| KUALA LUMPUR, March 19
KUALA LUMPUR, March 19 The chief of Malaysia's
key Sarawak state said the local assembly would be dissolved on
Monday, paving the way for polls that could trigger an early
The vote in the sprawling, resource-rich state on Borneo
island is seen as a barometer of the strength of Prime Minister
Najib Razak's government, and is expected to influence the
timing and outcome of a general election which could be held
The Sarawak election must be within 60 days of the
WHY DOES SARAWAK MATTER?
Sarawak, Malaysia's largest state, is a bastion of Najib's
National Front. The state provides the ruling coalition with
one-fifth of its 137 members in parliament and the outcome in
local assembly elections will provide a reading on where the
Front now stands.
The coalition suffered record losses to the opposition in
the last general election in 2008. But analysts say record
commodity prices and strong economic growth have boosted the
Front's chances at national polls that must be held by 2013.
In a recent interview with Reuters, Najib said a good
showing in Sarawak would help assess the public mood and perhaps
provide a pointer to bringing forward the date of the general
The ruling coalition is unlikely to lose control of the
state but voters could show their displeasure with long-serving
Chief Minister Abdul Taib Mahmud and deprive the Front of its
two-thirds majority in the state assembly.
Many of Malaysia's mainly ethnic Chinese and Indian
minorities abandoned the government in the 2008 elections due to
increasing concerns of marginalisation, hollowing out the
ruling coalition's smaller parties. Many remain weak and unable
to regain momentum. Sarawak will show whether Najib has
succeeded in winning them back.
WHAT IF THE RULING COALITION FAILS TO RETAIN ITS MAJORITY?
This could force Najib to hold off on calling a snap
election and pressure him to further delay promised economic
reforms that would affect the government's plans to trim its
budget deficit, which hit a 20-year year high in 2009.
Since taking office in 2009, Najib has pledged political and
economic changes that were initially cheered by investors.
But he has since shied away from significant subsidy cuts
and tax reforms, and softened his stance on a pledge to reform
controversial preferential equity ownership rules for the
majority ethnic Malays.
A poor showing by the government in Sarawak would signal
that Najib still has an uphill battle to reverse the ruling
coalition's 2008 general election losses.
A unconvincing win by the ruling coalition could also
increase pressure on the state's 74-year-old chief minister Taib
to retire, leaving a power vacuum which could unnerve investors.
HOW WILL INVESTORS REACT?
Foreign ownership of Malaysian stocks stood at only 21.9
percent as of December last year and the stock market reaction
to previous Sarawak elections has generally been limited.
The last Sarawak election in 2006, which saw the opposition
increase its tally in the 71-seat state legislature to eight
from two, was followed by a two percent drop in the benchmark
stock index .
If the government loses its two-thirds majority in Sarawak,
this could heighten political uncertainties for investors in the
state, which include power generation firms Aluminium Corp of
China Limited , State Grid Corp of China
and Tokuyama Corp .
These companies are mainly involved in aluminium smelter
projects in the state and their investments contributed to
making Sarawak the top choice for investors in Malaysia in 2008
and 2009, according to government data.
In the interview with Reuters, Najib said that he was
looking to revive hopes for a $2 billion aluminium smelter in
Sarawak proposed almost four years ago by Anglo-Australian miner
Rio Tinto .
Najib said the smelter was still on the drawing board and
that the project hinged on talks over power prices, which could
begin with the company as early as this year.
(Editing by Liau Y-Sing and Miral Fahmy)