DECEMBER 27, 2002


Mahathir's Succession Map

What will happen when Malaysia's Prime Minister -- Asia's longest-serving ruler -- steps down late in 2003? Here's the likely scenario

By Michael Shari in Singapore
Edited by Patricia O'Connell

When Malaysian Prime Minister Mahathir Mohamad announced in June that he would step down in 2003, the Southeast Asian nation of 22 million people was unprepared. Asia's longest-serving ruler, Mahathir has been in office 21 years -- and he has made an indelible imprint on Malaysia's society and economy. And after his announcement, Mahathir would let slip only the vaguest hints about his plans for retirement and succession.
In recent months, however, Mahathir and senior officials of the ruling United Malays National Organization Party (UMNO) have dropped enough hints for diplomats and economists in Kuala Lumpur to sketch a reasonably clear scenario for succession. Also clear are the 76-year-old Prime Minister's plans for the next general election, the makeup of the next Cabinet, and even a sense of how the next government will manage the economy. While the overall flavor of Malaysian politics isn't expected to change much, the impact on Malaysian business -- which Mahathir has shaped through personal relationships with the country's tycoons since taking office in 1981 -- could be profound.
The moguls whose businesses grew during Mahathir's reign -- and who managed to survived the Asian financial crisis of 1997-98 -- appear to be scrambling to prepare for a more competitive business environment. Infrastructure kingpin Ananda Krishnan, who has investments in industries that require government licenses, such as cell-phone networks and gaming, raised $1.2 billion in asset sales in 2002. Securities analysts in Kuala Lumpur claim that Krishnan is preparing to reinvest the funds outside the country -- which his aides vigorously deny.

MORE OF THE SAME. And then there's Tengku Mahaleel, CEO of national carmaker Perusahaan Otomobil Nasional (Proton). The auto company will remain protected until 2005, when tariffs on cars manufactured in Southeast Asia will drop to 20% from current levels of as high as 300%. Twelve months ago, Mahaleel embarked on a three-year project to invest nearly $1 billion in developing a new engine and models, as well as building a modern assembly plant on the outskirts of Kuala Lumpur. "We're preparing for a worst-case scenario," says a Proton spokesman.
Some diplomats and economists, who spoke on condition of anonymity, see Mahathir's succession and the general election unfolding in the fourth quarter of 2003, probably in November or December. First, Mahathir will chair the Organization of Islamic Conference (OIC) summit in October as planned, marking his final act as Prime Minister and allowing him to "go out on a high note," says one diplomat. Then Mahathir would step down, with current Home Affairs Minister Abdullah Badawi, his handpicked successor, replacing him as Prime Minister.
Malaysia's politics are not expected to change a great deal under Badawi. "I cannot imitate Dr. Mahathir's style," Badawi said in an interview with a state-controlled TV station on Nov. 19, "but the objectives will be the same." Badawi is expected to continue to distance the government from business leaders whose influence grew through relationships with former Cabinet members. He's also expected to scale down affirmative-action policies that some say have been hijacked by the politically connected elite at the expense of the intended beneficiaries -- poverty-stricken rural Malays.

THE COMMON TOUCH. In the interview, which diplomats and economists consider Badawi's most significant public performance as heir apparent thus far, he emphasized poverty reduction and denounced Islamic extremists as "spelling a lot of problems for a multiracial country like Malaysia."
The catch is that Badawi's leadership is expected to be temporary. Mahathir has indicated privately that he's sensitive to widespread criticism of Badawi as being politically indecisive and of weak character. That's why Mahathir has put forward current Defense Minister Najib Abdul Razak, who has a commanding personal presence and is considered polished by Western diplomats, as Badawi's Deputy Prime Minister. The younger Najib is already being groomed to succeed Badawi after one or two terms.
The British-educated Najib has spent the last two years rediscovering his Malay roots in the remote rural constituency of Pahang. He has been repairing the image problems that gave him only a narrow win in the 1999 general election. "His Oxford accent doesn't play well on the stump," says another diplomat in Kuala Lumpur. Badawi has not publicly endorsed Najib, but he's expected to play along with Mahathir's succession plans.

GAME PLAN. In the interim, Badawi hopes to leave his mark on the government by filling his staff with technocrats rather than politicians, forming Malaysia's most professional Cabinet to date. One of his first moves is expected to be appointing a technocrat as Finance Minister. Such a move would depoliticize a post that the ruling party's power brokers have used to build up the empires of business cronies.
Already, on Nov. 19, Mahathir appointed Jamaludin Mohamed Jarjis, an associate of Najib, to be Second Finance Minister. Jamaludin, chairman of the state-owned electrical power utility and a member of Parliament, is expected to remain in the next Cabinet under Badawi's handpicked Finance Minister, and his appointment is seen as a prelude to Najib's appointment as Deputy Prime Minister.
As Mahathir has suggested in recent public statements, general elections are expected to be held by the end of 2003. This would allow Badawi to demonstrate that he's capable of leading UMNO through an electoral victory. In this scenario, the ruling UMNO Party would hold off on its internal election until early 2004, at which point Badawi and Najib would be elected President and Vice-President of UMNO, respectively.

PARTY LINE. That would leave Najib, who at 49 is 14 years younger than Badawi, in a position to gain support from other party leaders to replace Badawi after one or two terms. Mahathir -- whose office did not respond to a request for an interview -- would deviate from this game plan only by holding the internal party vote before the general election, suggests one diplomat, and that would be "to avoid an UMNO food fight."
Now that Malaysia's economy is improving and its currency appears to be undervalued, Mahathir should be able to maintain enough support to keep his succession plans on course. In September, exports grew 13.5% year-over-year, thanks largely to higher prices for palm oil and stronger-than-expected electronics exports to the U.S.
Economists say the ringgit is 7% undervalued, and in the run-up to the elections Mahathir may decide he has nothing to lose -- and some political points to gain -- by freeing it from the peg that has held it at 3.8 to the U.S. dollar for four years. "If we depeg the ringgit, it will become stronger, not weaker," says Mohamed Ariff, executive director of the Malaysian Institute of Economic Research. "But the timing is very important. We need to go back in a position of strength, not weakness."
That's precisely the attitude with which Mahathir appears to be viewing -- and playing out -- his endgame.