YOUR VISIT TO MALAYSIA

C O N F I D E N T I A L SECTION 01 OF 02 KUALA LUMPUR 001586

SIPDIS

SIPDIS

PASS USTR FOR AMBASSADOR SCHWAB FROM AMBASSADOR LAFLEUR
STATE FOR EAP/FO AMBASSADOR MICHALAK
COMMERCE FOR 4430/MAC/EAP/BAKER
TREASURY FOR OASIA L. MOGHTADER

E.O. 12958: DECL: 08/17/2016
TAGS: ETRD EINV PGOV MY
SUBJECT: YOUR VISIT TO MALAYSIA


Classified By: Ambassador Christopher J. LaFleur for reason 1.4d.


1. (C) Summary: Prime Minister Abdullah has yet to steer
clear of the choppy political waters created by former-Prime
Minister Mahathir's continuing attacks on Abdullah and his
family. We doubt that these attacks will jeopardize the PM's
tenure in office, but they have put the government on the
back foot on a variety of issues, including bilateral trade
talks with the U.S. Mahathir has cited the FTA, among other
issues, in charging that Prime Minister Abdullah is too
willing to make concessions to foreign interests. Taking
advantage of the Malaysian public's highly emotional response
to the conflict in Lebanon, UMNO Youth Deputy Chief Khairy
Jamaluddin, the Prime Minister's son-in-law, proposed
suspending FTA negotiations to protest U.S. Middle East
policy (an idea the Prime Minister quickly nixed). We are
confident the GOM continues to support the FTA talks, but the
attacks have made it harder for the government to voice its
support strongly at this moment in time. Your visit provides
an opportunity to sound out current Malaysian thinking and to
create a more positive atmosphere for the critical Cabinet
discussion of the FTA that will take place a few weeks from
now. End Summary.

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Domestic Politics: Mahathir on the Offensive
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2. (C) After two mostly quiet years out of power,
former-Prime Minister Mahathir has launched a series of
attacks on Prime Minister Abdullah, who was his choice as his
successor. There is much speculation about the real motives
behind Mahathir's outbursts, but significant themes in his
statements are that Abdullah is failing to carry forward
Mahathir's development strategy and is too willing to concede
ground to foreign interests. Mahathir has criticized a
number of Abdullah's foreign policy moves, including his
decision to break off talks on a new bridge to Singapore, the
conclusion of the Economic Cooperation Agreement (ECA) with
Japan, and the decision to launch bilateral FTA negotiations
with us. For example, in March, near the beginning of his
campaign of criticism, Mahathir said, "I worry that the FTA
with the U.S. may have an adverse effect on us." Referring
to the government procurement preference programs for Malays,
he added, "if we lose that, we would not be able to correct
it later."


3. (C) Mahathir's salvos have failed to mortally wound the
Prime Minister and we do not expect any sudden leadership
shifts. The continuing attacks have nevertheless attracted
intense public attention and put the Prime Minister on the
defensive. The GOM has been forced to play catch up with the
former PM's innuendos regarding GOM handling of the Singapore
bridge construction project and the possible financial and
business peculations of his family members. Senior
government figures have rallied around the Prime Minister,
defended his policies, and suggested in varying ways that
Mahathir should cease public criticism of the government.
The former PM has stayed on the attack, however, and insiders
lament the political pall this has cast on the PM's ability
to implement policy.

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Foreign Affairs: Lebanon Gets Thrown Into the Mix
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4. (C) Further complicating matters, UMNO Youth Deputy Chief
Khairy Jamaluddin, the PM's son-in-law, seized on the Lebanon
crisis to burnish his image as a Malay nationalist. The
conflict in Lebanon has resonated very negatively among
Muslim Malays, who account for roughly 55 percent of the
population and form the dominant political group. Khairy led
public protests at the end of July, including one aimed at
the visit of Secretary Rice, and called for suspension of the
FTA negotiations and boycotts of U.S. firms. PM Abdullah was
quick to rebuff these calls and Khairy has backpedaled from
his more offensive positions. And, indeed, the calls for a
boycott appear to have fallen on deaf ears. While we doubt
that the Lebanon crisis itself will have a lasting negative
effect on GOM support for the FTA talks, Khairy's
opportunistic attacks underscore the degree to which the
negotiation may be vulnerable to the vagaries of Malaysian
domestic politics.

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Effect on the FTA Talks

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5. (C) As a result, the field of public opinion has largely
been left free to anti-globalization NGOs and other parties
critical of the FTA. We continue to believe, as do other FTA
supporters, such as the AmCham, that such groups remain very
much a minority force in Malaysia. MITI Minister Rafidah
said as much herself in an August 16 statement on the FTA:
"It is the industry players that matter, not the critics who
are on the sidelines. Why complain when players that matter
welcome it and say the FTA is the best thing for them?" But
Rafidah also has resorted to posturing to preserve her public
credibility, for example by repeatedly asserting that the
preference system for ethnic Malays will be protected in any
agreement. She even has maintained that Malaysia will not be
bound by the U.S. TPA timetable in the negotiations, although
she surely knows better.

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Opportunities During Your Visit
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6. (C) On the whole, we believe the political turmoil has
not affected the government's basic positions on the
negotiations. Malaysian officials assure us that
preparations continue for a Cabinet decision later this month
or early next month that would provide a mandate to address
key issues identified in the first two rounds. However, even
with tempers cooling in the wake of the UNSC resolution on
Lebanon, the current public atmosphere is not ideal for what
will be a pivotal Cabinet debate on the FTA. Your visit
provides an opportunity for you to gauge the Cabinet's
thinking on the FTA talks and to discuss with Rafidah and
other supportive players on the Malaysian side what we can do
to strengthen public support. As for outreach, much remains
to be done to educate the Malaysian public, and you will have
opportunities to carry the ball forward in this regard.
However, we believe that at this juncture it may be best to
moderate our message, note that talks are progressing, and
that we are continuing to work toward an agreement that will
benefit both the American and the Malaysian peoples.
LAFLEUR