Malaysian Front regrouping after shock poll setback

Malaysia's ruling coalition tried to regroup on Monday after a shocking electoral setback that decimated its ranks and sent markets swooning over the political uncertainties ahead.

Prime Minister Abdullah Ahmad Badawi was sworn into office amid mounting calls for his resignation after the National Front (Barisan Nasional) lost the two-thirds majority in parliament it had held for nearly four decades.

Malaysian stocks dived their limit 10 percent in mid-afternoon Monday and the ringgit skidded as investors sold off infrastructure stocks and shares linked to the federal government or its favoured tycoons.

Abdullah called a special meeting of the coalition for 7 a.m. British time. At the very least he will need to fill some holes in his Cabinet - four cabinet ministers lost seats in the weekend election, including Works Minister S. Sami Vellu, the head of the main Indian party in the coalition.

"The political stability of the country becomes a question mark," said Pankaj Kumar, chief investment officer at Kurnia Insurance, who helps manage about $500 million in assets.

Sources close to the Prime Minister said Abdullah had cancelled plans to attend next week's Organisation of the Islamic Conference summit in Senegal - he was to hand over chairmanship of the 57-member grouping - to deal with the crisis at home.

Chieftains in Abdullah's party, the United Malays National Organisation, trooped to his residence on Sunday to pledge support. Another key partner in the multi-racial coalition, the Malaysian Chinese Association (MCA), did so on Monday and the Malaysian Indian Congress (MIC) was expected to follow suit.

But the poll carnage was spectacular and analysts said Abdullah will need to fight hard to keep together an alliance that has ruled Malaysia uninterrupted since independence from Britain in 1957.

REVIEWING MEGA-PROJECTS

Race riots erupted the last time the ruling coalition lost its two-thirds majority in 1969, but the streets have been calm since Saturday's vote, perhaps because members of all three ethnicities voted against the status quo.

Barisan Nasional won just half the popular vote and 62 percent - down from 90 percent - of the seats in the 222-member national parliament. The MCA saw their strength in parliament halved from 31 to 15, while MIC lost two-thirds of their seats.

Abdullah's humbling performance was capped by the loss of his own home state, the industrial heartland of Penang.

A loose alliance of three opposition parties took control of five of Malaysia's 13 states, their most by far. They have threatened to review the multi-billion-dollar development "corridors" in states now under their control that have been the centrepiece of Abdullah's economic programme.

Malaysian states control land and water and can effectively scuttle federal development projects.

The first indication of that came on Monday when the new opposition state government in Penang said it was reviewing plans for an $8-billion real estate project, whose major backer is a firm partly owned by businessman Patrick Lim, a friend of the prime minister's son.

Former Prime Minister Mahathir Mohamad, who anointed Abdullah his successor and who still commands some influence in the party, advised him on Sunday to take responsibility and quit.

Mahathir's son Mukhriz Mahathir, a senior executive member of the UMNO youth wing who commands factional support within the party, was also expected on Monday to call on Abdullah to quit.

The opposition Islamist party, PAS, scored shock victories in the northern heartland states of Kedah and Perak and easily retained power in its stronghold in northeastern Kelantan state.

PAS sought to play down fears it would try to ban gambling and alcohol in states under its control. Party president Abdul Hadi Awang said non-Muslims were free to do whatever their religion permitted.

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.

But Malays, who are all Muslims and traditionally support Barisan, completed a perfect storm for the government, giving the opposition Islamists a record vote to protest rising prices.

Without a two-thirds parliamentary majority, Barisan can no longer change the constitution or make some key appointments.