| GEORGETOWN, Malaysia, April 22
GEORGETOWN, Malaysia, April 22 Lim Guan Eng, the
hyperactive chief minister of Malaysia's Penang state, is not
the type to miss a good photo-opportunity, so there were plenty
of witnesses when he handed over the keys to his government
Mercedes ahead of a May 5 general election.
Integrity is a central battle cry for Malaysia's disparate
three-party opposition as it pursues its best chance of ending
56 years of rule by the Barisan Nasional (BN) coalition.
"The official cars should not be misused for our own
personal use," Lim, a 52-year-old ethnic Chinese, told reporters
as his administration shifted to caretaker status this month.
"This is the integrity held by the state administration."
Five years after the opposition took control of four state
governments, northwestern Penang will be Exhibit A in its case
that it can make Southeast Asia's third-largest economy cleaner
and more competitive.
Malaysia's second-smallest state topped the state investment
league for the first time in 2010 and again in 2011, bolstering
its position as a hub for high-tech manufacturers such as Intel
Overall investment doubled in 2008-12 compared with the
previous four years, a powerful rejoinder to the BN's claims
that the opposition cannot be trusted to run the economy.
The BN, or National Front, led by Prime Minister Najib
Razak, points to a 73 percent slump in Penang's investment last
year and mounting traffic congestion in the state, which also
draws tourists to its beaches and the colonial elegance of its
capital Georgetown, as evidence Lim's touch is wearing thin.
But the opposition hopes Lim's reforms to tackle corruption
linked to laws favouring majority ethnic Malays will resonate
with a bulging younger generation of voters angry at graft and
less attached to race-based politics.
Polls suggest a narrow win for the BN, which lost the
two-thirds parliamentary majority that allowed it to change the
constitution for the first time in 2008.
The "Penang model" also highlights risks to investors from
an opposition victory, which promises to unravel five decades of
cosy relations between the government and business in what would
be the biggest shake-up since independence from Britain.
Led by former Deputy Prime Minister Anwar Ibrahim, it says
it will review suspicious contracts and cancel some, including a
controversial $800 million rare-earths plant built by
Australia's Lynas Corp. Its manifesto also pledges to
break up "monopolies" in certain sectors.
"We wouldn't want to take any action that would destabilise
the market, but at the same time it doesn't mean they can get
off scot-free, no," Lim, who will campaign nationwide, told
Reuters in an interview. "The imperative should be there are no
Major firms and tycoons seen as having close ties with the
United Malays National Organisation (UMNO), the dominant party
in the ruling coalition, could suffer.
"On individual stocks, (it would be) disastrous, I should
think," said Gerald Ambrose, managing director at Aberdeen Asset
Management in Kuala Lumpur, adding that the overall stock market
had likely priced in some risk of an opposition win.
REFORM, NOT REVOLUTION
When Lim, who was imprisoned for 18 months under draconian
security laws in the 1980s, took over Penang, he began a social
and economic experiment that outraged UMNO traditionalists. From
now on, state public works contracts would be awarded through
open, computerised tenders rather than direct negotiations.
Some portrayed it as a dangerous move to tear down the New
Economic Policy (NEP), a system of affirmative action introduced
following race riots in 1969 between Malays and economically
dominant Chinese. Lim says he was targeting distortions in the
policy that have enriched an elite few.
"It was pure pork-barrelling," Lim says of the old system.
The NEP is credited for nurturing a Malay middle-class, but
"bumiputras" (Malays and indigenous people) still make up the
majority of low-income Malaysians. Economists say the policy has
deterred investment and driven a brain drain, especially of
ethnic Chinese, entrenching Malaysia's "middle-income" trap.
The reforms levelled the playing field for small Malay
businesses, Lim says, enabling them to win contracts based on
merit rather than connections. Smaller firms still have special
protection because all contractors for "class F" jobs up to
200,000 ringgit ($64,500) must be bumiputra by federal law.
Even for higher value contracts, Lim says Malay firms now
win more than 70 percent of open tenders in Penang. State
figures show the value of contracts won by bumiputra firms
doubled from 2008 to 2011.
As he oversaw workers renovating a small Muslim prayer
centre in Georgetown -- a job won through open tender --
28-year-old Ahmud Kairul Arif scorned the idea that as an ethnic
Malay his business would need special help.
"There has been a shift which means we can compete against
the Chinese," said the graduate in project management. "I'm
willing to go out from my comfort zone to compete."
TAKING "PENANG MODEL" NATIONAL
Prime Minister Najib has said the opposition's generous and
sometimes vague campaign pledges, which include free university
education and the abolition of road tolls, would explode the
national budget deficit.
Lim says he has saved about 25 percent of state spending
compared with the previous administration through cutting graft.
Penang's budget surplus grew 57 percent between 2008 and 2011,
even as a chronic federal budget deficit pushed the national
debt to 53 percent of the economy from 41 percent in 2008.
"It would be a model to say that if we are financially
prudent, with a little money we can do a lot of things," said
Tony Pua, a leading opposition parliament member. "There's a lot
more we can do with the federal budget."
Transferring Penang's policies to the national level would
not be straightforward. The three other states run by the
opposition, including two by the Islamist PAS party, have had
more mixed records on governance and transparency.
The state's 1.6 million population is evenly balance between
Chinese and Malay, whereas Malays outnumber Chinese nationally
by 60 percent to around 25 percent, making reforms to race laws
But Penang's influence has already been felt at the national
level as the government comes under pressure to award more
contracts through open tender and end what critics say are
sweetheart deals with favoured businessmen.
Rolling back privileges enjoyed by bumiputras -- literally
"sons of the soil" -- is political dynamite for Najib, who faces
heavy resistance to reform from within UMNO.
In an interview with Reuters in March, Najib said that the
"vast majority" of federal government contracts were now awarded
through open tender, adding he made "no apologies" for some that
are negotiated directly.
"There are certain tenders that we carve out for bumiputra,
but we would allocate that to the deserving bumiputra," he said.
Malaysia's Finance Ministry and the government's Performance
Management Delivery Unit declined interview requests.
A leaked U.S. diplomatic cable from 2006 identified opaque
government procurement practises as a major stumbling block in
talks on U.S.-Malaysia free-trade deal, which remains stalled.
"Malaysia's procurement process falls short in three key
areas: lack of transparency, outright corruption, and bumiputra
requirements and preferences," it said.
As they hit the campaign trail, opposition politicians are
reminding Malaysians of what they say are a litany of major
projects and concessions handed out in cosy deals.
Its prime target is Syed Mokhtar, the country's richest
ethnic Malay with a net worth estimated at $3.3 billion. The
opposition says he has built up his business empire, which
encompasses power, telecoms, cars and ports, through close ties
with former Prime Minister Mahathir Mohamad and now with Najib.
"What is so special about Syed Mokhtar that he has to have a
finger in every pie in Malaysia?" said opposition MP Pua.
Among others, it has highlighted the $100 million sale
announced in February of aerospace firm CTRM Sdn Bhd, a
profitable subsidiary of the Ministry of Finance, to a unit of
Mokhtar's DRB-Hicom, which was not bid publicly.
Mokhtar rarely speaks to media and did not respond to
Reuters' request for an interview. In an authorised biography
published late last year, he said he was the victim of media
bias and denied receiving special favours.