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Malaysia Opposition Set to Rule in Five States

Opposition parties were getting ready to take power in five of Malaysia's 13 states on Tuesday, putting the country in uncharted waters with the government facing real competition for the first time.

A government led by the Democratic Action Party (DAP), backed mainly be the ethnic Chinese minority, was sworn into office on Tuesday in the industrial hub state of Penang in a quiet ceremony witnessed by sombre-looking civil servants who have only ever worked for the long-ruling National Front coalition.

The strongly Islamist Parti Islam se-Malaysia (PAS) will lead or share power in four states, including three -- Kedah, Perak and Kelantan -- that share borders with Thailand, which has been battling an Islamic insurgency with historical links to Malaysia.

PAS and the DAP have vowed to review federal projects on the drawing board in their areas, but said would not stand in the way of projects that were already approved and were beneficial to the people, and have warned they would not tolerate cronyism.

Malaysia's politics of patronage, whereby state contracts are given to businesses aligned with ruling-party interests, has nurtured a powerful political-business establishment whereby contracts are often awarded without open, competitive tenders.

The Edge Financial Daily said in an editorial on Tuesday that was a major factor in Saturday's election, which handed the ruling National Front its worst electoral setback in history.

"Indeed, one can say that one reason why the people voted so strongly for the opposition in the elections is to send a message that they have had enough of political cronyism and awards of contracts and deals to politically connected companies.

Dead Cat Bounce

The prospect that this nexus could be cut, and the possibility of policy gridlock now that the National Front has lost its iron-clad two-thirds majority in parliament and faces strong opposition in heartland states, has spooked the markets.

Visiting Kazakhstan President Nursultan Nazarbayev, right, and Malaysian Prime Minister Abdullah Ahmad Badawi pose outside the latter's office in Putrajaya, outside Kuala Lumpur, Malaysia, Monday, June 26, 2006. Nazarbayev arrived in Malaysia Sunday for a three-day visit. (AP Photo/Bazuki Muhammad, Pool)
Bazuki Muhammad
Visiting Kazakhstan President Nursultan Nazarbayev, right, and Malaysian Prime Minister Abdullah Ahmad Badawi pose outside the latter's office in Putrajaya, outside Kuala Lumpur, Malaysia, Monday, June 26, 2006. Nazarbayev arrived in Malaysia Sunday for a three-day visit. (AP Photo/Bazuki Muhammad, Pool)

Malaysian shares plunged 9.5 percent on Monday, wiping out some $30 billion in market capitalisation, probably the biggest single-day loss in the market's history.

Stocks have rebounded Tuesday, but analysts saw it as a short-lived reprieve. "It's a dead cat's bounce," said Kenny Yee, research head at OSK Investment Bank. "Certainly our market will be undergoing lengthy consolidation."

Prime Minister Abdullah Ahmad Badawi's National Front will be undergoing consolidation as well in the days to come.

He has a tricky task ahead in fending off leadership challenges, especially with his UMNO party -- the dominant coalition partner -- set to hold leadership elections in June.

He will also need to fill gaping holes in his Cabinet -- four ministers lost seats in the weekend election, including Works Minister S. Samy Vellu, the head of the main Indian party in the coalition, who lost his seat in the weekend debacle.

The winning opposition parties have a delicate task ahead as well. The Chinese-dominated DAP has long harboured deep suspicions about the Islamist agenda of PAS, which advocates Islamic law for Muslims, including punishments such as stoning and amputations.

The DAP, PAS and the People's Justice party of former Prime Minister Anwar Ibrahim were still hammering out their power-sharing arrangements on Tuesday in Kedah, Perak and central Selangor state in the first test of how well they will govern.

PAS kept power in Kelantan state and its government was due to be sworn-in on Tuesday evening.

A protest vote from ethnic Chinese and Indians, upset over what they saw as racial inequality in terms of business, job and education opportunities, had been expected in Saturday's poll.

But Malays, who are all Muslims and traditionally support the National Front, completed a perfect storm for the government, giving PAS a record vote to protest against rising prices.

Without a two-thirds majority, Abdullah's Front can no longer change the constitution or make some key appointments.

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