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Power struggle looms over faltering economy

By Craig Skehan, Herald Correspondent in Bangkok
27 June 1998

Subtle leadership manoeuvring in Malaysia has deteriorated into what many within the dominant political party fear will become a debilitating power struggle.

During a decade-long economic boom, the Prime Minister, Dr Mahathir Mohamad, silenced critics by pointing to rapidly improving living standards. However, with the national economy contracting in the first three months of this year there are growing tensions over remedies, and who is best able to implement them.

On Wednesday Dr Mahathir appointed the former finance minister, Mr Daim Zainuddin, to an economic development portfolio in the Cabinet.

When Mr Daim was appointed to head an economic think-thank earlier this year, it was seen as partially undermining the standing of the Deputy Prime Minister and Minister for Finance, Mr Anwar Ibrahim.

Mr Anwar made veiled criticisms of Mahathir-backed bailouts of politically well-connected Malaysian businessmen.

And in the wake of the forced resignation of Indonesia's President Soeharto, Mr Anwar suggested that unless there were political and economic reforms in Malaysia, an Indonesian-style "People's Power" movement could develop.

The implication that there were comparable problems of nepotism and cronyism in the two countries incensed the Mahathir camp.

Although Mr Anwar has been Dr Mahathir's anointed successor for several years, a schism developed over the timing of a handover. Many believe that Dr Mahathir wants to hold onto the prime ministership well into another term in order to see an end to the country's economic slide.

In a speech preceding the annual assembly of the United Malays National Organisation (UMNO) on Thursday, youth wing leader Mr Ahmad Zahid Hamidi attacked nepotism and cronyism within the party.

As Mr Zahid is a strong supporter of Mr Anwar, the Deputy Prime Minister was blamed for the airing of internal dirty laundry, which had given credence to foreign critics.

But during a speech to the assembly Mr Anwar called for UMNO unity and expressed support for Dr Mahathir's leadership. However, this did not wash with the Prime Minister or his key strategists, and Dr Mahathir spent much of the week extracting political retribution and undermining Mr Anwar's control over the economy.

The Prime Minister attacked the destruction of Malaysian companies by high interest rates, which Mr Anwar has argued are necessary to stabilise the ringgit.

Then on Wednesday, Dr Mahathir announced the appointment of Mr Daim as Minister of Special Functions, with responsibility for development policies.

By wresting authority from Mr Anwar, Dr Mahathir has effectively offered to take responsibility if the country's economy continues to fall deeper into recession.

But most economic analysts believe that the Malaysian economy will sink deeper into recession for at least another six months before it starts to bottom-out.

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