Malaysia's Anwar heads for court, again

KUALA LUMPUR (Reuters) - Malaysian opposition leader Anwar Ibrahim faces another grueling trial for sodomy starting on Wednesday that could break his career and which also risks deepening political divisions in this Southeast Asian nation.

In 1998 at the height of the Asian financial crisis, Anwar, then deputy prime minister and heir apparent to Prime Minister Mahathir Mohamad, was accused of sodomy and corruption, sacked, tried and eventually sentenced to a total of 14 years in jail.

Today, the world is mired in an economic crisis. Malaysia is burdened with its biggest budget deficit in 22 years, its first major recession since 1998 and a government that has still not come to terms with big losses in the 2008 general election.

Anwar insists the trial is politically motivated and told Reuters he would not roll over.

It comes at a crucial time for Malaysia as new Prime Minister Najib Razak, branded a hard-liner by the opposition, attempts to introduce reforms in this developing country of 27 million people whose export-driven growth model has run out of gas.

"The trial will be bad for Malaysia and seriously discredit Najib," said Bridget Welsh, a Malaysia expert at Johns Hopkins University.

"He will be compared to Mahathir and be seen as a weaker version of an autocrat for having to resort to this sort of measure early on to weaken a challenger."

Anwar's marathon trials in the late 1990s lasted 14 months and saw witnesses change testimony, contradictory medical evidence and bizarre scenes, including a semen-stained mattress paraded in court and a witch doctor casting spells outside.

The new trial is scheduled to start on July 8.

Conviction or a trial that exposes the weaknesses of Malaysia's judiciary to international scrutiny once more, may put Malaysia in a harsh light.

"One thing must be made clear, it is my opinion that what we are doing to Anwar Ibrahim is starkly similar to what is happening to (Myanmar's) Aung San Suu Kyi," Malaysia's former Bar Council Chairman Ambiga Sreenevasan said in a recent lecture.

"I ask, show me the difference between the two. I ask, how can we condemn the latter and do the former."

It is not just criminal courts that are under scrutiny, rule of law is a key concern for many investors. According to a World Bank survey, Malaysia ranks 63rd of 178 economies in enforcing contracts, a great deal lower than its 24th rank overall.

NEW POLITICAL MAP

The National Front coalition that has ruled Malaysia for 51 years since independence from Britain lost its iron-clad two thirds majority in parliament in the 2008 elections and saw the opposition end up in control of five states.

Since then, it has lost three parliamentary by-election, including one that saw Anwar returned to parliament.

While most political analysts say that it will be hard for Anwar and the opposition to win power in elections that must be held by 2013, the opposition does look as if it is in a position to make further inroads into the National Front's majority.

But without Anwar, holding together the opposition rainbow Peoples Alliance coalition of reformers, Islamists and the mainly ethnic Chinese Democratic Action Party (DAP) could be hard.

If found guilty, Anwar could be jailed for 20 years, effectively ending the career of the one opposition politician who has held senior government office and who is the glue that holds the disparate bloc together.

The Pan Malaysian Islamic Party (PAS) recently appeared to signal it was again open for talks with UMNO, although it later backtracked.

"If you remove Anwar, who seems to be only person who can bring PAS and the DAP together in an alliance, then I think the chances of them destabilizing the Peoples Alliance increases appreciably," said Terence Gomez professor at the University of Malaya economics and administration facility.

TRYING TO FIX BROKEN ECONOMIC MODEL

Malaysia has long since lost its status as a favored destination for foreign direct investment (FDI) to the likes of neighboring Thailand, which overtook it in 2001 as a recipient of foreign FDI, according to U.N. data.

Since the National Front coalition lost its two-thirds parliamentary majority in March 2008, which coincided with the global financial crisis, foreign investors have fled Malaysia.

Investment flows have dried up and the country has been overtaken by neighboring Thailand in terms of direct investment since 2001 and portfolio flows turned negative to the tune of 92.3 billion Malaysian ringgit ($26.10 billion) in 2008.

In the first quarter of 2009 they remained negative to the tune of 12.2 billion ringgit, even as investment in other emerging Asian economies has recovered. Malaysia's stock market .KLSE has risen 20 percent this year, underperforming a 30 percent rise in Asian markets excluding Japan .MIAPJ0000PUS.

"Of course, once the headlines of his trial come to the fore, foreign investor attention might be focused on this again, and it would probably have some marginal negative impact on sentiment," said an economist at an investment bank who declined to be named.

The loss of confidence in the governing 13-party coalition, headed by the United Malays National Organization (UMNO), saw lackluster premier Abdullah Ahmad Badawi replaced with Najib who took office in April promising reforms and to clean up politics.

Najib has last week announced a surprisingly strong set of reforms, rolling back much of the affirmative action for ethnic Malays that the country is founded on.

Given Malaysia's poor fiscal situation, its budget deficit will hit a 22-year high of 7.6 percent of gross domestic product this year, Najib has little room for maneuver.

The Government depends on oil giant Petronas for 45 percent of its money. At a time of low oil prices, that is a big risk.

"Najib will not have the tools of expenditure and public spending that helped Mahathir win over support post-1998," said Welsh from Johns Hopkins.

"A trial like this will spook investors who are already wary. The economic drive that Najib is pushing to gain legitimacy will be undermined."

(Additional reporting by Razak Ahmad; Editing by Bill Tarrant)