Philip Bowring: Signs of real change in Malaysia - Editorials & Commentary

KUALA LUMPUR July seems to have been a watershed month in the administration of Malaysia's low-key prime minister, Abdullah Badawi. After months of growing gripes that his good reformist intentions were not matched by decisiveness or willingness to take on vested interests in the governing United Malays National Organization (UMNO), there is now a sense that fundamental changes are taking place. The merit of Abdullah's Fabian tactics is becoming clearer as symbols and personalities of the Mahathir bin Mohamad era slowly fade into history.

Many positive things had already happened in the previous 20 months since he came to office. The courts were left free to release jailed former Deputy Prime Minister Anwar Ibrahim; a report on the police pulled no punches in its descriptions of corruption and abuse of power; a senior UMNO minister was suspended and investigated for corruption; the news media became slightly more open to opposition views; backbench members of Parliament were not discouraged from querying government deals; new senior appointments appeared to go to people with clean, professional reputations; relations with America, Australia and Singapore were patched up.

Nonetheless, there was a sense that Abdullah remained the captive of the party. The cabinet remained largely unchanged, and he was under constant pressure from Mahathir-era interests. His preference for delegating authority slowed decision making and upset those in the business community who relied on government contracts. He left power in hands of people who did not always share his enthusiasm for clean, institution-led administration by strong institutions. He was evidently more popular with the public than with the party.

However, he emerged from the party's annual assembly last month with flying colors. He declined to back off his pursuit of clean government and his admonitions of Malays for not appreciating the opportunities offered to their community to raise their wealth and educational levels and remaining too reliant on preferential status. He should have enough party power to get his supporters in place for the next UMNO leadership elections in 2007. Meanwhile in the Ninth Malaysia Plan 2006-2010, due out this year, he will have the opportunity to put his personal stamp on Malay and Malaysian goals.

The assembly also coincided with an unseemly row between Mahathir and a former close ally, Trade Minister Rafidah Aziz, over car import permits. This left the old guard divided and being seen as having distributed favors meant for Malays generally to a small elite. Abdullah on the other hand appeared clean and to be promoting ministerial accountability and open government. This episode has helped pave the way for major cabinet changes likely in the next few months.

The permits issue has also helped smooth the government-approved sacking of the head of Proton, the national car maker and a pet Mahathir project. Earlier he had been backed by Mahathir in opposing selling a large minority to a foreign automaker.

Proton is important not just because it is a huge enterprise in a car-obsessed nation. Proton is key to a shakeup of the whole auto industry, to enable it to compete with Thai and Chinese cars as tariffs come down under various trade agreements. It is also a symbol of a drive for efficiency throughout the government-linked companies that make up some 35 percent of the capitalization of Malaysia's stock exchange. That will mean treading on the toes of some over-protected Malay businesses. But the new head of Khazanah, the state holding company, has the right agenda of disposals and closures of companies acquired during the Asian crisis.

Change will also be driven by the ending of the ringgit peg to the dollar, which has been a form of protection for inefficient industries and held back both corporate reform and consumption. The currency has been seriously undervalued. A current account surplus that was running at 8 percent of gross domestic product even before the commodity price boom has ballooned to nearly 20 percent.

High commodity prices can be either a crutch supporting hand-outs and extravagant schemes, or used to spur productivity and a shift toward a higher-wage, service-oriented economy. The chances now are better that the end of the peg will help Abdullah's strategy to reduce the links between government and business.

The July watershed did not touch all issues confronting Abdullah. For example, a significant start has yet to be made re-orienting the state's role in religious affairs to make it more responsive to the kind of modern, inclusive Islam necessary for a well functioning multiethnic, trade-dependent nation. But if anyone can do it without offending Malay Muslim sensibilities, it should be Abdullah, who is seen to embody an Islam focused on ethics, not rituals.

Do not expect fast progress, showdowns or confrontations. Economic growth will likely be 5 percent, not the 8 percent of the heady pre-crisis days. The inefficiencies and bureaucracy associated with pro-Malay policies will mostly remain. But if Abdullah is given the time by UMNO, he will do a lot to repair the social and institutional damage done by Mahathir without destroying his predecessor's positive legacy.