MALAYSIA SCENESETTER FOR VISITS OF SENIOR U.S.

S E C R E T SECTION 01 OF 04 KUALA LUMPUR 000080

SIPDIS

STATE FOR EAP/MTS
HQ U.S. PACIFIC COMMAND PLEASE PASS TO LTG MIXON, RADM
LANDOLT, RADM CONNOR, AND RADM TYSON

E.O. 12958: DECL: 02/04/2024
TAGS: PREL MARR MASS MOPS PGOV PTER ECON OVIP MY
SUBJECT: MALAYSIA SCENESETTER FOR VISITS OF SENIOR U.S.
MILITARY OFFICERS -- LTG MIXON, RADM LANDOLT, RADM CONNOR,
AND RADM TYSON

Classified By: Political Counselor Mark D. Clark for reasons 1.4 b and
d.

Introduction and Summary
--------------


1. (C) The Embassy warmly welcomes you to Malaysia at a
juncture that offers new prospects in the bilateral
relationship. Malaysia has cautiously welcomed the new U.S.
Administration as it approaches its own leadership transition
in late March. Malaysia is an economically successful,
relatively stable, Muslim-majority country, strategically
located on the Strait of Malacca. Robust trade and
investment ties remain the solid foundation of our
relationship, although the current global economic crisis is
putting increasing strains on the Malaysian economy and on
the government to put forth effective stimulus and reform
measures in response. We also maintain good law enforcement,
counterterrorism and defense relations. Politically and
diplomatically, however, Malaysia has sought to distance
itself from the U.S., has been highly critical of U.S.
actions in West Asia, and has not always acted in support of
important international norms, including in the area of
nonproliferation. The 2008 election setback to Prime
Minister Abdullah Badawi's governing coalition introduced
more political competition and highlighted public calls for
needed rule-of-law reforms. The setback also set the stage
for Deputy Prime Minister Najib to replace Abdullah as
Malaysia's leader in late March. How Malaysia fares with
democratic and rule-of-law reforms, and its responsibilities
as an international actor, will significantly affect our
future bilateral relationship. End Introduction and Summary.

Political Landscape
--------------


2. (C) Malaysia has a parliamentary republic form of
government that has been dominated since 1957 by the United
Malays National Organization (UMNO) and its coalition
partners. Traditionally, most political parties have been
race-based. Ethnic Malays constitute 60% of Malaysia's
population and have dominated Malaysian politics since
independence, resulting in many race-based preferences in
employment, education and government benefits. Malays are
legally defined as Muslims, and the role of Islam in society
and government has grown over past decades. The surprise
gains by the opposition in the March 2008 election remade
Malaysia's political landscape and shocked UMNO's National
Front (BN) ruling coalition. A resurgent opposition
increased its parliamentary representation four-fold and
denied BN its two-thirds majority -- necessary to pass
constitutional amendments -- for the first time in Malaysia's
history. The March election also marked the political return
of former Deputy Prime Minister and current opposition leader
Anwar Ibrahim, who threatened to unseat the Prime Minister
through a vote of no-confidence. Although this move that has
since stalled, the opposition has won two by-elections held
since the general elections, an indication that voters remain
dissatisfied with BN. The election shock set off a
leadership struggle within UMNO and PM Abdullah's eventual
decision under pressure to step down in March 2009 when UMNO
officially holds party elections. Although Deputy Prime
Minister Najib is the uncontested heir-apparent, the fight
for other senior UMNO positions is intense. As UMNO has
turned inward and employed Malay chauvinist rhetoric, UMNO's
relations with ethnic minority parties (Chinese, Indians),
already weakened before the March election, have been further
strained.


3. (S) Due to take over from Prime Minister Abdullah by early
April, Deputy Prime Minister Najib has a more pragmatic and
action-oriented leadership style compared with Abdullah.
Najib exhibits a stronger grasp of international politics and
Malaysia's place in the region and the world, and places
significant priority on foreign relations beyond the NAM and
OIC, the traditional reference points for Malaysia's foreign
policy. He readily recognizes the benefits to Malaysia of
engaging the U.S., along with the emerging powers China and
India, and of participating in international structures.
This opens new potential, but not a certainty, for expanding
existing cooperation and extending our partnership into new
areas. Domestically, we recognize in a Najib government
clear opportunities for economic reform, and uncertain
prospects for our democracy and rule-of-law objectives.

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Najib's commitment to and ability to carry out needed
rule-of-law reforms will be constrained by the vested
interests of his UMNO party, his own political
vulnerabilities, including allegations of corruption, and
unprecedented challenges from the opposition coalition.


4. (C) Against the fluid domestic backdrop, Malaysians'
reactions to the new U.S. Administration have been
overwhelmingly positive, but with a strain of caution.
Almost immediately, the Malaysian government indicated its
willingness to engage in more political dialogue with the
U.S. We anticipate that we will have new opportunities to
pursue our priorities with Malaysia as the new Administration
sets its agenda in motion. In particular, the GOM has long
been critical of U.S. Middle East policy, most recently
voicing outrage over our position in Gaza, and will closely
watch our approaches to Israel/Palestine, Iraq, and Iran.

Defense Relationship
--------------


5. (C) Overall military to military relations have been solid
as indicated by both SECDEF and then Malaysian Defense
Minister Najib during bilateral meeting at the Shangri-La
Dialogue in June 2008. Military-to-military engagement has
improved significantly over the last several years, including
notable increases in U.S. Naval visits and professional
exchanges. In 2008 there were 26 US Navy ship visits to
Malaysian ports and 22 visits in 2007, up from only five ship
visits in 2003. Inter-agency engagement has also increased
with the newly formed Malaysian Maritime Enforcement Agency,
which has broad maritime law enforcement, humanitarian, and
security responsibilities similar to the U.S. Coast Guard.
Malaysia avoided public engagement with the U.S. military at
the height of the Gaza conflict, reflecting the country's
condemnation of the U.S. alongside Israel, but there was no
lasting fall-out. Incoming Prime Minister Najib's background
as Defense Minister and practical view of our military
relationship could bode well for our future defense
engagement.


6. (C) The Malaysian armed forces have prioritized security
in the tri-border area shared with the Philippines and
Indonesia with establishment of a new Joint Forces Command
whose task force is responsible for security in the
tri-border area of Sabah. The U.S. is assisting with the
provision of coastal radars and related systems, along with
training, to strengthen maritime border security in this area
of terrorist transit through the 1206 programs. Military
engagement for counterterrorism is led by Special Operations
Forces and focuses on ground close quarter combat training,
and maritime non-compliant boarding. Special Operations
Forces also participate in some counter narcotics training of
Malaysian field force police and customs officers. Both Army
and Air Force components are also involved in numerous
bilateral training such as KERIS Strike and COPE Taufen
respectively with our forces. Recently, all tri-services
have also shown some interest in senior level NCO exchanges
and overall development of Malaysian NCO corps.

CT and Law Enforcement
--------------


7. (S) We continue to benefit from relatively close
counterterrorism and law enforcement cooperation. Although
it keeps the details closely held, the GOM has been an
important partner on counterterrorism. Early round-ups in
2001-2002 of Jemaah Islamiyah (JI) suspects helped ensure
there have been no terrorist attacks here. Nonetheless,
senior alleged JI militants have been arrested in Malaysia
within the past year. Malaysia pursues almost exclusively an
intelligence approach to counterterrorism through the Royal
Malaysian Police Special Branch, which is largely autonomous
from the rest of the police. Malaysia's law enforcement
skills to investigate and prosecute terrorism cases,
narcotics and other complex criminal conspiracies,
accordingly, are undeveloped. Malaysia has not prosecuted
any terrorist suspects, though hundreds have been detained
under the ISA. Growing political pressure to do away with
the ISA poses a longer term challenge to Malaysian law
enforcement.


8. (C) Greater regional CT cooperation between Malaysia and
its neighbors is needed. Since the announcement that

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Guantanamo will be closed, the Prime Minister has publicly
expressed his wish for the two Malaysian detainees to be
transferred to Malaysia. We continue to provide
capacity-building training and assistance to Malaysia's
police and other agencies. We signed a Mutual Legal
Assistance Treaty with Malaysia in 2006, which has just
entered into force. Malaysia has cooperated with Thailand
regarding the insurgency in southern Thailand, but
acknowledges that the problem is foremost an internal Thai
political challenge. In recent years, Malaysia played a
facilitative role in the peace process between the Philippine
Government and the MILF in the southern islands, but Malaysia
withdrew its monitors from Mindanao after a set-back in the
talks in 2008.

International Responsibility and Nonproliferation
-------------- --------------


9. (C) We seek Malaysian actions that bolster multilateral
security structures and represent increasingly responsible
positions in the international arena, including on
nonproliferation matters and export controls. Given
Malaysia's position as a trading hub, its policy of pursuing
increasing economic ties with Iran, and public reports of
Iranian procurement via Malaysia, Malaysia's enforcement of
nonproliferation norms and related UNSC sanctions becomes
critical. We continue to urge Malaysia to enact export
control legislation and have provided technical assistance in
this area.
Pressure for Reforms
--------------


10. (C) Growing domestic demand for better and more
transparent governance and Abdullah's failure to institute
meaningful rule-of-law reforms contributed to the
government's 2008 electoral setback. Since March, Abdullah
has pushed through modest reforms to strengthen the judiciary
and anti-corruption efforts, but too much control remains in
the hands of the executive branch. With more political
competition, Malaysia is experiencing somewhat more press
freedom, but the Government still exerts great influence over
most media outlets, save for the internet. No significant
institutional reforms yet underpin the current democratic
openings and the state retains authoritarian levers from the
Mahathir era (1982-2003),as demonstrated in the ISA arrests
in September of two journalists and an opposition
parliamentarian. Malaysia continues to wrestle with problems
related to migrants and refugees due to porous borders and
instability in Burma. The U.S. is actively pressing Malaysia
to take positive action to combat trafficking in persons and
protect refugees.

Malaysia's Economy
--------------


11. (SBU) Malaysia had limited direct exposure to the U.S.
sub-prime market in part because of lessons learned from the
1997-8 Asian financial crisis but the economic slowdown in
the U.S. and the rest of the world dampened growth in
Malaysia in 2008 and will slow the its export-oriented
economy even more in 2009. Although the Government of
Malaysia has not offered a public statement revising its
official forecast of 3.5 percent GDP growth for 2009, its
actions speak louder than its words. On January 21 the
central bank, Bank Negara Malaysia, slashed interest rates by
75 basis points, surprising analysts who had forecast a 25 or
50 point cut. Most analysts' GDP growth predictions have
ranged from zero to two percent for this year, but in private
bankers say recession is inevitable. The GOM continues to
downplay Malaysia's economic problems in an effort to boost
-- or at least not undermine -- confidence, but GOM policy
actions indicate the government's internal views match
bankers' private forecasts that the economy is headed into
recession. While on a cumulative basis the U.S. remains
Malaysia's top source of foreign direct investment, approved
projects from several other countries surpassed those of the
U.S. during the last several years. In the first half of
2008, approved projects from U.S. investors rank third, after
Australia and Germany.


12. (SBU) Malaysia's economy is among the more open, diverse,
and better-developed among Muslim-majority nations and in
ASEAN. The United States is Malaysia's largest trading
partner, and Malaysia is now the 16th largest trading partner

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for the United States. We currently are engaged with the GOM
in negotiations for a comprehensive bilateral Free Trade
Agreement designed to increase market access, remove barriers
to investment and improve protection for intellectual
property rights. The outcome of these discussions, however,
is uncertain as the Malaysian side has yet to obtain a full
negotiating mandate from the cabinet to engage on core areas
such as government procurement and financial services.
KEITH