Malaysian whispers show doubts on Najib's ability to win votes

[KUALA LUMPUR] At the 70th anniversary gala for Malaysia's ruling party this month, Prime Minister Najib Razak raised the party flag on stage as senior leaders cheered him and sang the group's anthem of unity and loyalty. In the halls outside the venue, the chatter was less upbeat.

Even as party leaders publicly pledge support, some have privately expressed frustration over the scandal-hit premier - and concern that if they say too much they could be ostracised.

In the past year, Mr Najib has removed his most vocal opponents from the party and government machinery. While that means he is unlikely to face a challenge soon, the risk may grow as the next election, due by end-2018, draws near.

At stake is the unbroken rule since independence in 1957 of the United Malays National Organisation, the biggest actor in one of the longest-ruling coalitions in the world. Ethnic Malays are the bulwark of that coalition, and Najib needs to keep them onside. UMNO leaders are also keeping a close eye on rank and file supporters for signs of disquiet, even as opposition parties remain weak and in some cases fractured.

Mr Najib, 62, has endured arguably one of his toughest years in four decades in politics, battling graft accusations and fending off a joint campaign by his ex-deputy and a former mentor against him.

If anything he has tightened his grip on the party, but there are pockets of dissatisfaction within UMNO that may distract him from addressing slowing growth. It's the economy that's the biggest threat to support from voters facing rising costs.

"Homogeneity in UMNO, like all political parties, is a challenge," said Norshahril Saat, a fellow at the ISEAS-Yusof Ishak Institute in Singapore. "It seems Najib still has strong support within UMNO. But Mr Najib needs to ensure he gets the economy moving again. That is the concern of the masses, both in rural and urban areas."

Mr Najib has denied wrongdoing and was cleared by the attorney general this year of graft over revelations that US$681 million appeared in his accounts before the 2013 election. The UMNO-led coalition won that election by its slimmest margin yet, helped over the line by Malay strongholds, and lost the popular vote for the first time. The money was a personal donation from the Saudi royal family and most was later returned, the government said.

DIVISIONAL CHIEFS

The premier has also been embroiled in probes into the finances of troubled state fund 1Malaysia Development. While Attorney General Mohamed Apandi Ali cleared Najib of wrongdoing in accepting funds from a company once linked to 1MDB, he also refused central bank requests for criminal proceedings against 1MDB at least twice.

The activities of 1MDB, which has also denied wrongdoing, are under scrutiny in at least four overseas probes, while companies and individuals linked to it have been investigated in at least six others.

Through it all, the UMNO divisional chiefs have publicly backed Mr Najib.

"The continued support for the current leadership is there and it's strong - there's no doubt about that," said Suhaimi Ibrahim, an UMNO committee member for the division of Lipis in central Malaysia, where Mr Najib was born. "I must admit that it is not 100 per cent as some members are unhappy about some things."

'FACE VALUE'

While Suhaimi didn't elaborate, some party officials alluded to undercurrents in UMNO over eroded trust in Mr Najib, asking not to be identified given the risk of repercussions.

"Najib knows he cannot be unseated by UMNO and UMNO knows that," said a division chief from a northern state. "You cannot take him at face value but he has UMNO support, so you just keep quiet." UMNO did not respond to requests for comment.

Whether the chiefs remain quiet depends in no small part on the economy, with growth forecast to expand at the slowest pace in seven years in 2016. As a net oil exporter, Malaysia has been hit by a two-year slump in energy prices, while China's slowdown has cut demand from its second-biggest export market. The ringgit has see-sawed, turning Asia's best performance in the first three months of 2016 to the region's worst in the current quarter.

'SURVIVED' THREAT

"I do think the worst is past" for the prime minister, said Edwin Gutierrez, head of emerging-market sovereign debt at Aberdeen Asset Management in London. "Najib has basically survived the threat," he said, and Malaysian government bonds offer "some value."

Mr Najib and other party leaders have spoken often about the importance of unity, and the premier has restated UMNO's primary agenda as protecting the interests of ethnic Malays.

"UMNO will stand firm to preserve the strength and honour of the Malays," he said on May 11. "The interests of the race will always be the main agenda in UMNO's struggle. The party was founded on the awareness for the need of unity and togetherness for the continuity of the race and therefore the spirit should be preserved."

UMNO has a feudal political culture that may keep the party behind Mr Najib even as the scandals make his leadership appear "untenable," said Universiti Sains Malaysia political science professor Ahmad Fauzi Abdul Hamid. The party structure also limits any push for real change, he said.

POLITICS OF PATRONAGE

"UMNO politics is the politics of patronage, and as long as they have connections with levers of power, they will not reform," he said. "Najib's government is a weak government - in parliament or by popular vote - and they still haven't reformed. They don't have to because they can remain in power."

Mr Najib has continued and in some cases expanded policies put in place by his father - Malaysia's second prime minister Abdul Razak Hussein - that give preferential treatment to Bumiputeras, the country's Malay and indigenous people.

'VERY CAPABLE'

The ruling coalition, known as Barisan Nasional, secured a bigger majority in recent polls in Malaysia's biggest state of Sarawak, which reflects the public's confidence that BN is delivering, Najib's press secretary Tengku Sariffuddin told Bloomberg News in an e-mailed comment.

"The landslide result shows that the prime minister is very capable of leading BN into the next general election," Tengku said. "At a time of uncertainty in the global economy, he remains focused on safeguarding the well-being and security of all Malaysians." Two by-elections next month may point to the voter mood on Najib, especially given residual public anger over the implementation last year of a goods and services tax.

There is also upset over the way Mahathir Mohamad, who was premier for 22 years until 2003, and some others were treated for publicly criticising Mr Najib, some UMNO members say.

The party in February suspended its second-in-command and former deputy premier Muhyiddin Yassin for undermining the organisation, while Mahathir's son was replaced as chief minister of a northern state.

'GREAT DAMAGE'

"UMNO is still united, but not like before, and to some extent it has lost its fire," said an official at UMNO's Kuala Lumpur headquarters, who's been a party member for about three decades. "Great damage has been done." Discontent is not unusual, and a fractured opposition gives Barisan Nasional breathing space, Mr Norshahril said. In the poll in Sarawak, opposition parties fielded multiple candidates in some seats, splitting their vote.

"BN is in a relatively stronger position," said Mr Norshahril, who has studied Malaysian politics for a decade. With Najib announcing plans to restructure his cabinet, "we can have a better picture. This will give a clue how dynamics within the party is moving."

BLOOMBERG