold the whole thing together," said James Chin, political science lecturer at the Monash University Malaysia Campus.

Anwar, who was pushed out of UMNO in the late 1990s and tried and imprisoned for sodomy and corruption, has mounted an aggressive campaign to win power.

Again facing what he says are trumped up charges of sodomy, the 61-year old says he has sufficient deserters from the ranks of government MPs to win a confidence vote in parliament.

Anwar said on Friday that it was irrelevant who headed

UMNO.

"The issue is that they have lost their mandate from the people and they have to then contend with that, and make the necessary steps to negotiate, have discussions with us, convene an immediate session of parliament, allow a vote to be taken," he said on a visit to Hong Kong.

TURBULENCE

The pressure from Anwar has coincided with turbulence in global financial markets caused by the U.S. banking crisis.

Data released on Tuesday showed 24 billion ringgit ($7.04 billion) of portfolio money flowed out of the country in the second quarter of 2008 -- after the March election -- compared with a 21.1 billion ringgit inflow in the first quarter. At the

Abdullah, 68, has failed to implement key pledges such as ending corruption and boosting the independence of the judiciary. The policy drift, along with rising racial tensions, has unsettled both party activists and investors.

The budget deficit is set to balloon to 4.8 percent of gross domestic product this year. Inflation has surged to 27-year highs and his government has flip-flopped on key issues like petrol subsidies, first raising and then cutting prices.

(Additional reporting by John Ruwitch in Hong Kong, Writing by David Chance; Editing by Bill Tarrant and Sanjeev Miglani)