OPPOSITION-HELD SELANGOR GETS ON WITH BUSINESS OF

UNCLAS SECTION 01 OF 02 KUALA LUMPUR 000855 SENSITIVE SIPDIS FOR EAP/MTS AND INR E.O. 12958: N/A TAGS: PGOV PINR ECON EINV KDEM MY SUBJECT: OPPOSITION-HELD SELANGOR GETS ON WITH BUSINESS OF GOVERNANCE Summary and Comment -------------- ¶1. (SBU) The Ambassador's call on Selangor Chief Minister Khalid Ibrahim and other embassy meetings in September with state executives provided insights into issues of governance facing the first-ever opposition administration of Malaysia's richest state that surrounds the national capital. The Chief Minister, who is a close associate of Opposition leader Anwar Ibrahim, appeared highly focused on economic issues and attracting foreign capital, and valued U.S. firms' multi-billion dollar investment in the state. State cabinet minister Xavier Jayakumar described difficulties in dealing with recalcitrant state employees tied to Prime Minister Abdullah's National Front (BN) government, and BN efforts to set up parallel government structures to divert funding away from state channels. State assembly speaker Teng Chang Khim, the first non-Malay to hold the position, highlighted efforts to maintain and improve race relations, and noted intended institutional reforms to strengthen accountability. ¶2. (SBU) Comment: What happens under the People's Alliance (Pakatan) administration in Selangor, Malaysia's most developed state located in the country's economic and political center, will have more national resonance than developments in other opposition-held states. The opposition coalition's success or failure in Selangor could send important signals to the rest of Malaysia as to the viability of a national Pakatan-led government that Anwar Ibrahim has vowed to bring about. To some extent, simply by not failing Khalid Ibrahim and his team may reduce apprehensions over Pakatan as a realistic alternative to continued UMNO rule. If state authorities are able to carry out reforms to improve accountability and transparency, such needed good governance measures could be picked up in other states. End Summary and Comment. Chief Minister Focuses on Economic Governance -------------- ¶3. (SBU) During the Ambassador's September 9 courtesy call, Selangor Chief Minister Khalid Ibrahim described his focus on economic governance: "They've thrown me into the political world, but I still wear my corporate hat." Khalid, who has long experience as a state enterprise and public sector economic manager, said he highly valued the U.S. economic relationship with Selangor, which received some $2.8 billion in U.S. capital investment in manufacturing projects over the past ten years per GOM figures. Khalid recognized that foreign investment is primarily a matter for federal authorities. The state government, however, can facilitate by providing certain infrastructure, support and problem-solving at the local level. With land use at a premium, the Chief Minister identified urban redevelopment as a key issue for Selangor, and the Ambassador offered to share related information from the Commerce Department and other sources. To promote both investment and education in Selangor, the state government was prepared to provide training sites for private sector skills development initiatives. ¶4. (SBU) Commenting in the wake of recent flooding in Selangor, the Chief Minister noted the need for state authorities to respond quickly and with concrete aid to assist victims of natural disasters. Federal authorities controlled most of the resources, but the state could play a role by mobilizing NGOs, local community groups and the business sector. The Ambassador suggested including the American Chamber of Commerce in discussions of local disaster relief. The Ambassador noted that the availability of high quality schooling for children was a key factor in attracting international business to locate in a country like Malaysia, and asked for the Chief Minister's future support for the International School of Kuala Lumpur, which is located in Selangor. Khalid Ibrahim pledged to help with future school requests. State Executive: Irritation with Federal Government -------------- -------------- ¶5. (SBU) In a September 11 meeting with Dr. Xavier Jayakumar, the state cabinet minister in charge of health, KUALA LUMP 00000855 002 OF 002 plantation workers, poverty and "caring" government (and Deputy Secretary General for Anwar Ibrahim's Peoples Justice Party),Polchief explored the political challenges of an opposition state administration dealing with the National Front (BN) federal government. Jayakumar admitted the newly elected Peoples Alliance (Pakatan) state government faced several problems. First, the state government is staffed by employees, many of whom had developed deep allegiances to the successive UMNO-led BN governments that have held state power since independence. He cited cases in which senior state employees defied the new state administration's orders not to demolish any places of worship or erect new advertisement billboards (as there have been numerous complaints of money from these billboards channeled to private accounts). He noted that many state-level employees are in fact paid and administered by the federal government, limiting the state's authority over these workers. ¶6. (SBU) Xavier described a second and more serious concern, namely federal government efforts to set up a "parallel government" in the state by appointing pro-BN village heads at the grassroots and creating federal agencies that will be the conduit for federal funded government projects. Xavier pointed out that being the richest state in the country with nearly 30 percent of the country's GDP, the BN federal government cannot "ignore or neglect" Selangor, which also surrounds the federal Territories of Kuala Lumpur and Putra Jaya, the federal administrative capital. Xavier saw no signs that federal authorities were cutting off funding to the state; instead, the BN strategy appeared to be to divert projects and contracts away from state agencies and into the hands of federal agencies, some newly created for this purpose. Nevertheless, Xavier offered that the state government is flush with cash and can carry on even if the federal government cuts funding to the state. He also described the relations between the Sultan and the state government as "excellent." Assembly Speaker on Race Relations, Accountability -------------- -------------- ¶7. (SBU) Teng Chang Khim, a three term Democratic Action Party (DAP) Assemblyman and the first non-Malay speaker in the Selangor state legislature, focused many of his comments on race relations in Selangor during a September 22 meeting with Polchief. Echoing Xavier's view, Teng said that the Sultan (the traditional Malay ruler) and the Pakatan state government enjoyed excellent relations. He attributed this to close consultations between the state and the Sultan on major policy issues. The state speaker said that the presence of Malaysian Islamic Party (PAS) in the Pakatan coalition served to help manage relations between Pakatan's many non-Malay officials and the majority Malay population in the state. He cited the general Malay acceptance of a controversial integrated pig farm project as an example. Teng also noted that the non-Malay Pakatan leaders and assemblymen have made it a point to go to mosques and distribute donations during the fasting month, gestures well received by the mosques and unheard of under the previous BN administrations. ¶8. (SBU) The state speaker told polchief of his plans to pursue several institutional reforms that will strengthen the role of the state legislative assembly and make it more independent from the executive, and improve accountability. For instance, he has directed the state legal advisor to draft an act and amend the state legislative assembly's standing orders to give the assembly the ability to compel witnesses to testify in cases of corruption and abuse of power. In this context he said he was studying relevant UK and U.S. models for conducting public inquiries. Teng said he also would explore the introduction of term limits for the Chief Minister and others. Teng described Chief Minister Khalid Ibrahim as very supportive of transparency and accountability measures. Regarding problems with recalcitrant state employees, Teng anticipated transfers of some senior staff to allow the Pakatan government to "take control" of the state government machinery. KEITH