Malaysia poll promise turns into ugly money fight....

Malaysia's recent elections promised a new era of democracy and reform, but instead have ushered in an ugly fight for power and money that has turned off investors.

Malaysia's ruling coalition suffered a humiliating setback in the March 8 polls, losing a two-thirds parliamentary majority for the first time in 40 years and yielding control of an unprecedented five of the nation's 13 states.

But in an apparent tit-for-tat, Prime Minister Abdullah Ahmad Badawi's government is refusing to disburse development and tourism funds directly through the five opposition-controlled state governments.

Some state welfare funds have also been stripped off and discreetly transferred to a national association comprising wives of federal ministers, opposition leaders said.

Abdullah's government is reviewing key infrastructure projects approved earlier in those states, adding further risks to investors. The opposition, accusing the government of being a sore-loser, has meanwhile complained that some official files, money and even furniture, have gone missing.

"Perhaps the biggest risk is that the government starts to undermine state governments controlled by the opposition," global banking giant HSBC said in a research report on Malaysia. "There are some signs that this is already happening."

SLOWING ECONOMY

Some would-be foreign investors are already skipping the industrial states of Penang and Selangor, two of the five states ruled by the opposition, due to political concerns, one Asian diplo mat said.This is a worrying sign for the slowing economy, reeling from a possible global slowdown and soaring energy and food prices. The stock market, which has gradually recouped all its losses sincethe elections, isn't going anywhere now due to what one top brokerage house called overhanging political uncertainty. "We remain neutral on Malaysian equities," the brokerage said in a report released last week.

Analysts said holding back big construction projects could scuttle the economy, where growth is seen slowing to 5-6 percent this year from 6.3 percent in 2007. A leading banker drew parallels with Thailand where prolonged political uncertainty has hurt consumer sentiment in the country. "We hope the political landscape clears up quickly," said Nazir Razak, head of the country's second-largest banking group, CIMB . "I think a lot of business people are saying now they are anxious to put the political environment to bed so that we can get on with business."

"Perhaps the biggest risk is that the government starts to undermine state governments controlled by the opposition," global banking giant HSBC said in a research report on Malaysia. "There are some signs that this is already happening."

The stock market, which has gradually recouped all its losses since the elections, isn't going anywhere now due to what one top brokerage house called overhanging political uncertainty.

"We remain neutral on Malaysian equities," the brokerage said in a report released last week.

Analysts said holding back big construction projects could scuttle the economy, where growth is seen slowing to 5-6 percent this year from 6.3 percent in 2007.

A leading banker drew parallels with Thailand where prolonged political uncertainty has hurt consumer sentiment in the country.

"We hope the political landscape clears up quickly," said Nazir Razak, head of the country's second-largest banking group, CIMB . "I think a lot of business people are saying now they are anxious to put the political environment to bed so that we can get on with business."

POLITICAL SEA-CHANGE?

Although the elections brought about a political sea-change, some things just don't change in a nation where a system of patronage is well-entrenched and many compete for a share of political spoils.

"The crux of the problem is Malaysia's nation-building is so much about politics and politicking and not about building strong institutions and dealing with the economy," said Ooi Kee Beng, an analyst at Singapore's Institute of South East Asian Studies.

Stemming from the need to distribute political spoils to the three ideologically disparate parties in the opposition "Pakatan Rakyat" front, their respective state governments have began handing out positions to their supporters.

They range from directorships in state firms to city hall councilors and village heads.

Rubbing salt in the wound, federal housing minister Ong Ka Chuan said last week his government would set up special federal offices in the five states to handle funds.

"Since these states come under opposition rule, we need to set up Federal development offices to handle the allocations," he said.

Veteran politician Koh Tsu Koon, who ruled Penang for 18 years until he was ousted in the polls, blamed the new government for sitting on projects that were approved during his time.

"But if the state government wants to play its own game, how is the federal government going to work with the state?" he said.

The bedrock of Malaysia's ruling coalition is Abdullah's United Malays National Organisation (UMNO), which marks its 62nd birthday on Sunday deeply divided after the election. Even Abdullah's own political future is in doubt.

"Getting the act together has to start with UMNO and UMNO is very split at the moment and Abdullah doesn't exude confidence in governance," said Ooi, the political analyst. - Reuters

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( Still away from my computer and no updates till I can manage to get to a computer or a cyber cafe, see U then)