Malaysia's Najib seen delaying election, boosting spending

(Reuters) - Malaysia is planning a fresh round of cash handouts to poorer families in August, government sources said, as Prime Minister Najib Razak likely delays elections until late this year to shore up support among undecided voters.
Two senior officials told Reuters the government is considering giving out payments to 5.2 million low-income households ahead of a Muslim festival in August. Najib would then present a generous election budget in September before announcing an election date, they said.
Speculation has been swirling for a year over the timing of what is expected to be a fiercely fought election, which Najib must call by next March as he seeks to improve on the ruling coalition's dismal showing at the polls four years ago.
A June or July poll had been the favourite, but Najib appears to have calculated that he needs more time -- and more handouts -- to maximise his chances of regaining the two-thirds parliamentary majority that the government lost in 2008.
"The window for October elections is wide open now. This is the next window after July," said one senior government source who declined to be identified.
"This is a risky election and the prime minister does not want to take any chances. He has to prove to the people that the government will be there for them. So he has to balance his reforms with social economic help," he said.
Another government source said one of the suggested dates for the election was October 14, just two weeks after Najib, who is also finance minister, presents the 2013 budget in parliament.
The decision to delay the election carries risks. A worsening global downturn could impact the trade-dependent economy in the coming months, dampening the feel-good factor generated by handouts.
DEFICIT RISKS
Uncertainty over the timing could also hit the economy as companies hold back on spending, while an overly generous budget would sharpen concerns over Malaysia's chronic budget deficit.
"After September is what we have been told for the timing of the elections," a senior official in the United Malay National Organisation (UMNO), which dominates the Barisan Nasional (BN) ruling coalition, told Reuters on condition of anonymity.
"We are on red alert but nothing is happening for now. The leadership is looking at an election budget to sweeten the deal," the source added.
Fiscal sweeteners this year have included pay rises for civil servants and cash payments for students, adding to strains on finances. Cash handouts to low-income households earlier this year accounted for 2.6 billion ringgit ($821 million) alone.
Fitch ratings agency said this year that Malaysia, which is heavily dependent on oil revenues and whose spending is bloated by food and fuel subsidies, needed structural reforms to narrow a budget deficit that hit about 5.4 percent last year.
The government had aimed to cut the deficit to 4.7 percent this year, but that looks tough to reach as economic growth slows to around 4 percent from last year's 5.1 percent. Najib aims to cut the budget gap to about 3 percent by 2015.
"If they continue dishing out generous handouts, I'm afraid this target will be delayed," said Azrul Azwar Ahmad Tajudin, chief economist at Bank Islam.
"BIG GAMBLE"
Shaun Levine, a Washington-based analyst at political risk research firm Eurasia Group, said Najib may be planning to offer budget goodies to be handed out only if the BN returns to power.
That plan has shades of Mahathir Mohamad, Malaysia's longest serving prime minister, who in 1999 announced a generous budget and promptly called elections that he won.
"It is a big gamble for Najib," said Levine. "But I think at the end of the day he is looking at the lowest common denominator, basically writing off the larger Chinese vote in favour of the Indian and rural/lower class Malay votes."
Ethnic Chinese voters who make up a quarter of the 28 million population have deserted the BN in recent years, partly due to dissatisfaction over the slow pace of reforms to affirmative-action policies that favour majority ethnic Malays.
Najib has reached out to middle-class, urban voters, many of whom are Chinese, by rolling back repressive security laws. But his reforms have not gone far enough for many and he may end up relying heavily on the BN's traditional support base -- poor majority Malay voters in rural areas.
A survey by the Merdeka Center polling firm last week showed Najib's approval rating fell slightly to 65 percent in May, as a rise in support from Malays helped offset a slide in Chinese and Indian backing.
Despite the three-party opposition's strong gains in the last election, most analysts expect it to fall short of taking over the government. The BN only needs to win nine seats more than it did in 2008 to regain its coveted "super majority".
UMNO's secretary general, Tengku Adnan Tengku Mansor, said the mood within the party was upbeat and that Najib had not miscalculated by waiting too long.
"We're expecting a better budget than last year. A budget for the people," he told Reuters.