BANGKOK – While a crackdown on protesters has added controversy to Malaysia’s pre-election run-up, economic affairs could have a bigger bearing on the result.

Speculation that parliamentary elections could be called as early as June has been dampened in the aftermath of the April 28 police crackdown on demonstrators, who sought changes to Malaysia’s electoral system.

After protesters breached police barricades around the capital’s Independence Square, security officials allegedly used excessive force by firing teargas and water-cannon and arresting over 500 protestors.

Prior to the rally, Prime Minister Najib Razak had been expected to call a snap poll in June on the back of a boost in opinion polls after his administration undertook several political and economic reforms.

Protestors breach police barrier at Independence Sq in Kuala Lumpur on April 28 (Photo: Simon Roughneen)

Now political analysts believe that date will be pushed back to September, by which time economics could trump political or human-rights issues among voters. The government must call new polls by April 2013.

Wan Saiful Wan Jan, founder of the libertarian Institute for Democracy and Economic Affairs, believes that “the economy is the biggest factor when it comes to the election. The majority of people are likely to vote based on the day-to-day economy than anything else.”

While Najib’s government has introduced political reforms, including a new print media code and a diminished version of the notorious Internal Security Act (ISA), it appears that his ruling Barisan Nasional (BN) coalition will run on a populist economy-first platform.

One week after the crackdown on protesters, his government announced the country’s first-ever minimum wage policy. The mandatory monthly pay rate of between 800-900 ringgit (US$260-$292) is expected to boost the incomes of some 3.2 million workers. The move is consistent with the government’s grand design to transform Malaysia into a high-income nation by 2020.

Speaking to a crowd of around 80,000 supporters at a football stadium on May 11, Najib asked “Who can manage the economy well and stimulate economic growth to the country? Who can ensure harmony and unity? Who can bring organized change and transformation to the country? Who can guarantee the nation’s prosperity and ensure Malaysia becomes a high income nation?”

Najib said that “the lowest-paid will now be guaranteed an income that lifts them out of poverty and helps ensure that they can meet the rising cost of living.”

Labor unions said the mandatory wage hike was long overdue, noting that over the last decade real wages inched up a mere 2.6% per year while productivity rose 6.7% annually. Businesses have argued that higher wages could undermine national and export competitiveness.

The minimum wage policy follows a 13% pay rise for civil servants and government cash handouts to poor households, moves the opposition views as blatant electioneering.

Ibrahim Suffian, head of the Merdeka Center, a Kuala Lumpur opinion research organization, said “most of the government handouts have been perceived by a majority of the people as part of an attempt to improve the ruling party’s standing with voters ahead of the election.”

Central bank assistant governor Sukhdave Singh said in March that the wage increase will help Malaysia’s industries to move up the value chain. “There’s been a lot said in the media about how it will erode our competitiveness, but if your competitiveness is based on providing wages that are very low then that’s the wrong economic structure,” he said.

Counter-arguments abound, however. In April, the World Bank warned that “a minimum wage is not the most effective policy to address poverty or inequality concerns, nor is it the best tool to compel firms to move up the value-chain.”

Malaysia’s transformation from a colonial plantation economy into a modern, upper-middle income country has been widely lauded. But there are fears that the country is now mired in a so-called “middle-income trap” that will prevent a national leap to developed country status.

Many believe that the transition requires a dismantling of the economic-preference system (formerly known as the New Economic Policy, renamed the New Economic Mechanism in 2010) aimed at favoring ethnic Malays, who make up 60% of the population but historically have economically lagged the country’s Chinese minority.

Europe’s economic malaise and slow growth in the US have compounded the “middle-income tap” challenge for trade-oriented Malaysia. Though an increase in exports to China has offset reduced Western demand, this has come at the price of altering the balance of exports away from value-added electronics towards more commodity-based palm oil and rubber. Commodities now represent one-third of the country’s exports, up from about one-sixth in 2000.

The World Bank says that “the challenge now is to go beyond quick wins and accelerate the implementation of more difficult-but critical- structural reforms that lie at the core of transforming the economy into a high-income one”.

Such bureaucratic surgery might have to wait until after elections. Wan Saiful Wan Jan believes that electoral considerations will trump the prime minister’s earlier hopes to purge government from key sectors of the national economy. “I think the prime minister sees that the NEP needs to be replaced,” he said. “Implementation is a different scenario. First and foremost he needs to win the election.”

While the ruling BN will likely start as the favorite on voting day, the increasing politicization of younger voters in the wake of the recent electoral reform demonstrations means that the incumbents could face a closer call than in 2008.

BN, which has governed Malaysia since independence from Britain in 1957, lost its two-third’s parliamentary majority for the first time at those polls. Upcoming polls are expected to be even more hotly contested as opposition leader Anwar Ibrahim bids to knock his former BN allies from power.

Suffian argues that the government’s populist measures are largely preaching to the converted and will not impact on crucial middle-income swing voters.

“Most of the beneficiaries of these payments belong to segments that are supportive of the government anyway – such as low-income households, civil servants,” he said.

“It will be tough for the government to convincingly paint the opposition as economically inept, as the opposition states such as Penang and Selangor continue to enjoy strong growth and high influx of investment.”

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