Malaysian Muslims protest against what they say were attempts to evangelise Muslims, in Shah Alam, outside Kuala Lumpur October 22, 2011/Stringer

About 2,000 slogan-shouting Malaysian Muslims gathered near the capital on Saturday to denounce alleged Christian attempts to convert Muslims, widening a religious rift that could cost Prime Minister Najib Razak minority votes in upcoming polls. The rally led by non-governmental bodies comes amid an escalating row over accusations of covert conversions among Muslims and a raid on a Methodist church, which has divided Muslims and angered ethnic minorities.

Men, women and families gathered in a stadium in a suburb outside Kuala Lumpur to unite against what they said were attempts to evangelize Muslims, an offence in a country where over half the population follows Islam.

“We have gathered today to save the faith of Muslims due to the threat of apostasy,” Yusri Mohamad, chairman of the organising committee, told the crowd. “Some people say they (non-Muslims) work hard to spread their religion and that there is nothing wrong with apostasy. These are the voices which we want to drown out with our gathering today.”

Ethnic Malays, who make up over half of the population, are Muslim by birth and constitutionally forbidden to leave the faith. Non-Muslims are guaranteed freedom of worship. The protest follows a recent meeting in a church which was raided by Islamic authorities on suspicion of attempts to convert Muslims. The church said it was a charity meeting.

Read the full story here.

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Prime Minister Najib Razak also handed out cash payments to
the poor, raised civil servants’ pay and opened up 17 service
subsectors to foreign investors, with domestic demand targeted
to be the key driver of the economy as a possible global
recession clouds the outlook.

“Global developments would certainly have a direct impact on
the Malaysian economy,” Najib, who is also Finance Minister,
said as he presented the 2012 budget in parliament.

“With these developments the government will put in place
measures to stimulate domestic economic activities, in
particular public and private investments.”

The government also allocated 2 billion ringgit of
infrastructure projects for bumiputras, most of whom are ethnic
Malays. It offered tax breaks for Islamic bond issuance, raised
civil servant pensions and announced that it would list the
global arm of its plantation group FELDA.

Najib forecast that the economy would grow 5-6 percent in
2012, while the fiscal deficit would fall further on the
strength of robust domestic demand and commodities exports.

Reflecting the downdraft on Asia from the slowdown in the
United States and Europe, the government trimmed its 2011
economic growth target to 5.0-5.5 percent from 5.0-6.0 percent
earlier.

Its fiscal deficit will shrink further to 4.7 percent of
gross domestic product next year from 5.4 percent in 2011 as it
reduces development spending, confirming an earlier Reuters
report. [ID:

Analysts said the 2012 spending plan was tailored to woo
voters, particularly the majority ethnic Malays whose support is
split between Najib and the opposition.

“This a populist budget, he is trying to be popular with
everyone, give goodies here and there so everyone won’t do too
badly,” said James Chin, a political analyst at Monash
University in Malaysia.

“What is surprising is the allocation to bumiputras. This
was what Malay rights groups have been clamouring for but it’s a
smaller allocation as they asked for 30 percent of the project.
He is definitely trying to shore up ethnic Malay support.”

Najib is widely expected to call for a general election in
early 2012, although one isn’t due until 2013, to prevent
further political fallout from the weakening global economy.

The stock market ended 0.5 percent higher at
1,400.05 points while the budget was being announced.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For the budget’s key measures see

For the 2011/2012 economic report, see

For analyst comments see
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

TOO OPTIMISTIC?

Authorities also will maintain subsidies to keep prices
down, while banking on low borrowing costs and a healthy job
market to keep economic growth on an even keel next year.

But most economists thought the growth and deficit targets
were too optimistic, given the weak global outlook.

“The last statement from (the central bank) Bank Negara was
a bit more cautious, highlighting more the downside risks,
whereas what I’ve seen so far in terms of the forecasts and the
general statement, is the government still seems fairly upbeat,”
said Hak Bin Chua, an economist with Bank of America Merrill
Lynch.

“So there seems to be a slight disconnect… are these sort
of targets or are these really realistic projections?”

Malaysia’s economic growth accelerated to a decade-high 7.2
percent in 2010, and is officially expected to be at least 5
percent this year, though annual growth moderated to 4.0 percent
in the second quarter of 2011.

Last month, the Asian Development Bank said it had reduced
its forecast for Malaysia’s 2011 GDP growth to 4.8 percent from
5.3 percent previously as global uncertainties grow, and trimmed
its 2012 forecast to 5.1 percent from 5.3 percent.

The government said net domestic borrowings are expected to
total 43.6 billion ringgit versus 45.1 billion ringgit in 2011.

Government revenue will be up 1.9 percent at 186.9 billion
ringgit ($59 billion) in 2012 from a year ago, thanks to better
tax earnings.

Subsidy spending on staples such as fuel, sugar and flour
are expected to total 33.2 billion ringgit next year, versus
32.8 billion ringgit in 2011.

The government said inflation stood at 3.1 percent for the
January-August period this year but did not give a forecast for
2012.

Domestic demand will expand 7.6 percent in 2012, versus 8.1
percent this year.

Exports, which accounted for about 89 percent of the
Malaysian economy last year, are targeted to rise 6.0 percent
next year, slowing slightly from the projected 6.7 percent this
year. Import growth will moderate to 7.0 percent next year from
7.5 percent this year.

($1 = 3.179 Malaysian Ringgit)

(Additional reporting by John Mair in Manila; Writing by Liau
Y-Sing)

INDUSTRIAL PRODUCTION (pct, y/y)
JUL JUN MAY APR MAR FEB JAN DEC NOV OCT SEP AUG JUL JUN
-0.6 1.3 -5.6 -1.7 2.9 5.0 1.0 4.2 5.1 3.1 5.6 4.0 3.2 9.4

MANUFACTURING SECTOR (Production index (pct,y/y)
JUL JUN MAY APR MAR FEB JAN DEC NOV OCT SEP AUG JUL JUN
1.5 4.5 0.6 -0.4 5.3 7.9 4.5 7.8 6.5 4.5 7.6 6.8 7.2 13.3

MINING SECTOR (Production index (pct,y/y)
JUL JUN MAY APR MAR FEB JAN DEC NOV OCT SEP AUG JUL JUN
-7.5 -8.6 -20.1 6.9 -6.9 -4.0 -0.7 -6.7 -3.4 1.7 -1.1 1.7 -2.9 -5.9

ELECTRICITY SECTOR (Production index (pct,y/y)
JUL JUN MAY APR MAR FEB JAN DEC NOV OCT SEP AUG JUL JUN MAY
4.6 3.6 -1.6 -0.7 0.7 0.7 0.3 2.4 4.9 5.0 3.1 4.9 4.4 5.2 11.5

MANUFACTURING SALES (pct, y/y)
JUL JUN MAY APR MAR FEB JAN DEC NOV OCT SEP AUG JUL JUN
10.8 12.9 8.0 15.5 14.1 10.9 7.7 11.4 8.4 2.9 7.6 8.9 9.3 13.8

CONSUMER PRICE INDEX AUG JUL JUN MAY APR MAR FEB JAN DEC NOV OCT SEP
(pct, y/y) 3.3 3.4 3.5 3.3 3.2 3.0 2.9 2.4 2.2 2.0 2.0 1.8

MERCHANDISE TRADE (bln rgt)

JUL JUN MAY APR MAR FEB JAN DEC NOV OCT
Exports 59.2 57.9 55.1 57.8 61.9 49.7 54.8 57.2 52.7 55.0
Imports 49.8 50.0 46.6 46.8 50.5 39.2 44.8 47.5 43.7 48.1
Trade
balance 9.5 7.9 8.5 11.0 11.3 10.4 10.0 9.8 8.9 6.9

CURRENT ACCOUNT (bln rgt)

Q22010 Q12010 Q42009 Q3 2009 Q2 2009
Goods 30.8 45.0 38.0 33.4 33.1
Services -0.39 -0.09 -0.14 0.1 1.0
Income -8.6 -8.9 -5.6 -1.6 -1.5
Transfers -5.6 -5.6 -4.8 -6.7 -3.9

AUG ’11 JUL ’11 JUN ’11 MAY ’11 APR ’11 MAR ’11
Passenger cars 52,559 44,835 36,838 40,936 45,335 56,483
Commercial 5,823 5,417 4,952 5,109 5,601 6,782

THREE-MONTH INTERBANK RATE (pct) (KLIBOR)
SEP 29 SEP 26 SEP 23 SEP 19 SEP 15 SEP 12 SEP 09 SEP 06 SEP 02 AUG 29
3.26 3.26 3.26 3.26 3.26 3.27 3.27 3.26 3.27 3.27

MONETARY AGGREGATES (pct,y/y)

MAY APR MAR FEB JAN DEC NOV OCT SEP AUG JUL JUN MAY
M1 13.1 16.2 14.0 13.2 17.9 11.7 9.9 11.6 11.5 13.9 10.7 12.6 11.7
M2 11.6 10.7 8.6 8.3 9.1 7.1 8.1 8.4 8.3 8.2 8.3 9.2 9.8
M3 11.1 10.1 8.2 7.9 8.9 7.0 8.2 8.4 8.5 8.2 8.1 8.8 9.5

COMMERCIAL BANKS’ BASE LENDING RATE (pct)

SEP ’11 AUG ’11 JUL ’11 JUN ’11 MAY ’11 APR ’11
TOP THREE BANKS 6.60 6.60 6.60 6.60 6.30 6.30

NET NON-PERFORMING LOANS OF BANKING SYSTEM
(3-mth classification)
MAY APR MAR JAN DEC NOV OCT SEP AUG JUL JUN MAY APR MAR
2.1 2.1 2.2 2.2 2.0 2.0 2.0 2.0 2.1 2.1 2.2 2.0 1.8 1.8

BANK NEGARA RESERVES (bln ringgit)
SEP 15 AUG 29 AUG 15 JUL 29 JUL 15 JUL 30 JUN 15 MAY 31 MAY 13 APR 29
414.5 412.1 411.6 409.6 407 406.3 402.6 401.4 401.0 393.2

EXTERNAL DEBT (bln ringgit, end of period)

2009 2008p 2007p 2006 2005 2004
Total external 264.6 235.6 187.4 184.5 197.7 200.6
US$ equivalent 79.72 66.61 50.3 51.8 52.8 49.1

UNEMPLOYMENT RATE (pct of workforce)
2010 2009 2008p 2007 2006 2005 2004 2003 2002
3.6 3.7 3.3 3.3 3.3 3.5 3.5 3.5 3.9

NOTE – Figures may not total due to rounding.

– The latest labour market data is up to December 30

– p: preliminary

– f: forecast
SOURCES
Finance Ministry, Bank Negara, Statistics Department, Malaysian
Automotive Association and Economic Planning Unit.

(Reporting by Razak Ahmad)

Europe’s debt crisis and an anemic U.S. economy have reined in price pressures, the biggest worry among Malaysian voters, but also triggered fears about job security and the general outlook for the trade-reliant economy.

The government’s coffers have been bolstered by a strong run in commodity prices, enabling Najib to dole out cash payouts to farmers and civil servants and provide affordable housing and healthcare to the poor to tackle the rising cost of living.

“The government has started to address inflation concerns of the electorate but the measures taken so far are spread too thin to have an impact on swaying support,” said Ibrahim Suffian, director of the independent opinion outfit Merdeka Center.

“For the key constituents and undecided voters in the lower to middle income groups, a broader improvement of the national economic climate will still be needed for the government to feel a positive impact,” said Ibrahim.

The next general election is only due in 2013 but the recent handouts coupled with moves to reform an unpopular security law have fueled talk that Najib is gearing up for early polls to pre-empt any further fallout from the deteriorating economic outlook.

Najib needs to reverse his ruling coalition’s poor showing in a 2008 general election but his approval ratings have fallen over the past year amid rising prices, widening religious discontent and anger over the slow pace of promised reforms.

The government is also expected to unveil further measures in the federal budget on October 7 to boost spending, including a civil service salary hike, food stamps, cash vouchers for utilities and personal income tax cuts.

An increase in spending would be possible as government revenues are expected to total $65 billion this year, about a quarter more than earlier projected thanks to higher energy prices and better tax collection, Citigroup said.

Since taking office in April 2009, Najib has steered economic growth to a 10-year high in 2010 but annual inflation touched a 27-month high of 3.5 percent in June this year, hitting consumers’ pockets.

Price pressures have since moderated although a survey by the Merdeka Center in August showed that inflation and the growth outlook remained the chief concerns of Malaysians.

Still, it could get worse for Najib if he were to wait further before calling for polls, some analysts said.

Malaysia’s economic growth has been slowing slightly though it remains healthy, but some analysts expect growth to brake sharply this year as difficult global conditions erode demand for its exports.

Exports accounted for 89 percent of Malaysian gross domestic product last year.

Malaysia’s economic growth is officially expected to moderate this year to at least 5 percent from a 10-year high of 7.2 percent in 2010, as global demand softens.

Some economists have cut their 2011 growth projections on concern that the global financial market turmoil would hit Malaysia’s economy.

The most direct impact of a sudden and sharp global downturn on Malaysia’s economy would be through a weakening of domestic consumption and investment, said Kun Lung Wu, economist at Credit Suisse in Singapore.

A global downturn could also lead to a prolonged fall in global oil prices that would reduce the government’s revenues, of which nearly half comes from state oil firm Petronas, affecting the government’s own investment plans.

“While there is some breathing space for the government on the inflation and fiscal front in the near term, growth concerns could dominate and likely become a bigger (political) issue than inflation,” Wu said.

(Editing by Liau Y-Sing; Editing by Sugita Katyal)

Europe’s debt crisis and an anaemic U.S. economy have reined
in price pressures, the biggest worry among Malaysian voters,
but also triggered fears about job security and the general
outlook for the trade-reliant economy.

The government’s coffers have been bolstered by a strong run
in commodity prices, enabling Najib to dole out cash payouts to
farmers and civil servants and provide affordable housing and
healthcare to the poor to tackle the rising cost of living.

“The government has started to address inflation concerns of
the electorate but the measures taken so far are spread too thin
to have an impact on swaying support,” said Ibrahim Suffian,
director of the independent opinion outfit Merdeka Centre.

“For the key constituents and undecided voters in the lower
to middle income groups, a broader improvement of the national
economic climate will still be needed for the government to feel
a positive impact,” said Ibrahim.

The next general election is only due in 2013 but the recent
handouts coupled with moves to reform an unpopular security law
have fuelled talk that Najib is gearing up for early polls to
pre-empt any further fallout from the deteriorating economic
outlook.

Najib needs to reverse his ruling coalition’s poor showing
in a 2008 general election but his approval ratings have fallen
over the past year amid rising prices, widening religious
discontent and anger over the slow pace of promised reforms.

The government is also expected to unveil further measures
in the federal budget on Oct. 7 to boost spending, including a
civil service salary hike, food stamps, cash vouchers for
utilities and personal income tax cuts.

An increase in spending would be possible as government
revenues are expected to total $65 billion this year, about a
quarter more than earlier projected thanks to higher energy
prices and better tax collection, Citigroup said.

Since taking office in April 2009, Najib has steered
economic growth to a 10-year high in 2010 but annual inflation
touched a 27-month high of 3.5 percent in June this year,
hitting consumers’ pockets.

Price pressures have since moderated although a survey by
the Merdeka Center in August showed that inflation and the
growth outlook remained the chief concerns of Malaysians.

Still, it could get worse for Najib if he were to wait
further before calling for polls, some analysts said.

Malaysia’s economic growth has been slowing slightly though
it remains healthy, but some analysts expect growth to brake
sharply this year as difficult global conditions erode demand
for its exports.

Exports accounted for 89 percent of Malaysian gross domestic
product last year.

Malaysia’s economic growth is officially expected to
moderate this year to at least 5 percent from a 10-year high of
7.2 percent in 2010, as global demand softens.

Some economists have cut their 2011 growth projections on
concern that the global financial market turmoil would hit
Malaysia’s economy.

The most direct impact of a sudden and sharp global downturn
on Malaysia’s economy would be through a weakening of domestic
consumption and investment, said Kun Lung Wu, economist at
Credit Suisse in Singapore.

A global downturn could also lead to a prolonged fall in
global oil prices that would reduce the government’s revenues,
of which nearly half comes from state oil firm Petronas,
affecting the government’s own investment plans.

“While there is some breathing space for the government on
the inflation and fiscal front in the near term, growth concerns
could dominate and likely become a bigger (political) issue than
inflation,” Wu said.

(Editing by Liau Y-Sing; Editing by Sugita Katyal)

INDUSTRIAL PRODUCTION (pct, y/y)
JUL JUN MAY APR MAR FEB JAN DEC NOV OCT SEP AUG JUL JUN
-0.6 1.3 -5.6 -1.7 2.9 5.0 1.0 4.2 5.1 3.1 5.6 4.0 3.2 9.4

MANUFACTURING SECTOR (Production index (pct,y/y)
JUL JUN MAY APR MAR FEB JAN DEC NOV OCT SEP AUG JUL JUN
1.5 4.5 0.6 -0.4 5.3 7.9 4.5 7.8 6.5 4.5 7.6 6.8 7.2 13.3

MINING SECTOR (Production index (pct,y/y)
JUL JUN MAY APR MAR FEB JAN DEC NOV OCT SEP AUG JUL JUN
-7.5 -8.6 -20.1 6.9 -6.9 -4.0 -0.7 -6.7 -3.4 1.7 -1.1 1.7 -2.9 -5.9

ELECTRICITY SECTOR (Production index (pct,y/y)
JUL JUN MAY APR MAR FEB JAN DEC NOV OCT SEP AUG JUL JUN MAY
4.6 3.6 -1.6 -0.7 0.7 0.7 0.3 2.4 4.9 5.0 3.1 4.9 4.4 5.2 11.5

MANUFACTURING SALES (pct, y/y)
JUL JUN MAY APR MAR FEB JAN DEC NOV OCT SEP AUG JUL JUN
10.8 12.9 8.0 15.5 14.1 10.9 7.7 11.4 8.4 2.9 7.6 8.9 9.3 13.8

CONSUMER PRICE INDEX JUL JUN MAY APR MAR FEB JAN DEC NOV OCT SEP AUG
(pct, y/y) 3.4 3.5 3.3 3.2 3.0 2.9 2.4 2.2 2.0 2.0 1.8 2.1

MERCHANDISE TRADE (bln rgt)

JUL JUN MAY APR MAR FEB JAN DEC NOV OCT
Exports 59.2 57.9 55.1 57.8 61.9 49.7 54.8 57.2 52.7 55.0
Imports 49.8 50.0 46.6 46.8 50.5 39.2 44.8 47.5 43.7 48.1
Trade
balance 9.5 7.9 8.5 11.0 11.3 10.4 10.0 9.8 8.9 6.9

CURRENT ACCOUNT (bln rgt)

Q22010 Q12010 Q42009 Q3 2009 Q2 2009
Goods 30.8 45.0 38.0 33.4 33.1
Services -0.39 -0.09 -0.14 0.1 1.0
Income -8.6 -8.9 -5.6 -1.6 -1.5
Transfers -5.6 -5.6 -4.8 -6.7 -3.9

AUG ’11 JUL ’11 JUN ’11 MAY ’11 APR ’11 MAR ’11
Passenger cars 52,559 44,835 36,838 40,936 45,335 56,483
Commercial 5,823 5,417 4,952 5,109 5,601 6,782

THREE-MONTH INTERBANK RATE (pct) (KLIBOR)
SEP 20 SEP 19 SEP 15 SEP 12 SEP 09 SEP 07 SEP 05 SEP 02 AUG 29 JUL 18
3.26 3.26 3.26 3.27 3.27 3.27 3.27 3.27 3.27 3.27

MONETARY AGGREGATES (pct,y/y)

MAY APR MAR FEB JAN DEC NOV OCT SEP AUG JUL JUN MAY
M1 13.1 16.2 14.0 13.2 17.9 11.7 9.9 11.6 11.5 13.9 10.7 12.6 11.7
M2 11.6 10.7 8.6 8.3 9.1 7.1 8.1 8.4 8.3 8.2 8.3 9.2 9.8
M3 11.1 10.1 8.2 7.9 8.9 7.0 8.2 8.4 8.5 8.2 8.1 8.8 9.5

COMMERCIAL BANKS’ BASE LENDING RATE (pct)

SEP ’11 AUG ’11 JUL ’11 JUN ’11 MAY ’11 APR ’11
TOP THREE BANKS 6.60 6.60 6.60 6.60 6.30 6.30

NET NON-PERFORMING LOANS OF BANKING SYSTEM
(3-mth classification)
MAY APR MAR JAN DEC NOV OCT SEP AUG JUL JUN MAY APR MAR
2.1 2.1 2.2 2.2 2.0 2.0 2.0 2.0 2.1 2.1 2.2 2.0 1.8 1.8

BANK NEGARA RESERVES (bln ringgit)
AUG 29 AUG 15 JUL 29 JUL 15 JUL 30 JUN 15 MAY 31 MAY 13 APR 29 APR 15
412.1 411.6 409.6 407 406.3 402.6 401.4 401.0 393.2 369.9

EXTERNAL DEBT (bln ringgit, end of period)

2009 2008p 2007p 2006 2005 2004
Total external 264.6 235.6 187.4 184.5 197.7 200.6
US$ equivalent 79.72 66.61 50.3 51.8 52.8 49.1

UNEMPLOYMENT RATE (pct of workforce)
2010 2009 2008p 2007 2006 2005 2004 2003 2002
3.6 3.7 3.3 3.3 3.3 3.5 3.5 3.5 3.9

NOTE – Figures may not total due to rounding.

– The latest labour market data is up to December 30

– p: preliminary

– f: forecast
SOURCES
Finance Ministry, Bank Negara, Statistics Department, Malaysian
Automotive Association and Economic Planning Unit.

(Reporting by Razak Ahmad)

Najib said in a televised address on Thursday an Internal Security Act (ISA), enacted in 1960, and Emergency Ordinance, both of which allow for indefinite detention without trial, would be repealed and replaced by two news laws for use mainly against suspected militants.

By repealing or changing the security laws, which critics say have stifled freedom of expression, Najib faces resistance from influential conservatives who want a tougher stance against political dissidents.

But any failure to deliver on those pledges is likely to anger an electorate, already upset with the glacial pace of reforms, clouding the outlook for Najib’s ruling coalition at the ballot box.

“If reform resistance emerges and grows or if there is no substantive change, then his chances of achieving his aim (of securing a strong election win) becomes less certain,” said Ibrahim Suffian, director of Merdeka Centre, an independent opinion polling outfit.

Najib has promised political and economic reforms in 2008 in a bid to reverse his ruling coalition’s record losses in a general election. He will need to deliver on those pledges to stay firmly in power.

As part of his pledges on Thursday, a strict media law will also be changed to allow greater media freedom and other legislation restricting civil liberties would be reviews.

EMERGING PUSHBACK

Since taking office, Najib has delayed economic reforms, including the introduction of a promised goods and services tax. He has slowed down on a fuel subsidy rollback to avoid sparking anger by voters hit by rising prices.

A big street protest in July, attended by young members of the middle class angered over the slow pace of reforms, also exposed a groundswell of anger that has sent Najib’s approval ratings to 56 percent last month from 72 percent in May last year.

Najib has softened his stance on the reform of a controversial pro-ethnic majority Malay economic policy amid resistance by conservative groups who enjoy backing from some within his own party.

One of the most influential, Perkasa has begun to question his promised political reforms. That could lead to a pushback and block their implementation by the elections.

“Malaysian politics is now in havoc and he suddenly withdraws the ISA … At the moment, I see it is more aimed to be populist rather than because of national security,” said Ibrahim Ali, head of Perkasa.

The group has in the past called for the laws to be retained for use against political dissidents, and said it would study the two new security laws Najib proposed before making an official stand.

“This move is a gamble by Najib and his best chances in turning it into a success depends on how well he can convince the hard liners and conservatives in his party that this will improve their electability,” said the Merdeka Center’s Ibrahim.

Failure to implement the changes substantively ahead of polls could lead to the kind of a voter backlash that befell Najib’s predecessor Abdullah Ahmad Badawi.

Abdullah led the ruling coalition to a historic 90 percent sweep of the country’s parliamentary seats in a 2004 general election on a pledge of reforms including strengthening the independence of institutions like the judiciary and police.

But he was severely punished by voters in 2008 after failing to deliver on his reform promises in the face of strong resistance by the ruling party, and was forced into early retirement the following year.

“I wonder how many of those who were so captured by Abdullah’s promises feel similarly giddy after hearing the promises made by Najib,” said political analyst Ong Kian Ming who teaches at UCSI University in Kuala Lumpur.

“If you answer in the affirmative, I advise you to take a sober look at Abdullah’s record and then re-examine Najib’s promises,” said Ong.

(Editing by Yoko Nishikawa)

Najib said in a televised address on Thursday an Internal Security Act (ISA), enacted in 1960, and Emergency Ordinance, both of which allow for indefinite detention without trial, would be repealed and replaced by two news laws for use mainly against suspected militants.

By repealing or changing the security laws, which critics say have stifled freedom of expression, Najib faces resistance from influential conservatives who want a tougher stance against political dissidents.

But any failure to deliver on those pledges is likely to anger an electorate, already upset with the glacial pace of reforms, clouding the outlook for Najib’s ruling coalition at the ballot box.

“If reform resistance emerges and grows or if there is no substantive change, then his chances of achieving his aim (of securing a strong election win) becomes less certain,” said Ibrahim Suffian, director of Merdeka Center, an independent opinion polling outfit.

Najib has promised political and economic reforms in 2008 in a bid to reverse his ruling coalition’s record losses in a general election. He will need to deliver on those pledges to stay firmly in power.

As part of his pledges on Thursday, a strict media law will also be changed to allow greater media freedom and other legislation restricting civil liberties would be reviews.

EMERGING PUSHBACK

Since taking office, Najib has delayed economic reforms, including the introduction of a promised goods and services tax. He has slowed down on a fuel subsidy rollback to avoid sparking anger by voters hit by rising prices.

A big street protest in July, attended by young members of the middle class angered over the slow pace of reforms, also exposed a groundswell of anger that has sent Najib’s approval ratings to 56 percent last month from 72 percent in May last year.

Najib has softened his stance on the reform of a controversial pro-ethnic majority Malay economic policy amid resistance by conservative groups who enjoy backing from some within his own party.

One of the most influential, Perkasa has begun to question his promised political reforms. That could lead to a pushback and block their implementation by the elections.

“Malaysian politics is now in havoc and he suddenly withdraws the ISA … At the moment, I see it is more aimed to be populist rather than because of national security,” said Ibrahim Ali, head of Perkasa.

The group has in the past called for the laws to be retained for use against political dissidents, and said it would study the two new security laws Najib proposed before making an official stand.

“This move is a gamble by Najib and his best chances in turning it into a success depends on how well he can convince the hard liners and conservatives in his party that this will improve their electability,” said the Merdeka Center’s Ibrahim.

Failure to implement the changes substantively ahead of polls could lead to the kind of a voter backlash that befell Najib’s predecessor Abdullah Ahmad Badawi.

Abdullah led the ruling coalition to a historic 90 percent sweep of the country’s parliamentary seats in a 2004 general election on a pledge of reforms including strengthening the independence of institutions like the judiciary and police.

But he was severely punished by voters in 2008 after failing to deliver on his reform promises in the face of strong resistance by the ruling party, and was forced into early retirement the following year.

“I wonder how many of those who were so captured by Abdullah’s promises feel similarly giddy after hearing the promises made by Najib,” said political analyst Ong Kian Ming who teaches at UCSI University in Kuala Lumpur.

“If you answer in the affirmative, I advise you to take a sober look at Abdullah’s record and then re-examine Najib’s promises,” said Ong.

(Editing by Yoko Nishikawa)

The changes are part of long-promised political reforms and come amid growing public anger at what is viewed as the authorities’ reluctance to make good on pledges to overhaul economic and government policy.

In a televised speech ahead of the 48th anniversary of the country’s independence, Najib abolished the Internal Security Act and Emergency Ordinance, which allow for indefinite detention without trial. They would be replaced by two news laws for use mainly against suspected militants.

The country’s strict media law will also be amended to allow a one-time licensing of media outlets instead of annual renewals which critics say the government has used to threaten newspapers against publishing dissenting views.

Other laws which restrict civil liberties would be reviewed, and Najib pledged that the government would not detain any individuals merely on the basis of their political ideology.

“Many will question whether I am moving too far, too fast. Some will say that the reforms should only be carried out in small steps, or not at all,” Najib, flanked by his cabinet members, said in the address.

“To them I say, if a reform is the right thing to do, now is the right time to do it.”

Malaysia’s strict security laws, a relic of British colonial rule, were used to stem a Communist insurgency in the 1960s but had become little more than a government tool to stifle dissent, say critics.

The changes, which are part of reforms that Najib promised when he took office in 2009, will be tabled in parliament ahead of an expected general election.

Najib has also pledged to enact market friendly economic reforms and cut the budget deficit but he has also slowed down on a rollback of fuel subsidies and delayed the implementation of a Goods and Service tax to avoid sparking a voter backlash.

“SHORT-TERM PAIN”

Najib has also softened his stance on the reform of a controversial pro-ethnic Malay majority affirmative action policy which critics say has created a patronage-ridden economy, for fear of risking the anger of Malay conservatives.

Conservatives, including some groups backed by members of his party, had also called for the Internal Security Act to be retained for use against political dissidents.

“There may be short-term pain for me politically, but in the long-term the changes I am announcing tonight will ensure a brighter, more prosperous future for all Malaysians,” said Najib.

The next general election is not due until 2013 but Najib is likely to call one in the next 6 months amid growing uncertainty about the global economic outlook, analysts say.

Despite making record gains in a 2008 general election, the opposition led by former deputy prime minister Anwar Ibrahim has struggled to build on that momentum, and is plagued by infighting and distracted by Anwar’s protracted trial on sodomy charges, which he denies.

But analysts say Najib’s own troubles run deep and Thursday’s announcement may not be enough to reverse the ruling coalition’s 2008 poll losses, which he needs to do to remain firmly in power.

“This will be attractive to the more educated and critical classes, typically urban professionals and minority non-Malays, but this group will also look to see whether or not this will be translated into credible change,” said Ibrahim Suffian, director of the independent polling outfit the Merdeka Center.

A big street protest in July, attended by young members of the middle class angered over the slow pace of reforms, exposed a groundswell of anger that has driven Najib’s approval ratings down from 72 percent in May last year to 56 percent last month.

Najib is also struggling to stem religious tension over the use of the word “Allah” by Christians which was exacerbated by a raid on a church by Muslim authorities last month.

“Najib is defining his agenda for political reform, but the devil will be in the details in whether he can translate these promises into concrete implementation,” said Bridget Welsh, a Malaysia specialist at Singapore Management University.

“Institutions like the police and judiciary are also still criticized as not being independent so while he’s embraced political reforms he has touched only the surface of it,” said Welsh.

(Editing by Liau Y-Sing and Robert Birsel)

Bonus payments for civil servants, a cash payout for farmers and affordable housing for low-income earners are among the steps the government has taken to cushion the impact of higher prices and address a major gripe among voters.

Najib is also expected to announce several political reforms on Thursday, including amending a controversial security law to make good on promises to allow increased freedom of speech.

The government’s popularity has taken a dip over the past year because of anger over the rising cost of living, the slow pace of political reforms and widening religious discontent.

Analysts say Najib has two options: hold snap polls to cut his losses or delay elections, which would buy him time to appease disgruntled ethnic minorities.

The following are possible scenarios on the timing of the next general election, which is not due until 2013, and the implications for reforms.

SOONER OR LATER

Najib may opt for an early election for fear that economic growth could take a sharp dive if the global economy slipped into recession.

“With signs of global growth moderating, and the global economy showing signs of weakness, it would make sense for PM Najib to call an election soon, rather than risk the economic climate turning much worse,” Barclay’s Capital said in a note on Sept. 1.

Analysts say the ruling National Front coalition could also press ahead with early polls as it discounts the support of non-Muslim ethnic minorities who appear steadfast in their opposition towards the government.

Najib could also be persuaded to call for an early election with former deputy prime minister Anwar Ibrahim’s opposition struggling to build on its strong victory in a Sarawak state election.

The three-party opposition grouping has been plagued by infighting and distracted by Anwar’s protracted trial on sodomy charges, which he denies.

Najib’s popularity rating is also still relatively strong at 56 percent in August, although it has declined steadily since hitting a high of 72 percent in May 2010.

BUY SOME TIME

On the flip side, Najib could hold out beyond the next 6 months to give himself more time to execute reforms.

Since taking office in 2009, the premier has taken modest steps to cut fuel subsidies and liberalise the economy. Critics say he must move a lot faster if he wants to make good on a pledge to put Malaysia back on the radar of foreign investors.

The government may also want more time to placate unhappy ethnic minority Chinese and Indians who complain of marginalisation. Loss of support among the two ethnic groups contributed to the ruling coalition’s disastrous showing in the 2008 general election when it lost its once iron-clad, two-thirds majority.

Najib could also take a bet that holding polls later rather than earlier would see the opposition further weakened by internal squabbles and the lack of clear leadership if Anwar were jailed for sodomy.

REFORM OUTLOOK?

A strong win by either Najib’s coalition or the opposition People’s Alliance grouping is expected to be positive for financial markets as it would provide certainty in government and economic policy.

If the ruling coalition wins big, it could give Najib the mandate to push through delayed reforms such as the introduction of a goods and services tax as well as accelerating subsidy cuts.

Similarly, a clear win by the opposition would give it the will to push through pledges to cut government corruption and scrap a pro-ethnic Malay economic policy, which investors say has spawned a patronage-ridden economy.

A worst-case scenario for the markets would be an unconvincing win by either side, which would lead to more political tension and policy uncertainty. In 2008, the National Front’s poor showing triggered a 9.5 percent slide in the stock market.

(Editing by Liau Y-Sing and Robert Birsel)