| PENANG, Malaysia
PENANG, Malaysia The newly elected opposition took power in Malaysia's industrial heartland on Tuesday and immediately said it would kill one of the nation's sacred cows -- affirmative action for majority ethnic Malays.
"We will run the government administration free from the New Economic Policy (NEP) that breeds cronyism, corruption and systemic inefficiency," said Lim Guan Eng, whose Democratic Action Party (DAP) took control of Penang state after Saturday's watershed elections and was sworn into office on Tuesday.
The four-decade NEP was meant to fight poverty by steering resources to indigenous people, including Malays, whose politicians dominate the ruling national coalition. They get preference in state contracts, jobs, university seats and financial aid.
But many Malays say the plan has strayed from its original aim of fostering economic competition and is enriching a small elite, while rural Malays live hand-to-mouth in wooden huts.
In Kuala Lumpur, de facto opposition leader Anwar Ibrahim also took aim at the "Bumiputra" (sons of the soil) policy.
"We consider the NEP is obsolete," Anwar told reporters.
"I always say the NEP benefits the few family members of the ruling establishment and their cronies. So we stop this practice of awarding tenders, projects and privatization to family-related companies and cronies only at states where we are in charge."
Many in the country's large Chinese and Indian minorities have criticized the policy as unfair. It has also been widely criticized abroad and was a key stumbling block in five fruitless rounds of talks with the United States on a free trade deal.
Anwar said the opposition's version of the program, which he called the Malaysia Economic Agenda, will protect the interests of "the Malays, the poor and the marginalized" but will be a "competitive, merit-based system".
Acting Law Minister Nazri Aziz confirmed that opposition-ruled states did have the power to scrap the NEP.
"Anything to do with federal government projects, which come under our jurisdiction, then the NEP applies. But if it's a state government jurisdiction, then it's up to them," he told Reuters.
SOMBRE CIVIL SERVANTS
The Edge Financial Daily said in an editorial on Tuesday that cronyism was a major issue in Saturday's election.
"Indeed, one can say that one reason why the people voted so strongly for the opposition in the elections is to send a message that they have had enough of political cronyism and awards of contracts and deals to politically connected companies," it said.
Anwar's People's Justice party won 31 seats in the 222-member National Parliament, the most of any opposition party, and will share power in four of five states now under opposition control.
The National Front won the most seats, but lost the two-thirds majority it has enjoyed almost without interruption since independence in 1957.
The strongly Islamist Parti Islam se-Malaysia (PAS) will lead or share power in four states, including three -- Kedah, Perak and Kelantan -- that share borders with Thailand, which has been battling an Islamic insurgency with historical links to Malaysia.
PAS Vice President Husam Musa told reporters on Tuesday the opposition intended "to create an investor-friendly atmosphere ... and that foreign investment and interests are guaranteed in the states where we are in power".
New Penang state Chief Minister Lim said he would lobby the prime minister to use cash from state oil company Petronas to fund a new $940 million bridge project. The giant oil firm has long been a cash cow for National Front building projects, including the iconic Petronas Twin Towers in Kuala Lumpur.
The election aftermath spooked financial markets. Malaysian shares closed up 2.84 percent on Tuesday after plunging 9.5 percent on Monday, wiping out some $30 billion in market capitalization, probably the biggest single-day loss in the market's history.
Analysts called Tuesday's partial recovery a short-lived rally, given the uncertainties ahead.
Prime Minister Abdullah has a tricky task in fending off challenges, especially with his UMNO party, the dominant coalition partner, set to hold leadership elections in June.
He also needs to fill gaping holes in his cabinet, after four ministers lost seats in the weekend election.
The winning opposition parties also face a delicate task. The Chinese-dominated DAP has long harbored deep suspicions about the Islamist agenda of PAS, which advocates Islamic law for Muslims, including punishments such as stoning and amputations.
In their first test, DAP, PAS and People's Justice party were hammering out power-sharing arrangements on Tuesday in Kedah, Perak and central Selangor state. PAS kept power in Kelantan state and its government was to be sworn-in later on Tuesday.
(Additional reporting by Jalil Hamid; Writing by Bill Tarrant; Editing by John Chalmers)