"Ungrateful" and "gutless." Those are some of the harsh words used by former Malaysian strongman Mahathir Mohamad to describe the government led by his successor, Prime Minister Abdullah Badawi. "I have helped many people [into power]," he told reporters, "only for them to stab me in the back." What prompted such wrath? Since taking office in 2003, Abdullah has abandoned a string of his former mentor's initiatives, including a planned bridge to Singapore and the special status of the national car program—moves that Abdullah backers see as an attempt to tackle Malaysia's deeply rooted crony capitalism. "A small crack has opened in the democratic space," says Anwar Ibrahim, a former Mahathir deputy who was purged and spent six years in prison before his release in 2004. "It should therefore come as no surprise that these shady deals are unraveling before our eyes."
What's also unraveling is the cozy consensus that Malaysia's ruling elite has struggled for decades to maintain. A factional struggle is developing over control of the ruling United National Malay Organization, or UMNO. On one side are Mahathir and his loyalists, who helped develop Malaysia with state-driven economic policies—manifest in the New Economic Plan (NEP), which favors the indigenous Malay population. On the other side is Abdullah and his political supporters, who want to battle corruption and modernize an economy that, even buoyed by oil, has been growing at a rather sluggish 5 percent annual rate over the past few years. They concede they have not kept up with the reform pledges made during the 2004 general elections but also insist they are not anti-Mahathir.
Meantime, Malaysia's vigorously cultivated reputation as harmonious melting pot is under considerable stress. Chinese and Indian minorities comprise some 45 percent of the Malaysian population, yet they remain shut out from the Malay-dominated political mainstream. From their perspective, the leadership struggle is merely about which faction will control the contracts, jobs and other perks earmarked for ethnic Malays under the NEP. Decades of institutionalized bias have embittered minorities, warns Malik Imtiaz Sarwar, a constitutional-law attorney. Racial polarization, he asserts, is at its "worst point" since the period just after the race riots of 1969.
Abdullah entered office by declaring himself "the prime minister for all Malaysians." But he's presided over a period of resurgent Malay nationalism, shot through with Islamic overtones. At a recent national meeting of Muslim preachers, participants roundly condemned pluralism and called for a government review of a policy that encourages citizens to attend the festivals of other religious and ethnic groups. "There's the misperception that this is the land of moderate Islam," says Aloysius Mowe, a Kuala Lumpur-based Islamic scholar. In May, Muslim mobs broke up a forum being held on Penang Island to discuss religious pluralism and constitutional protection for minority religious rights. Forum organizers said the message was clear: attempts to equate other religions with Islam in Malaysia will be met with violence. Malay politicians routinely make veiled references to a possible reprise of rioting if minority parties are perceived to be gaining too much strength.
The NEP, which was put in place following the 1969 riots, lifted millions of Malays out of poverty and helped create an urban Malay middle class. But NEP critics say the program has since become a mere political tool for UMNO—opening the door for bribes and kickbacks—and may be undermining the country's global economic competitiveness. Under the program government contracts routinely go to Malay companies, and most senior-management positions in state-owned firms are held by Malays. What's more, most listed companies must have a 30 percent Malay partner. Analysts say this is a big part of the reason why foreign investment in Malaysia has been modest ($3.3 billion in 2005). "The model is a fraud," says John Pang, a visiting fellow at the Institute of Strategic and International Studies in Kuala Lumpur.
That's why Abdullah's latest five-year economic plan disappointed many economists. Instead of rolling back the NEP, it preserves several discriminatory economic policies through at least 2020. "It had become quite obvious even during the end of Mahathir's tenure that affirmative action was not something that was propelling [Malays] forward but was holding them back and was in fact creating interracial problems," says Malaysian economist Terrence Gomez, who is also director of the United Nations Research Institute for Social Development in Geneva. "Unless [they] learn to be more competitive I can't see how Malays can establish a strong entrepreneurial class."
By some accounts, Abdullah would like to chip away at the Malay-first system. In April he announced the hiring of an anti-corruption czar—and his government is instituting new rules for government contracts and state-owned companies. There have been promises of a move to open government tender contracts but nothing has happened yet. But there's a growing sense among some analysts that the technocratic prime minister lacks the charisma and Mahathir-like force of will to clean up the gravy train that is the NEP. "Any politician who tries to change it would be crushed," says attorney and political observer Philip Koh Tong Ngee. A Western diplomat, who asked not to be named because of the sensitivity of his comments, adds that "it's very difficult to bring about meaningful change. We have a government which is trying to behave like it was newly elected from the opposition, like there was a seismic voter shift. But in fact, the cabinet lineup is nearly the same, the senior civil servants are the same, the party is still the same."
For starters, UMNO counts the Malay business owners to whom it grants sweetheart contracts as its bedrock supporters. That means political patronage is entrenched and calls for greater support for Malays have strong voter appeal. Even today, some UMNO politicians argue that new economic sectors such as biotechnology should be declared Malay only. Others point out that Malays remain the country's poorest ethnic group. "The fear is that when we declare ourselves a developed country by 2020, the Malays will not be part of that," says Khairy Jamaluddin, a senior member of UMNO's youth wing and the prime minister's son-in-law. "We see [the NEP] as a last chance to get there."
That may be wishful thinking. Chinese and Indian professionals have been emigrating to Singapore, Australia and elsewhere to escape discrimination or dead-end careers. Government officials say they're concerned about losing talent, but that maintaining an economic advantage for Malays is more important. "It's policies like NEP that have been able to preserve the peace," says Khairy. Or, some would say, disturb it.